How Early Stage Startups Can Use Entrenched Competitors to Their Advantage

Early-stage startups often face the challenge of entering markets dominated by established players, but by cleverly exploiting their rivals' weaknesses, these startups can turn the tables. In this article, we'll explore how startups can leverage entrenched competitors to their advantage, focusing on strategic positioning, agile development, focused resource allocation, and market differentiation.

Established Competitors Often Have Significant Disadvantages

Competitors who have been in existence for a while often possess significant challenges that startups can exploit. Here are some of the key disadvantages of established players that early-stage startups can leverage:

1. Technical Debt

Software as a Service (SaaS) products, especially those with long histories, often accumulate technical debt. As a result, their development pace can slow down. In contrast, new startups can start with fresh code, less debt, and better technology choices, making them more agile and potentially offering a superior user experience (UX).

2. Competing Demands

Customer Success and Product Teams of established companies often receive a variety of demands from different customers, some of which may not align with their core proposition but still contribute to significant revenue. This can create resource allocation challenges. Startups, in contrast, can be more focused and dedicated to scaling their ideal customer/market fit.

3. Inefficient Structure

Smaller startups can maintain a flat organizational structure, enabling efficient and effective internal communication. As these startups grow, they often face the addition of layers of management and processes, which can slow down decision-making and execution. While still small, these startups can maximize their efficiency.

4. Enterprise Push

Established SaaS companies frequently push for Enterprise sales due to the lower churn and higher aggregated contract values (ACV). This often results in a more complex sales process with a higher barrier to entry for potential customers. Startups, by contrast, can offer a simpler self-serve model, making their products more accessible and flexible.

The Advantage of Being Entranced

One of the best aspects of entrenched competitors is their entrenched nature. Successful companies typically have a rigid way of doing things, which is often not immediately advantageous for startups. However, as a startup, you can take advantage of this rigidity.

For instance, a large tech company like Maxim Integrated Products had a product evaluation process called RODT (Return on Design Time) that optimized new product choices. While the idea was commendable, it often led to a culture of risk aversion. The company grew to a billion in revenue with near 40% margins but the same systematic thinking that helped it grow also stifled innovation and risk-taking.

Leveraging RODT and Company Culture

When a company is successful, it tends to take less risk. This can be a double-edged sword for startups. Large companies like Maxim often have executives with significant salaries who are content to maintain the status quo. These executives don't want to take risks that could jeopardize their substantial incomes.

As a result, as a startup, you can take calculated risks that larger competitors might not be willing to take. You can target adjacent markets that the larger competitors do not care about or do not believe are worth pursuing. For example, if a big tech company like Facebook is already serving a market well, your startup can focus on a niche where incumbent players are not interested or engaged.

Conclusion

Startups can leverage the weaknesses of entrenched competitors to gain a competitive edge. By focusing on agility, resource allocation, market differentiation, and embracing calculated risk, early-stage startups can thrive in markets dominated by established players.

To learn more about how startups can navigate the competitive landscape, consider reading What If Facebook Enters Your Market.