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Why a lack of competition may be the worst thing for new startups

Posted by Shivali Anand

May 4, 2021

All entrepreneurs recognize that they will face competition at some point when launching a business. Other companies are likely going to offer similar goods or services. This makes it essential to create a business strategy that addresses competition.

But a competitive environment is a good thing for startups, pushing them to tightly focus on serving customer needs and to contain and lower prices. Entrepreneurs who recognize the advantages of early competition rather than fearing it can create conditions that will strengthen their own startup’s impact. Those who don’t understand the benefits of competition will not often succeed.

Is competition good for your business?

The popular conception is that competition is a negative and that it’s good to corner the market. But for startups, competition is a driving force that spurs them ahead. Without competition in the industry, the market will be flat. And if there is no competition, it more than likely means there is no market for what you are offering. 

The pros of competition for startups

1. Validation

A competitive market shows that a startup’s business has adequate demand. While a startup can start with niche goods, it must ensure there is sufficient growth potential to make the business viable.

2. Learning from others’ blunders

Closely observing the competition’s mistakes gives you knowledge on how to work and perform better. It also encourages you to secure knotholes in your own business.

3. Nixes complacency

For startups flush with funds, perhaps success initially looks effortless. But once the competition heats up, the company is forced to step out from its comfort zone to guarantee its position. Monitoring the competition also spurs a close examination of the business’ own products or services and a push to make them better. Competition also pushes startup to improve their efforts at expanding into new consumer segments and businesses.

4. Makes way for innovation

The threat of being outperformed keeps entrepreneurs on their toes, forcing them to focus on innovation so they can lead the market. The invention of products or services is often sparked by the awareness of what competitors are doing. 

5. Sparks new alliances

Sometimes competition opens possibilities to collaborate with competitors, for example teaming up on research and development or cross promoting each other’s products to stand out amid other contenders. Alliances like these often lay the groundwork for future acquisitions as well.

6. Boosts consumer satisfaction

Even big companies with a monopoly over a product or industry regularly evolve to keep new players from taking market share. By their nature, startups have to offer solutions and services that differ from those of the giants. This often leads to disrupt pricing and better customer service.

7. Promotes specialization

Competition challenges firms to find their niche with a long-term proposition that brings authentic value to consumers. Short-sighted companies motivated only by immediate gain will fall by the wayside. Upon specializing, a startup’s connections with clients are not formed out of need but for mutual benefit.

8. Fuels improvement

Competition forces companies to be the best version of themselves. While being the only one in the market means people must go through you, this can change on a dime once consumers find an alternative. Entrepreneurs who fear consumers may go elsewhere are forced to prioritize improving. 

9. Ejects you from the comfort zone

Competition necessitates the best from all players. When nobody is guaranteed to win, complacency is not an option. Those who respond promptly to changes, leverage technology and track data are in a better position to innovate quickly and optimize pricing to stay ahead.

10. Better prices for consumers 

Competition among several companies ultimately profits the consumer as prices are spurred to adjust to those prevailing in the market. Value-based pricing is one tactic startups can use to stand out. 

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What are the types of competition a startup may encounter?

When launching a startup, you must prepare to compete with other players. Otherwise, you wouldn’t have much of a market. The primary types are direct competitors, which compete for the same market and offer a similar product, and indirect competition, which offer products different from yours but that could potentially satisfy the same need.

How to identify your direct competitors

1. Market research

Look at the market for your product and assess what other companies are selling one similar. Ask your sales and marketing team to determine which competitors they have come across during the sales process. 

2. Ask for customer feedback

Your consumers are the solution to defending you against direct competitors. Ask for their feedback on which other brands or products they have been using. Sometimes, customers can unveil unexpected competitors that are not even on your radar.

3. Check online platforms and social media forums

Many people seek advice and suggestions on social media. Keep an eye on your consumers' conversations on these platforms to identify who your competitors are.

How to identify your indirect competitors

1. Keyword research

Conduct a search engine optimization review to identify which businesses or brands are competing for space online. You are in a race not only with your direct competitors but also every other website competing for keywords that are important in your industry. Your SEO platform or tech may be able to further help you identify competitors with insights and data. 

2. Analyzing Google’s search engine results

Your indirect competitors are likely writing about topics relating to your product’s or service’s value proposition. Testing the value proposition of your product lets you recognize the keywords that are primary to your startup. Just type your keywords into Google to see else who else pops up. Anyone writing content around your value proposition outlines is the indirect competition of your business.

3. Look at paid data

Try using Google AdWords and then scanning ther keywords relevant to your business. Check which companies or websites are purchasing ads for those keywords. If firms or websites are paying for space on the search engine results page for a given keyword, they’re a competitor. As you delve further into AdWords, you may find that the websites purchasing ads are competitors you weren’t aware of.

Is there an optimal level of competition for startups?

As a startup founder, you are always looking for ways to stand out from the crowd. You have an idea that you think has huge potential, but you can’t be sure that it will work until you put it out there in the real world. There is only one problem: Your idea is not unique. In fact, there may be lots of other people who also have the same idea and are trying to make a living from it.

According to Harvard Business School, the optimal level of competition for any startup is low to medium. This is because startups tend to take longer than expected to get their first product out and to start seeing profits. A high level of competition will adversely affect the chances of survival for a startup as it will have to compete with established players who already have brand loyalty. But many successful entrepreneurs say that there is no optimal level of competition. They advise that startup founders focus first and foremost on being unique as a hedge against competitors.

Want more?

Since 2006, Escalon has helped thousands of startups get off the ground with our back-office solutions for accounting, HR, payroll, insurance, and recruiting — and we can help yours too. Talk to an expert today.


Shivali Anand
Shivali Anand

Shivali Anand is a content developer at Escalon Business Services. Her expertise lies in creating consistent and relevant B2B marketing, SEO and social media content. She is armed with a PG Diploma in English Journalism from the IIMC Dhenkanal, Odisha. After starting as a travel writer, she embarked upon a career as a copyeditor, news content specialist, and researcher across organizations including Ministry of MSME, Vaco Binary Semantics LLP, Doordarshan News, and New Delhi Times.

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