Why you should make your competitors your frenemies

December 28, 2010, 6:35 PM UTC

Corporate competition is healthy, but it needn’t always be antagonistic

Conventional wisdom in most companies is that “the competition is the enemy.” It’s the rallying cry to dig deeper, get more features out the door, issue press releases citing differences and attack the competition’s weaknesses in sales presentations. I understand this instinct – it’s tribal, like rooting for sports teams. And there are benefits to having something that galvanizes your team.

But many startups take this too far, and I would actually encourage a dose of enemy and friend. You know, frenemies. A healthy respect for your competition will serve you well. Here’s some thoughts on how to manage the tricky frenemy relationships:

When enemies are good

1. Marketing differentiation: Salesforce.com is one of the most effective marketing organizations in the world because Marc Benioff is a genius at marketing. He has been able to take complicated topics like cloud computing and boil them down into pithy messages like “the end of software.” It emphasizes both cloud computing and salesforce.com’s differentiation – they’re not “software.”

Of course they are software. It’s just delivered in a different way. But this simple logo of differentiation was what they used in the early days to symbolize their fight against Siebel. Siebel was something you installed: It was expensive, hard to implement, bloated, complex and hard to manage. Software. And after Siebel’s death the Salesforce rallying cry has extended to Oracle and Microsoft.

Software, software, software. Them vs. Us. And in a world where complex ideas are hard to mass markets to synthesize, the simplicity of the message, the differentiation of good vs. evil helps journalists, market analysts and customers.

2. No Enemies, No Market: The first instinct of a potential customer who is thinking about your product is to find out who else does what you do to be sure they’re not about to purchase a Betamax. In fact, most big enterprise buyers have procurement policies that require them to have considered a few competing products – in part to be sure there isn’t a cozy insider sales relationship driving the purchase.

The first instinct of a VC is no different. We don’t want to be the person who invested in your company only to find out later there was a much better team or product in the market, or that we’ve invested in a company where there is no market demand.

We’re all basically trying to validate the same thing in looking for competition. We know that you’ve done a great job telling us why your product is really innovative and cool – now we’re just trying to convince ourselves whether there is a real market out there for it and, if there is, whether you’re going to win.

3. Galvanizing the company: And of course one of the biggest benefits of enemies is galvanizing the company. We all know that the existence of startups is about limited resources, huge time pressures and a constant struggle to time market adoption and investor financing.

So when your engineering team needs to dig deeper and crank out code despite working “yet another weekend,” it helps to have the Evil Empire. If your sales and marketing teams are spending yet another few days away from home — or stuck in an airport on a February trip to Chicago — it helps to have somebody you’re trying to beat to make it all worthwhile.

I’m not a sociologist but I’m certain that there’s a tribal instinct involved.

When frenemies are better

Yet keeping our competition only as enemies is a mistake.

In the early days at my first startup, I purely demonized competitors. They were stupid, evil and about to suffer a crushing death. They never did. Instead, every time we launched new features they seemed to launch similar features two weeks later. They must have been working on them at the exact same time.

Turns out that innovation tends to work in parallel. When the market was booming, we were all booming; when the market struggled, we all struggled.

And when it struggled, we all talked. We mostly talked because we thought industry consolidation was going to take place and we didn’t want to be the ones who were left out. As I’ve said before, early mergers are mostly dumb, but we didn’t know that back then. Most of us never merged but, through the process, I got to know the founding teams of all of my competitors and I realized — of course — that they were smart, informed, decent people.

I also learned that we had more in common with each other than I had thought. We had more to gain from occasional discussions than to lose. In a startup market, the biggest competition is inertia — not your enemy. In a startup market, getting potential customers to take any action at all is the hardest thing you face.

We talked about why customers were slow to adopt (cloud computing was really young and most people had security concerns), we talked about how hard it was to raise money (2002/03), we talked about some of the tech challenges we were facing (AJAX didn’t exist yet, browsers were really bad) and, of course, we talked about other competitors. These meetings were my best source of what our nascent market was really up to (not the tech press version of it).

Most importantly, we created a communication channel that was invaluable at times. We didn’t collude (e.g., talk about prices), we collaborated. I didn’t openly discuss meeting competitors broadly within my company. I didn’t want everybody worried or gossiping that there might be an imminent merger and internally it was fun to be able to demonize the competition just a little bit…

Every now and then our competitors would talk trash about us at a customer meeting (we’d often get the feedback), or put out a press story that was trying to poke us in the eye. We’d fight back with the same. But, in the end, I knew it was “just business.” They were pretty normal guys.

When the enemy mentality harms you

Finally, there’s a more destructive side to over-demonizing the competition: You start to believe your own internal hype.

I often meet startups that come in vilifying their competition, telling me stories about how bad they are at this or that. As a VC, you have often met with some of these companies and realize they aren’t as bad as the company in front of you is saying (or thinking).

I always advise these overly aggressive companies the same thing:

  • Don’t take your competitors for granted. They’re probably much better/stronger than you think.
  • If your competitor is a big company, don’t be lulled into thinking they’re just “stupid” — they often have internal structural problems that keep them from effectively competing with you (even when they see the market clearly).
  • Whenever you’re thinking “our competitor does a, b, c and ONLY WE do d, e, f,” you’re often wrong. It’s usually one of two cases: 1) You didn’t realize that your competitor really does d, e, f or 2) They’ve been working on d, e, f and just haven’t released it yet or announced it. But they showed us, the VCs. Remember, innovation happens as a parallel process — you rarely will have anything that’s truly unique. Victory is often about better execution.
  • The best internal motivation for your company is to always be paranoid about your competition. I’m not saying to overly focus on them — I don’t believe that. I think you should focus on your customers and market. But be paranoid about how good the competition is. Use it as a motivator to drive yourself harder.
  • It is unbecoming of you to belittle your competition in front of us or in front of customers. You look like a far bigger person when you show a healthy (and not artificial) respect for them. It’s true that Marc Benioff gets away with “slagging off” the competition but that’s only because of his extreme success. People still cringe, shake their heads, have a small chuckle and say to themselves, “That’s just Marc.”

In the end, keeping frenemies will serve you well.

Mark Suster joined GRP Partners in 2007 as a General Partner after selling his company to Salesforce.com. He focuses on early-stage technology companies. He blogs at Bothsidesofthetable.com.

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