“All failed companies are the same: they failed to escape competition.”
We just recommended our first three startups for our new equity crowdfunding service that we’re launching in less than a week (stay tuned).
It was important that we got our choices right. So we made these three outstanding early-stage companies jump through countless hoops.
We had multiple conversations with the founders. And made multiple requests for information – on their products, technology, markets and go-to-market strategies.
Now, it’s impossible to lay bare the entire vetting process. We spent about a hundred hours vetting each company.
But I’d like to give you a bird’s eye view of one critical element – the question of competition.
More specifically, how these founders answered it.
It reminds me of a joke I first heard probably about 25 years ago. About two intrepid hunters stalking a bear.
“Aren’t you afraid?” one asks the other.
“No, why should I be?” he replies.
“If your rifle jams? It does happen, you know.”
“No worries,” he says.
“You really think you can outrun a bear?” he asks.
“I have no idea,” he says. “But I’m pretty sure I can outrun you.”
And that is why the issue of competition looms so large.
A startup may have a great product and marketing plan. But if there’s another company a half-step ahead, then it’s in deep trouble.
All three of our recommended startups answered the competition question with great conviction. What’s interesting is that they also did it very differently from each other.
There are many ways to beat the competition. These three are as good as any I’ve come across…
1. To compete by not competing.
The four magic words: “We don’t have competition.” Not many founders can say this. They can say they have weak competition. Or very little competition.
But no competition? That’s a a rare advantage… but it can also be a disadvantage. Typically, no competition means one of three things…
- The technology just became possible and you’re the first to commercialize it.
- You thought of an out-of-the-box application. Or the application targets a specialized (and therefore small) market.
- Your technology has no users or buyers – a technology “in search of problems.” (This is not a good position to be in.)
Our virtual reality startup (sorry, can’t reveal the names right now) checks the first box: It was the first to come out with critical enabling VR gaming technology.
We’re pretty sure it will take the VR market by storm.
2. Getting off the main road.
I call this the Volkswagen Beetle strategy. While American car companies were offering big clumsy gas-guzzlers, the gas-sipping Beetle staged a successful invasion of the U.S. auto market during the 50s, 60s and 70s.
Adam and I found a music company that does the same thing. It cleverly avoids direct competition with the giants of the industry – like iTunes, Google Play, iHeartRadio, SoundCloud and others.
Without giving away the name of the company, I can say it curates music differently from and, I believe, more effectively than its far more powerful competitors.
3. Re-imagining how an entire market should work.
It’s not easy to do, but we identified a “smart home” startup that thought the thermostat (think NEST) should NOT be the main touchpoint in our future connected homes.
It offers a different product to control the efficiency and comfort of a home’s heating and cooling. And no other company makes this same smart product. Nice.
Once achieved, a competitive edge should never be taken for granted (by the startup or its investors). It’s best thought of as a temporary condition that a company has to continuously earn.
There’s no room for complacency here.
With that said, these three companies passed our competition test with flying colors – a big reason why we thought they stood out from the crowd.
And why we’re recommending them.
If you’re interested in finding out more about these companies, stay tuned. We’ll let you know next week how you can get their names.
Invest early and well,
Founder, Early Investing