Key Moments
How To Compete With Amazon and Google
Y CombinatorKey Moments
Founders often obsess over competitors, but usually, their rivals face similar struggles. Focus on building a better product for users, as structural advantages rarely guarantee success against a superior offering.
Key Insights
Founders often replace excitement for their company with fear due to competitors' press and fundraising announcements, which are a 'lie' they tell themselves.
In any given Y Combinator batch, it's possible to identify a 'fatal flaw' in every seemingly successful company, debunking the myth that competitors are perfect.
While founders fear 'land grab' situations, customer conversations reveal that competitors are rarely discussed by users, indicating the fear is often unfounded.
A competitor like Facebook launching 'custom audiences' directly, after startups like Perfect Audience used its API, represented a genuine structural advantage that warranted concern and led to a sale.
Microsoft Teams, despite potentially not being a superior product to Slack, utilized its massive enterprise distribution channel to compete effectively.
Building a better product is the most powerful competitive advantage, capable of making other external advantages moot, as evidenced by the survival of Snap against Facebook.
The pervasive fear of competitors and how founders self-sabotage
Many founders, even those doing well, become consumed by fear of their competitors. This fear often stems from external signals like competitor funding rounds announced in the press or high-profile hirings, rather than actual customer feedback or lost deals. This fixation distracts from focusing on their own customers and building their company. Founders can fall into the trap of believing they must copy competitor features without understanding their purpose or value, or that a competitor's fundraising success automatically means they will win. This mindset is a dangerous deviation from a first-principles approach to business building. The common outcome for many startups, including competitors, is failure, yet founders often fail to account for this high probability, instead fixating on a competitor's perceived strength.
Debunking the myth of the perfect competitor
A crucial insight shared by Y Combinator partners is that competitors are rarely as perfect as they appear from the outside. When running a startup, founders are intimately aware of their company's flaws and struggles – feeling like they're failing daily. In contrast, they see competitors' polished exteriors and marketing, leading to an assumption that others are effortlessly succeeding. However, direct experience working with numerous startups reveals that virtually every company, even those destined for massive valuations, has significant flaws. This perspective, gained from working across many companies, highlights that external success often masks internal chaos, disputes, or significant operational challenges. Therefore, the assumption that a competitor is flawlessly executing is a misconception.
Why 'land grab' fears are often unfounded
The notion of a 'land grab' where speed to acquire customers at any cost is paramount, is a common fear among founders. While there's a kernel of truth to wanting more customers than competitors, founders often misinterpret external signals as evidence of a competitor's dominance. They might point to a competitor's press mentions or new hires as proof that customers are flocking away. However, when questioned directly, founders usually find that their actual customers are not talking about the competitors, nor are they losing deals because of them. This disconnect arises from confusion between public relations or funding announcements and actual customer sentiment or product adoption.
When to genuinely worry: structural advantages and platform control
While most competitive fears are overblown, there are specific scenarios where genuine concern is warranted. One key area is when a competitor possesses a significant 'structural advantage.' This was evident when Facebook transitioned from allowing startups like Perfect Audience to use its advertising API to launching its own direct 'custom audiences' feature. In this case, Facebook owned the platform, controlled the code, and dictated pricing, making it an insurmountable competitor. Similarly, Microsoft Teams, while perhaps not a superior product to Slack, leveraged Microsoft's massive enterprise distribution network, a clear structural advantage that enabled it to effectively compete. If a competitor has control over a crucial platform element or unparalleled distribution, it warrants serious consideration.
Structural advantages don't always guarantee victory
However, having a structural advantage does not automatically translate to market dominance, especially if the product is subpar. Microsoft's history shows instances where a strong structural position did not win out with a poor product (e.g., their music player or mobile OS). Conversely, a 'good enough' product combined with a significant structural advantage can be a winning formula. More importantly, it's rare for companies with structural advantages to produce truly great products because there's less incentive to innovate when victory seems assured. This often leaves an 'open door' for startups that focus on building a superior user experience. A prime example is Instacart, which faced constant speculation about Amazon's eventual entry into grocery delivery, yet succeeded by focusing on the complexities of perishable goods logistics, a task that proved too challenging for a giant like Amazon.
The power of building an exceptional product
Ultimately, the most potent competitive strategy is building a fundamentally better product that delivers superior value to users. This is the 'club you can bludgeon everyone else with.' Founders should shift their focus away from obsessing over competitor moves, funding rounds, or perceived 'land grabs,' and instead concentrate on iterating and improving their own offering. Even when facing giants with established market positions or deep pockets, a product that genuinely solves user problems better than any alternative has a strong chance of success. Examples like Snap's continued existence despite Facebook's persistent efforts, or Kyle Vogt's Cruise competing with Google's decade-long head start in self-driving cars by tackling the most complex engineering challenges, underscore this point. The takeaway is to stay informed about competitors but not to let their presence deflate your own efforts; focus on what you can control: delivering user value.
Mentioned in This Episode
●Software & Apps
●Companies
●People Referenced
Common Questions
Founders often psych themselves out by focusing on external signals like competitor fundraising or press, leading to fear and a loss of excitement for their own company. They may assume competitors are doing better than they are, forgetting that all companies face challenges.
Topics
Mentioned in this video
Another competitor to Justin.tv (later Twitch) in the early days of live streaming.
Mentioned for its API that Perfect Audience initially used and for its later move into custom audiences, becoming a competitor. Also discussed as a FANG company that sometimes fails to kill startups.
Discussed as a giant competitor that can be outmaneuvered, particularly in niche areas like picking the right avocado or grocery delivery through Instacart.
Mentioned as a competitor that entered the calendar market with Google Calendar, crushing a startup. Also mentioned as a source from which competitors hire talent.
The precursor to Twitch, which competed with Ustream and Livestream. The founders learned to focus on user needs instead of copying competitors.
The company whose early iteration Justin.tv faced competition from. It is implied that copying competitors' features was a mistake they later corrected.
Used as an example of a company competing with Amazon, demonstrating that even trillion-dollar companies can be challenged by focusing on niche tasks, like picking the right avocado.
Compared to Slack, it's suggested that while possibly not as good, its sufficient quality combined with Microsoft's distribution advantage allowed it to compete effectively in the enterprise.
A great product that faces competition from Microsoft Teams, which leverages Microsoft's structural advantage in distribution to win enterprise customers.
A competitor to Justin.tv (later Twitch) in the early days of live streaming.
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