

Ask HN: Found a smart competitor with a 3y headstart. What to do? - kareemm

First, the context:<p>I just started building an MVP for a piece of software with a co-founder.  We have a couple of clients who will pay, including one who is actively involved in sharing insights on the problems she faces and why she would need this software.  We're looking to have the beta into our customers' hands in about a month. It will have taken 6w to build on nights and weekends.  I'm starting marketing efforts in earnest, and ranking highly for key keywords is doable.<p>The software is for self-employed people who do a certain type of work (let's call it A), but it can be used by self-employed ppl who do other types of work too (B-Z).<p>There is a market for this software for organizations that employ many of these individuals under a larger brand (let's call them BigOrgs).  The problem is that this software is overly complicated for self-employed people like my initial customers. So, we're aiming for simple and focused on the self-employed market.  Also, most of the offerings in this space are visually complex and don't leverage the things many of us take for granted (social media marketing, APIs, Ajax, widgetization, clean interface, etc. Not that these make for a good product, mind you, but when used in the right doses they can make for a much better experience than one built in the late 90s, which is when many competing products were built).<p>Me and my co-founder are not trying to build a multi-million dollar biz. A biz with $500k of sustainable annual revenue (it's a high margin biz) would put us in a great position to build more products without taking on outside capital.<p>Now, the issue:<p>Just found a competitor who knows what they're doing.  They're funded (a small round) by the who's who of SV angels.  They're aiming at the BigOrgs, but their software appeals to the self-employed folks I'm building for too.<p>They're ranked highly for valuable keywords and have been around for three years.  Their marketing strategy basically emulates mine, and they've gotten press amongst the usual SV blog suspects, along with sites like the NY Times.  Articles claim they have 10s of thousands of users.<p>Their site looks pretty but isn't as easy to use as ours.<p>My analysis:<p>I'm not worried about the funding - we're happily bootstrapping off of a long term, flexible consulting contract.  It also means they are required to go big (growth uber alles) and land big clients, which excites me - we're not interested in the BigOrgs market.  The self-employed one is the underserved one in my analysis.<p>Their high keyword rankings are worrisome, as are their press mentions and 3 years of learnings.<p>My question:<p>Do we continue on as planned, nichify (market our products for self-employed people who do A, B, and C even though D-Z can use it, and then grow after we have a stable base?), or pivot (there are a bunch of other lucrative products for the same market that we can build, but aren't related to the core product we're building right now).<p>Thanks for your help!
======
jacquesm
It's good to know they exist, they'll probably be aware that you exist sooner
or later as well.

It's a big world!

There is more than room enough for two, three or 50 companies doing what
you're doing, the market is more than large enough for that, especially if you
look overseas as well.

A three year headstart is _your_ advantage. After all, you get the benefit of
their three years of product development without having to go the long way
round. Check out what they've got and learn from it.

Stick to your plan, observe them like a hawk and make sure that you give your
customers excellent service. They won't go looking for a competitor until you
mess up.

Don't worry so much about keyword rankings, a solid business does not solely
depend on search engines for its traffic. And there is always advertising if
you want to go and acquire new customers in a higher volume.

As for going 'niche' that might be a great strategy to stay under their radar
until you've been able to level the playing field and you have a bigger war
chest.

But in the long run their existence shouldn't matter much, it's not like
you're going to go head to head with microsoft or google on operating systems
or search.

It's just another company, they come and go. Likely there are other
competitors out there that you haven't picked up on yet.

In a market with no competition, anybody can be 'top dog'. Such markets are
illusions, any way that you find to make a living someone else will come and
see you and think 'hey, nice idea'. Some of them will be better, some of them
will be worse. There is no hard and fast rule that says that the first mover
will be the one to win the game.

The there is the subject of locality. If you are going to address the 'self
employed' market then there are so many options so 'slice' that market that if
you make it easy to adapt your product to a niche that you could also address
many of these niches in parallel, effectively you are still 'broad' but you
now have a unique advantage for each of those little sub markets.

Which should remedy some of your keyword worries, since it is much easier to
rank high for combinations of keywords than that it is to rank high for
individual keywords.

good luck!

~~~
kareemm
great advice, thanks.

you're right: a 3y head start means they've made a lot of mistakes that we can
learn from.

slicing the self-employed market in many different ways is exactly how i'm
thinking about it, for the same reasons you mention: being broad and ranking
highly for specific keyword combos.

thanks again!

------
sdrinf
A quick&dirty math approach:

At a very basic level, you're working with:

potential_revenue = sum(total_market) * P(customer) * LTV_over_period

(LTV usually stands for lifetime value of customer, but we're only considering
annual numbers below)

First you must must must figure out what the size of your total market is; I
assume you already know this number from the top of your head (if not, you've
got bigger problems to worry about).

At this point, this becomes a problem of function maximization. Assuming your
competitor is the market leader, and the rule of thumb for market leaders to
take 50% of the total market, what percentage of the remaining clientbase can
you realistically capture? Calculate your potential revenue with this
scenario. Do the numbers add up for anything sustainable? If no, pivot.

With nichification, your total market is obviously smaller, but you might
capture it better. Calculate it with markets [A,B,C] ,and see what percentage
of these market you have to capture, in order for total revenues to exceed
that of non-nichificated product. Can you capture that amount realistically?
If yes, nichify; otherwise, proceed with original plan.

~~~
kareemm
thanks - the numbers definitely add up for us.

hadn't heard the "market leaders have 50% market share" rule of thumb before.
(curious: do you have a source for this, or is it from experience?)

------
forkqueue
You already have a couple of clients prepared to pay for your software. If the
'three years ahead' competitor is so great, why aren't they using the
competitor's product rather than yours?

It sounds to me like your competitor is targeting a different market to you,
and picking up some of your target market as a happy accident. If you focus on
the needs of your market, it becomes less and less likely that those sort of
people will use your competitor's product.

I suspect the competitor is unlikely to care too much about your product -
they'll see it as a 'low end' solution that only has the potential to take
away customers they don't make much from anyway.

~~~
kareemm
thanks. based on the research i've done of competitive offerings and talking
to customers, it's nearly impossible to serve the needs of both markets
(BigOrgs and self-employed) while keeping the software simple and enjoyable to
use.

> I suspect the competitor is unlikely to care too much about your product -
> they'll see it as a 'low end' solution that only has the potential to take
> away customers they don't make much from anyway.

never thought about it this way, but probably true. thanks!

------
zaidf
First, you have to decide if you want to compete with them _head on_. This
means beyond just having a similar product. It means going after the same
customers and same everything.

If you _do_ go that route, you should make use of the upsides. One upside is,
you can reduce your risk by emulating their proven product design/market
strategy. Steve Blank has a post on how he was able to get sooo much out of
his competitor's catalog/specs.

Simply put, if there is a company with a product and lots of customers and you
want to compete with it, you don't have to reinvent the wheel if you can
emulate individual components of the competitor.

Now that you are close to even with them on product/marketing, you can find an
area where you will be better than them. Pricing is weak. May be you can offer
an added service. May be you can make some component more efficient and
highlight the fact that you are more efficient than that competitor.

Competition can be real good if you know how to use your (successful)
competition as free R&D.

~~~
kareemm
thanks. not planning to go head to head with them, but your perspective on
pulling even on product/market adn then differentiating is a novel one to me.
appreciate the comment.

------
maxklein
If it took you a while to find the competition, it will also take your
customers time. And by that time, they will be used to your software.

~~~
kareemm
yeah, that's what i was thinking too. i've been talking to customers /
wireframing for about a month and hadn't even heard of these guys, and neither
had my initial customers.

------
wisty
Every piece of software in existence has competitors. If you can't beat your
competitors (even by iterating), then listen to your existing customers, and
find out what they want.

You might drift into a vertical niche, if your product is a good fit for that
niche.

~~~
kareemm
thanks. our plan is to always listen to our customers while keeping an eye on
competitors. figure the company that wins is the one that's closer with their
customers.

------
Bertil
It actually depends a lot on the type of service that you are considering:
will that competitor make your life easier or worst?

A simple example: my brother sells pearls. He considers other pearl sellers as
competitors, but actually the more people see pearls being worn, then more
they'll assume it is a legitimate jewel — so diamond sellers are his real
competitors, and other non-stone gems should help legitimize his business.
Therefore, when he can't accomodate a prospect (say, he doesn't have the right
color) he should advertize for other pearl providers.

Another similar tech example: e-mail; the more companies used e-mails, the
more IMAP became a useful protocol. The complete opposite would be ERPs: it's
much easier to share the same ERP as your customer & provider. Therefore, if
you are a competitor of SAP (the ERP for BigCorp) trying to specialize towards
SMB, you spend a lot of commercial effort to explain the benefits of ERP in
general to small businesses, only to pave the way for them switch to
SAP——because that's what their customer use, and those are too big to change.

That why you have many e-mail providers, several cell phone makers, but only
one dominant search-engine, one dominant ERP provider, one dominant social
network, etc. To tell the difference is hard —— for instance, encouraging open
standards might help your customer to switch to the leader more than it would
help you offer a compatible service.

I'd love to help you (all that is what my PhD is about ;) but I'd need more
detail about your specific industry.

~~~
kareemm
largely better, since they're spending VC dollars to educate the marketplace
on why it's a good idea to have the product. i just need to find and compel
the self-employed folks to buy from me instead of them.

thanks!

------
tcarnell
1\. Do some market research, actually having some competition will make market
research much easier - phone their clients and simply ask them which new
features they would like and what things do they have trouble with, then
target clients with similar profiles.

2\. You could build a migration tool so that you can approach their smaller
clients, offer a cheaper package with the guarantee that you can migrate their
existing data.

~~~
kareemm
thanks, i like both of these, especially the idea of a migration tool.

------
aaronblohowiak
How many customers do you need to hit your mark? it is less than 10% of your
competitor? Think about churn and picking up their scraps, as it were. You may
be able to survive as a small fish, if you are trying to build a so-called
lifestyle biz.

~~~
kareemm
way less than 10%. thanks!

------
po
A lot of people are making good comments about there being room for more than
one competitor in a marketplace. I totally agree with that but I would add
that this is true if the service stands alone.

If your product depends on network effects, it is no longer true. Services
like Facebook and twitter are more valuable when all of your friends are using
it too. These tend to be winner-takes-all.

I suggest that you stick to your strategy until you hear a customer mention a
competitor by name, or otherwise have proof that you are losing customers to
your competitor.

~~~
kareemm
agreed re: network effects. this isn't one of those businesses though.

> I suggest that you stick to your strategy until you hear a customer mention
> a competitor by name, or otherwise have proof that you are losing customers
> to your competitor.

i like this - thanks!

------
JangoSteve
There have been a few similar posts on here in the past. The consensus is
usually something along the lines of... keep building your product. Don't let
your competitors scare you. Think of it like driving; if you drive down the
highway staring at the car next to you, you're going to crash. Look forward.

Given that you already have a paying customer helping you develop it, and that
your product is supposedly easier to use, this doesn't even seem like a
difficult decision.

~~~
kareemm
yep, after sleeping on it i think i was more startled than scared... startled
i hadn't even found these guys after looking for so long. which, i guess, it a
good thing.

------
uuilly
It probably means its a good idea. Nobody ever gets total market and at the
beginning you both have essentially zero market share. So compete hard for the
clients they don't get. Or rope in people who've never heard of them. Just b/c
they have nice uniforms and helmets doesn't mean they've scored lots of
touchdowns.

~~~
kareemm
>Just b/c they have nice uniforms and helmets doesn't mean they've scored lots
of touchdowns.

haha, i love this line. there's definitely lots of room to play in this
market, which i like. thanks.

------
Tawheed
Find out what you hate about their service, and make sure it is improved in
yours. 37Signals' book had something about this, its the chapter on "Have an
Enemey, pick a fight" -
<http://gettingreal.37signals.com/ch02_Have_an_Enemy.php>

~~~
kareemm
thanks. complex, hard to use and ugly software is an easy enemy, which we're
happy to pick a fight with :)

------
tcarnell
This will make essential reading:

<http://businessofsoftware.org/ebook.aspx>

Although it's primarily concerned about pricing, the process of pricing
requires consideration of your product placement with regard to the
competition. Enjoy!

~~~
kareemm
got it already - appreciate it!

------
skmurphy
Unless you are actually losing business to them I wouldn't worry. You are
taking a niche market approach and should be able to find ways to
differentiate your offering. From your description you are targeting a
different market,

~~~
kareemm
thanks sean. had one of my clients walk through it while i watched, sat on my
hands, and shut my mouth. it was heartening to see that she was pretty
confused about how to solve her problem with their product. happy to see that
even though they overlap on our target market, we can still build a better
product.

------
dnsworks
What do you do? You man up and kick their asses.

~~~
eam
...And then some.

I'm in a similar situation. It's me versus Chegg.

~~~
jasonlbaptiste
And if anything that should be a great motivator. A few years ago Chegg was in
your shoes against EFollett and the bookstores. :-). Good luck, you can do it!

~~~
eam
Thanks!

