Most Entrepreneurs Fail To Understand Competition

How many ventures do you think fail because of infighting?

How many fail because of market changes outside the founders’ control?

How many fail because the product just isn’t good enough?

If I had to venture a guess, I’d say your answer to all the above questions is “many”. Maybe you’ve been a part of one such story.

But have you ever considered how many ventures fail because they never begin to understand who, or what, they’re really competing against?

My monetization woes

Back in the days, I built a fantasy sports company. At first, the game wasn’t monetized. Then I monetized it on a freemium basis and it was a success. Then I wanted to diversify my monetization — and hit a wall.

My thinking was — if users are willing to spend money on fantasy sports, then they are likely to want to spend money on other related industries. All the research and knowledge I had accumulated were pointing in that direction. So I started integrating relevant ads and affiliate programs for other sports-related apps, statistics-based games, and betting websites.

After a few months of trying, I gave the effort up as a resounding failure. No matter what I did, the needle wouldn’t budge. My users were still spending money on in-game features but didn’t care one bit about the external content and promotions. It took me a while to realize what the problem was.

Then it hit me.

I was doing well as a fantasy sports game because I was competing against other fantasy sports games. I had a few competitive edges and I used them well. But when I started exploring other monetization options, I was suddenly competing against billion-dollar sports betting companies, online casinos, and even news outlets.

Diworseifiction

This term was coined by legendary investor Peter Lynch to describe the process of making your bottom line worse by trying to diversify your income streams. It happens to major companies all the time when they have surplus cash and they spend it foolishly on acquisitions and exotic new products.

In my case, I was spending a lot of time and effort on additional income streams when I could have been improving my core product.

You can avoid making the same mistake in your startup by changing how you think about competition.

Who are you competing against?

Your competition aren’t just products with similar features. It’s not even necessarily products that solve the same problem.

Your competition is everything that fills the same void.

You are ultimately competing for people’s time and resources. Most people (whether consciously or unconsciously) compartmentalize their time and resources across different categories: work, leisure, family, hobbies, passions, travel, and so on. These categories overlap and form an intricate net where it’s hard for you to decipher which segment exactly it is you’re competing for. And therein lies the puzzle.

Here are a few examples to illustrate the point.

If you’re running a university, you’re competing for the time and resources located somewhere at the intersection of education, networking, and status. Who are you competing against, then? The easy answer is “other universities” or, if you’re thinking a bit outside of the box, online learning platforms. But online learning platforms are mainly focusing on the education segment and offer little in terms of networking and status. That’s where peer-to-peer learning through social media comes into play, as do bootcamps, accelerators, and many other forms of self-improvement. They are snatching away massive portions of this market without universities even noticing.

If you’re running a travel agency, you’re competing mainly for the time and resources located at the intersection of pleasure and tourism. But, you are not dealing merely with movement from point A to point B. You are also dealing with escapism, curiosity, and adventure. So, who are you competing against? Obviously, other travel agencies. A little less obviously, gaming, virtual reality, and apps that make it easy to organize solo travels.

Take a moment to consider what void you’re filling in your customers’ lives and how other businesses from different industries are filling the same void.

How to compete: smart diversification

Once you’ve drawn an outline of the void you’re trying to fill, it’s time to consider how you can outwit the competitors.

A strategy that often works is smart diversification. This means that you put yourself in a position to offer a combination of products and services that’s greater than the sum of its parts and thus makes the customers’ lives easier.

Let’s go back to my example. The affiliate ads in my fantasy sports game were performing horribly. That’s because I was trying to fill a void that my customers were already filling elsewhere. So I went back to the drawing board and asked myself what were some other ways of diversifying my income. One way I came up with was offering a new type of game within the game which was essentially a 1-on-1 matchup completely disconnected from the normal fantasy league gameplay. This diversification worked because it tapped into my users’ desire to compete and made it easier to fill that void on my site compared to starting a new account elsewhere, networking again, inviting people, and so on.

This also strengthened my position within the fantasy sports industry because it made it more difficult for others to compete with me.

How to compete: focus

Another way to compete is to focus 100% of your attention on your core product and solidify your grasp on the customers. This is the most common-sense solution because you can stick to doing what you do best.

However, eventually, it makes growth difficult. If you spend 10 years doing one thing, then it’s likely that your competitors will have already filled other holes in the market, so it may be more difficult for you to diversify then. This is actually when a lot of diworseification happens — when companies with an established track record try to diversify at all costs and end up wasting tons of money.

Conclusion

Thinking about competition too narrowly puts you at a serious disadvantage. It is easy to get carried away with investments and efforts that seem to make sense until you put them to the test.

As a startup entrepreneur, it’s easy to paint yourself into a corner financially if you’re not careful.

Always consider who you’re competing against, what void you’re filling, and how you can grow without diworseofying.