The Impact Of Competition on Startups

Shubham Arora
Aug 22, 2017 · 3 min read

Is Competition a good thing, or a bad thing? It’s a subject that has divided opinions for years. Some argue that it encourages an entity to excel in today’s fiercely competitive world, where we compete for everything. Others say it can destroy the entity’s existence who are not fierce enough to cope with it.

But as far as startups are concerned, the balance of the merits and demerits of competition falls widely on the negative side.

In startups, competition means no profit for anybody, no meaningful differentiation, and a struggle for survival.

So why do people believe that competition is healthy?

The answer to the question is that competition is not just an economic concept or a simple inconvenience that individuals and companies face in the marketplace. More than anything else, competition is basically an ideology, an ideology that pervades our society and distorts our thinking.

Peter Thiel in his book Zero to One wrote “the market place is full of competition, MBA students carry around copies of Clause witz and Sun Tzu. War metaphors invade our everyday business language. We use head hunters to build up a substance that will enable us to take a captive market and make a killing. But really it’s competition, not business, that is like war: allegedly necessary, supposedly valiant, but ultimately destructive.”

You don’t need to be an intellectual to understand the need of avoiding competition among startups. This can even be understood from a layman’s point of view.

A startup is basically a company with limited resources. So it should give its 100% in expanding its abilities so as to gather more and more resources. But in today’s world of intense competition, instead of expanding its abilities, a startup is caught up in the competition with its rivals and hence fails to give its 100% in the actual growth process.

So, how can a startup skip over this self-disrupting competition?

The best way to avoid competition is to become a “Monopoly” and here monopoly does not mean a literal monopoly.

Instead of getting exposed to the cut-throat competition in the market, launch yourself in a field where there are no real competitors (Discovering this field is the hardest part.) This does not mean that there will be no competition around at all, competitors will definitely arrive. But by the time your competitors discover a way to exploit the mutual field, you can expand your abilities to such a great extent that your competitors do not stand a chance with you. More importantly, you will have the time to do so.

While your competitors are busy in understanding the field, you need not worry about them. You can give your 100% in superiorizing the products and services you are offering.

Our history has shown us many examples of the startups that avoided competition and succeeded.

By the time the other companies were starting to realize the potential of their respective fields, companies like Google, Amazon, Paypal etc were already the monopoly of their fields.

For instance, U.S airline companies serve millions of passengers and create hundreds of billions of dollars of money every year. But in 2012, when the average airfare each way was $178, the airline made only 37 cents per passenger trip. Compare them to Google, which creates less money but captures far more. Google had a sales revenue of $50 billion in 2012(versus $160 billion for the airline), but it kept 21% of those revenues as profits- more than 100 times the airline industry’s profit margin that year. Google makes so much money that it is now worth three times more than every U.S. airline combined.

And here is the market share analysis of the major search engines of the world.

Isn’t the difference quite perceptible?

Instead of entering a pre-existing field, some companies chose to create their own fields and avoided competition, the benefit of which they are inheriting now and will continue to do so in the time to come.

business2change

A Veracious Effort to Highlight the Discreet side of Business

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Shubham Arora

Written by

A Believer who believes in the optimism of this beautiful world.

business2change

A Veracious Effort to Highlight the Discreet side of Business

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