

Ask HN: Best approach for taking on well funded competitors ? - FreeRadical

I recently started a new project in a niche and have reached a stage where I am ready for release. But now I've had a look at some competitors and there is one company that has received $5m in funding and is in an identical space.<p>Their service has more bells and whistles, but mine is much simpler and quicker to use. What is the best approach to take on the competitor who receives about 100k uniques a month?<p>Given than I am only working on this project part time, I'm a bit wary of releasing early as I am developing alone and my approach could be mimicked quickly, even if I release often.<p>Has anyone else been in a similar situation and what approach did you take?. :)
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kneath
My advice - launch soon and start making money (charge as soon as possible -
tomorrow preferably). There's a unique advantage to not having funding: when
you make money, it's all yours.

You should also keep in mind that funded companies are going for the "home
run" — which means they're far more likely to keep their services free for
longer and tagging on more expensive price tags. It also means that they
_don't_ want to make money in the early stages else they be judged on how much
money they make rather than the size of their userbase.

When you're developing solo, you don't need to worry about this. You get to
focus on developing a financially sustainable product (VCs could care less
about this). Financially sustainable for a solo developer might be $5k/mo,
while a funded company might need $100k/mo just to break even (which is a loss
to the VCs). Use this to your advantage: you can keep lower prices and worry
less about becoming "mainstream" and more about getting enough customers to
pay your bills and spend more time on the product.

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jacquesm
One of the biggest advantages of not having funding is you are not going to
eat if you are not successful. That's the best motivator there is.

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jacquesm
I've been in that situation, but we were 'all in', so, no part timers, just
full timers.

Our competitor was funded with 30M and had two major brands supporting them
through bundling deals. If it had not been for major mistakes on their side
(fancy office, some idiot MBA as a CEO, out of control burn rate) I doubt we
would have survived.

As it was though, we won the battle by simply outlasting them, as soon as the
big money was spent and they still couldn't turn a profit the investors
refused a second round and the company was shut down.

I recall one conversation with that CEO during a talk about a potential
takeover and he told me that 'You are going to lose this, because we are
playing chicken on the highway and we have just thrown out the steering
wheel'. Not six months later they were history.

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FreeRadical
Just out of interest, what happened with your business? Are you still working
on it or did your team exit?

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jacquesm
It's still running (ww.com), it makes some money but not as much as it used
to. Our 'exit' was on the table on 9/9/2001, events beyond our control caused
that to be put on hold.

After that the person that was going to be CEO and that had brokered the exit
left the company to move to Spain and I continued to run it up and until the
present.

~~~
ggruschow
Ai yai yai! If you could avoid the first thing I see on your page being a
naked man attempting to contort his body to look like a woman, that'd be
awesome.

~~~
jacquesm
One of the not so nice side effects of having a site that allows people to
broadcast themselves on the net is that it attracts people that in normal life
you'd not want anything to do with.

This was our 'hidden cost' that we didn't bargain for when we launched the
site, we never figured that this would happen (call me naive...) and how much
work it would be to keep the site clean.

It is also the main reason that I'm working on different stuff these days, I
am in no way 'proud' of my achievement, it's been amazingly successful in
monetary terms but I could really do without all the side effects.

edit: This individual has been 'taken care of', thanks.

~~~
pclark
I just looked at your site and was shown a crotch + vibrator. Ho hum.

~~~
jacquesm
Feel free to suggest any solution that does not require 24x7 oversight.

We've spent hundreds of thousands of dollars on salaries doing that in the
past and even then it is almost impossible to keep the 'jerks' out.

For every not-so-nice person you block two more will pop up.

And then we're not yet mentioning the spammers, the porn sites and all the
other stuff you don't want on your site.

Hang around long enough on ww.com s homepage and you'll see anything that is
possible in life (including people being born, dying, marriages and so on).
It's got lots of fun stuff but the 'adult' angle is on some days a reason for
me to just go and do something completely different for a while because I no
longer wish to deal with it.

~~~
Jem
I don't want to take a look at the site because I'm at work, and value my job,
but do you encourage any of the site users to help weed out the crap?

I have a few communities and admittedly, they're not webcam oriented (which
likely helps), but they pretty much moderate themselves. (Report links, power-
users being assigned moderator powers, etc)

~~~
jacquesm
Yes, we did that too, all the obvious ideas we have tried at some point in the
last decade.

Having the users police each other works as long as there is no abuse of that
power, as soon as they figure out how to game the system you get 'cliques'
that will do such funny things as ban all the gays, all the old people, all
the women and so on. Pretty soon there'd be nobody left.

I'm 100% convinced that it is possible somehow though, just that I haven't
found it yet so please keep those 'obvious' ideas coming, maybe one of these
days someone hits the jackpot.

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bdfh42
$5m funding means someone thinks the idea might have legs - so outrun them!

Difficult to do just part time but with a simpler approach you might just be
able to do it but only if you release - then you can keep releasing with each
step putting distance between you and them.

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vabmit
My comment is tangential to the actual discussion. It doesn't so much apply to
companies with $5MM in funding as larger competitors. But, I'll post it here
anyway because it relates a scenario that a founder needs to be concerned
about when taking on a competitor with more resources than they have.

Beware of opening yourself up to any kind of legal attack. Many well funded
companies will sue a competitor they know has limited resources just to force
them out of business. They view the legal expenses that they incur from such
an attack as a cost of doing business.

Many years ago (~15) I had a friend who had started a successful start-up in
SFBA that provided specialized HA clustering software for large *nix machines.
The start-ups funding rounds totaled ~$12MM IIRC, and the company had about
~50 employees, was cash positive, and growing quickly. After a couple years of
nice growth, the company reached a size that caused it to be noticed by one of
the large players in the HA space. The large player knew that the start-up,
even with a multimillion dollar annual cash flow, did not have the resources
to fend off a significant legal attack. They also knew that one of the start-
ups' employees (not a key employee in product development or a founder) had
worked as a software engineer on their HA product offerings before resigning
to join the start-up. They sued. They claimed that the employee had walked out
of their shop with IP that was used in the start-ups' products.

My friend flat out denied this, and I believe him. But, there was no way for
him to prove it. The start-up did the only thing that they could - have their
corporate council counter sue and fight back as much as was possible. After a
few months in court and seeing the burn rate associated with such a legal
battle, the founders realized that they were pretty much done. They didn't
have the money to win, even if they were in the right. They laid off most of
their staff and directed all of their remaining resources into the legal
fight. They found it impossible to get new funding or customers because of the
IP dispute. Then, they started to lose existing customers because of the
dispute and the doubt those customers had about their ability to survive it.
After all the cash on hand was burned through with legal costs, the company
closed up and shut down completely.

The moral I got from the story is to be very careful about IP. VC's and Angels
(and usually founders) are very good about doing due diligence on IP that is
used to start the company. But, you have to maintain vigilance in regard to
having clean IP and avoiding any liabilities.

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fleaflicker
don't worry about what they're doing and stay focused on whatever it was that
motivated you to start in the first place.

nothing has really changed other than your perception.

fleaflicker launched in august 2005. i was 23 and living with my parents. that
same year, fox sports, protrade ($10M in funding plus celebrity board
members), and a slew of other startups also launched their fantasy games.

i fretted over this for a few days and then just go back to work.

fox's debut was widely regarded as a disaster, protrade fizzled (but has since
reinvented itself nicely), and the one startup i worried about the most folded
before they launched.

as far as timing your launch, i'll just reiterate the same advice that has
been dispensed here often: launch as soon as practical.

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mdasen
The big question is: does funding help? With funding you can hire more
developers, but that may or may not help depending on what you're doing. Is
your project capital heavy (ie. do you have to pay lots of money for servers
and such)?

If you aren't going to be hiring more developers and your service doesn't
require a lot of capital, then the funding advantage shouldn't be so daunting.
For example, it's hard to go up against Flickr without funding because you'd
have to buy a ton of storage (even if you're just paying for cloud storage,
it'll be expensive when people use it). However, going up against Twitter
wouldn't require such funding because the capital costs are low comparatively.

Now, clearly there are other barriers than funding, but if your business
doesn't need a lot of capital to compete, don't worry about a competitor's
funding advantage too much. If you're smarter/better/more awesome, you're
funding your project with something even more valuable: your time.

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bsaunder
I'd take a little more time to position yourself against them. If your service
is simpler and quicker, it would seem that you may be able to poach their
customers. Kinda like your competitor has generated your marketing leads for
you.

Perhaps you could make it easy for their customers to migrate to your new
service.

Try to figure out the value of "simpler and quicker", and price accordingly.
Maybe there's not enough value in "simpler and quicker" and you need to add
just a few more bells to be compelling.

One of the benefits of not taking money IMHO, is the luxury of time to
position yourself. You only answer to yourself and the only cost is
opportunity cost.

Figure out your marketing to hit a quicker growth rate than your competitor
when you launch. Stealth is a good advantage.

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Travis
Remember to actually solve a problem, rather than implement your idea. I'm in
the same situation, and we keep motivating ourselves by refocusing on the
customer centric model proposed by Steve Blank. Small iterative cycles,
actually talking to your customers -- that's your advantage. Be small, be
nimble, and you'll be harder for the big guys to keep up with.

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transburgh
This could work out in your advantage. If you get some traction, they could
buy you.

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edw519
"Their service has more bells and whistles, but mine is much simpler and
quicker to use."

You just answered your own question. You must focus your marketing on "simpler
and quicker" to the exclusion of everything else. (Either "simpler" or
"quicker" would be even better, focusing on _one_ thing.)

Jack Trout, in "Differentiate of Die," says it much better than me:

"The best way to really enter minds that hate complexity and confusion is to
oversimplify your message. The lesson here is not to try to tell your entire
story. Just focus on one powerful differentiating idea and drive it into the
mind. That sudden hunch, that creative leap of the mind that "sees" in a flash
how to solve a problem in a simple way, is something quite different from
general intelligence. If there's any trick to finding that simple set of
words, it's one of being ruthless about how you edit the story you want to
tell. Anything that others could claim just as well as you can, eliminate.
Anything that requires a complex analysis to prove, forget. Anything that
doesn't fit with your customers' perceptions, avoid."

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Dobbs
Look the idea's are really simple. You just have to do it better, faster and
cheaper.

It might be simple but that doesn't mean its easy. Hard work is what it comes
down to.

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mtkd
There is always something you can do better than a competitor no matter how
well they are funded compared to you.

