6 Key Reasons Why Competition Is Good For Startups

As a round off to last year’s festive season, the Indian startup industry has been witness to a lot of traded barbs between Flipkart and Amazon India, who are in a race to gain the top slot in ecommerce. It is indicative of the competitive environment within which Indian startups have to make a mark.

It’s not just the ‘big guys’ who are slugging it out with each other but also the smaller niche startups who are jostling in the same space with international companies, where the likes of MakeMyTrip and Yatra are pitched against Travelocity and HotelQuickly in the flight and hotel booking categories. Similarly, our homegrown Ola taxi aggregator has to contend with the international player, Uber, in the same domain. Though competition does add to the stress of startups that are predetermined to tread a path of struggle and uncertainty, it may actually be a booster dose towards success.

If you are wondering how, competition keeps startups on their toes and compels them to think ahead, far beyond the normal course. As Nancy Pearcy, an internationally acclaimed author rightly puts it, “Competition is always a good thing.” It forces us to do our best. A monopoly renders people complacent and satisfied with mediocrity.

Competition in business is faced on multiple fronts from both direct and indirect areas for a startup. The direct competitors come from businesses producing or selling products similar to another’s in the same market and pose a potent threat. Indirect competitors may be in the same market pitching for the same set of consumers but with different products and services, which can eat into the businesses of other sectors. For instance, Flipkart and Amazon are classic examples of direct competitors, whereas Netflix as an entertainment service online can pose a big threat to television channel viewership in India down the line.

Entrepreneurs who find success in the startup industry mostly thrive in an environment of competition. There are plenty of reasons to view competitive pressure as a positive catalyst in improving the overall business environment. Here are some reasons why competition is good for your startup:

Validation Of Your Business

As long as it’s not another copycat startup, a crowded, competitive marketplace is proof that the startup’s business has sufficient demand. Entering a niche segment will not necessarily give sufficient returns or growth opportunities. While a startup can launch with a niche product, it must ensure that there is enough potential in the market to make the business viable.

Prevents Complacency From Setting In

For startups flush with funds, success seems easy. But with competition catching up close at the heels, the startup is forced to step out of its comfort zone to stay ahead of the pack. This entails taking a close look at its services and products and looking at out-of-the-box solutions to outstrip the competition. It also forces the start up to multiply its efforts to foray into new customer segments and markets.

Spurs Innovation  

The imminent threat of a competitor outdoing you is enough to keep you on your feet and focus on innovation, so you can be a market leader. The innovation of products and services are born out of this challenge. A startup constantly strives to create better products and services in such an environment.

Allows You To Learn From Other’s Mistakes

Closely following the competition will throw up a lot of information on how to function and operate in a better way. It acts like a yardstick to measure one’s own achievements and performances. This is a valuable learning for growing startups. Also, it helps you to plug loopholes in your own business on comparison with the competition.

New And Mutually Beneficial Alliances

Sometimes competition wakes up new possibilities within competitors who can form an alliance in terms of technology sharing, R&D, cross-promote each other’s products to outstrip the other contenders in the business etc. These are the early grounds for future mergers and acquisitions.

Places Focus On Customer Satisfaction

Even big businesses with a monopoly over a product or industry need to constantly reinvent themselves to keep out new players from grabbing their market share. In such a scenario, startups are forced to offer solutions and services which the very nature of big businesses limits them from offering. This leads to disrupting pricing structure, personalisation of service and reduces the gap between organisations and customer interaction.

It has been observed that startups which jumped into crowded markets had a greater probability of failing in the first year, but if they survived, they had a far greater probability of being able to sustain in the long run.  As aptly summed up by Dharmesh Shah, co-founder and CTO of HubSpot,

“Most startups don’t lose to competition, but because they lose the will to fight.” Competition only makes you up the game and compels you to keep getting better at what you do lest you let the sense of supremacy get the better of you.