Why ‘The Market is Too Crowded’ is a Terrible Excuse
Venture partner Mark MacLeod shares why you shouldn’t be scared to take on a crowded market — and neither should potential investors.
One of the most common objections you hear from investors is that the market you are going after is too crowded. I have been on the receiving end of this many times and had to convince investors about the vision we saw for disrupting that market despite the existing players.
As an investor, I don’t care if a market is crowded. And history backs me up on this.
Your Competition Doesn’t Matter
Online search was crowded before Google showed up. Anyone remember Geocities or Ask Jeeves? MySpace was ruling social networking till Facebook came along. And nobody thought there was a file storage and sharing problem till Dropbox arrived. The list goes on and on.
It’s not competition (or lack of it) that matters. It’s how much better you are than alternatives. Google won because it was hands down better than the considerable competition it faced.
Also, when it comes to true innovation, it’s important to remember that ‘big’ companies suck at it. This could be partly deliberate. While it’s hard to innovate inside a big company, those companies, with several notable exceptions (Apple being one), are scared of failure and its impact on brand. You can’t innovate without being completely open to failing.
When I look at an opportunity, I spend little time thinking about current competition and a lot more time thinking about market movements and how your vision is placed to create or ride these market movements.
There’s an old saying that to disrupt an existing market you need to be 10x better than the competition. That sounds comforting and is probably true, but I have no idea how you can measure that up front. So it’s of little value to me.
The only exception to my disregard for competition is in markets that are completely dominated by one or a few players. Because there, even if you have a 10x advantage, that incumbent can deprive you of oxygen.
We saw this play out in mobile and infrastructure back when carriers ruled the roost. Now that the “walled garden” has come tumbling down these are now fertile grounds for innovation and venture investing.
So, next time an investor worries about the competition help them see the future rather than worry about the present. Show them how your vision and innovation, coupled with some awesome market timing are creating an opportunity that the competition can’t or won’t go after.
Editor’s note: This guest post from Mark MacLeod originally appeared on his blog, StartupCFO.