Many entrepreneurs we speak to obsess over what their competitors are doing. They dig for information like how large the competitor is and how much money the competitor has raised. While it’s good to know where you are in the market relative to peers, overly concerning yourself with your competition is counter-productive. Below are a few things you should stop doing in regards to competitors:
-Stop worrying every time a competitor raises money. DAN Fund generally prefers to invest in businesses that are in new industries or markets. Indeed, many young companies fall into this category which means not only are you building a business, but often times you’re building a market making the customer aware that a service or product like yours exists. If that’s the case, don’t get worked up when a competitor raises money because a lot of that money will inevitably go to building the market, which is a positive for you. If your competitor is throwing a lot of dollars at marketing to make customers aware they exist, savvy customers will often research alternatives which means they’ll inevitably find you as well. So long as you have a great solution, your competitors' marketing spend will actually result in new business for you.
Additionally, the more money your competitors have raised, the less acquirable they are. For instance, one of our portfolio companies has a big competitor that has raised $50mm+ at a nine figure valuation making them unacquirable by all but the largest of entities or they have to IPO. Our portfolio company however has raised less than $6mm and the last valuation is in the teens. This means when it’s time for M&A, because we’ve raised less money at reasonable valuations, there is a far larger universe of acquirers that can scoop us up for $30mm+ and we’ll be excited about it, whereas a $30mm acquisition for the competitor is completely off the table.
-Stop worrying about a competitors revenue and financials. Let’s say you happen to find out a competitor is doing $100mm in revenue but you’re much newer and younger, only doing $1mm. How does that piece of information change the way you do business? The answer is it doesn’t. You still need to get up every day and build the best business you can, no matter where your competitors are, so stop trying to figure out how many employees they have or how much revenue they generate.
When it comes to competitors, the real focus should be on the questions that matter which are: ‘are you losing customers to competitors?’ and ‘are you beating out your competitors for new clients?’ and ‘are you offering a superior solution?’ These questions are far more important than what a competitor’s market share, revenue, or employee count is. Remember the story of eBay: at the time it was still young and Benchmark had invested $6mm in it, The Economist estimated that there were more than 150 online auction sites on the Web. One of those was far ahead of the rest, backed by Kleiner Perkins, and was already a public company with a market capitalization of about $175 million. eBay beat everyone however because they focused on building the best solution they could and they grew responsibly focusing on profitability versus making a bonfire with their cash just to build market share.
In summary, it’s valuable to understand where your competitors are, but it really won’t and shouldn’t change the way you run your business, so don’t obsess over it.