Good startups do competitor research. They want to know what incumbent dragons are out there to slay. Every investor will ask, “What stops Google and Facebook from crushing you tomorrow?” And every startup thinks they see a weakness in the dragon’s scaly hide.
Unfortunately, too many founders focus so much on the dragon that they ignore the strewn skeletons of all the preceding startups that also tried to kill the dragon.
Every broken skeleton was once a heroic founder who thought they could “disrupt” the dragon. Each one has their own story and warnings. Here’s how to conjure up their ghosts for questioning:
Zombie startups never truly died, but their growth is flat. They earn enough revenue that they’re self-sustaining, but their founders are trapped by responsibilities to clients, employees, and investors still hoping they’ll come back to life, but not confident enough to inject more capital to execute a meaningful pivot.
From one point of view, these are successful small businesses. But from a founder/VC perspective these companies are the walking dead.
Lots of startups follow the classic Paul Graham advice of “do things that don’t scale”. Often this means working like a consultancy to start to ensure you’re working on a problem that someone is willing to pay to solve (literally, the definition of product-market fit). It's a reliable way to achieve some impressive-looking annual recurring revenue, or even self-fund.
In Birb’s case, lots of affiliate marketing competitors get trapped by this. Hiring large sales and customer support teams lets them earn sustainable revenue from enterprise clients– but in doing so they’re no longer SaaS companies with SaaS growth potential. They’re just agencies with some proprietary software.
These zombies can shamble along earning millions in ARR, but their reliance on poorly scaling human labor means these zombies will never turn into unicorns.
Some startups no longer exist because they got gobbled up by the dragon (i.e. acquired). This takes every form from a face-saving acquihire to a Facebook/Instagram style jackpot.
Understanding the recent M&A history of your industry is probably the most important and least-done form of competitive research for startup. In the affiliate marketing space, for example, there is a ton of conglomeration around the $20M-$50M range as affiliate networks buy out upstarts to capture their userbases. On the one hand, that’s a valid exit strategy to keep in mind. But it also implies that startups typically encounter some risk-reward calculus at that stage that scares them off from pressing their fight against the dragon.
There's a lot to learn from your startup's present competitive landscape, but it's just one snapshot in time. Founders before you have already spent millions of dollars and years of their lives working on your problem. Use that to your advantage.
Comparing your startup to others won't guarantee you succeed, but it can prevent you from failing the same way.