Common sense says that the less competition a company has, the better. In line with this principle, INSEAD professors W. Chan Kim and Renée Mauborgne launched in 2005 the bestseller ‘Blue Ocean Strategy’, which argued that companies can succeed if, instead of battling competition, they find uncontested market spaces.
Although entrepreneurs and investors sometimes agree that not having competition would be a positive thing, evidence proves that actually having competitors is important for startups, especially for those based in innovative products and services.
A 2013 study by Cranfield lecturers Andrew Burke and Stephanie Hussels indicated that early exposure to competition can increase the long-term survival prospects of startups. The study, which included a universe of 2 million companies launched in the UK between 1995 and 2005, discovered that companies launched in crowded markets had higher odds than others of failing in the first year, but if they survived such period they had a greater chance of making it to the three-year mark.
In this article, we present 6 arguments that highlight the importance of competition:
If you are launching a startup and have an idea, the fact that other people are working on similar concepts is a validation. It shows that the idea is good enough to be pursued and it is an indicator that there might be an interesting market to be served.
Being the first one to enter the market can be an ungrateful task. Sometimes customers don’t even realize that they have the need that your product or services tries to address. Marketing and education costs for new products and services are costly but when you have competition some of those tasks have already been done.
Your competitors offer you invaluable opportunities to know your market and your customers. Study your competition to understand their products and services, their business model, revenues, funding, etc. Learn from your competitor’s victories and failures and adjust your own plan.
Competition pushes companies to move faster, be more innovative and differentiate, all positive actions. Companies with little competition tend to live in their comfort zone and detract innovation.
Competition leads firms to focus in their core activities. Without competition, companies tend to deviate from their original objectives and sometimes create new offerings that may not make sense. Also, competition makes companies focus on key customers and find ways to serve them better.
At times collaboration can be a good strategy for competing companies. For example, when markets are big enough, joining forces and clustering is a good option. Collaboration is also a strategy for industries fighting similar products or services and needing lobbying power.