Lights, camera, competition: What today’s startups can learn from the fate of old home movies

Benjamin Chong startups

Right Click Capital partner Benjamin Chong.

The long-term effects of COVID-19 on the competitive dynamics of every industry will be wide ranging.

For sectors such as travel, COVID-19 continues to be the ultimate test, and only the fittest startups with bullet-proof businesses will survive as their competition falls victim to the global recession. Other sectors, such as video conferencing, have gone from niche to necessity in just four months — one article cited 23 alternatives to category leader Zoom.

Startups that survive this economic downtown will undoubtedly have a competitive advantage and inbuilt resilience. But founders should not rest on their laurels, as new businesses will emerge in the upturn and others will rise from the ashes. 

Maintaining a competitive advantage will mean the difference between future funding and failure.

There is one phrase that strikes fear into investors and that is, “we have no competition”, or in the current climate, “we have no competition left”. This sounds alarm bells because competition lurks in the most unexpected places and new rivals can easily blindside a founder.

Competition and rivalry are extremely important to spur innovation.

Lights, camera, competition

The lockdown has been a boom time for home movies. This sector also happens to be a great example of transformation fuelled by competition.

Betamax, the original home movie cassette system launched by Sony in 1975, ushered in a new era of entertainment.

Competition started to heat up two years after the launch of Betamax, when VHS hit the small screen in 1977. We’ve all seen this movie and we know that VHS eventually won out in the Betamax/VHS format war.

But the death knell came for VHS some years later when DVDs arrived on the scene. And the honeymoon was even shorter for DVDs, when they lost the battle to the streaming era.

Clear and present competitive danger

Competition is not just a similar business with a comparable proposition selling its product to the same audience. This is “primary competition”, but only one of three categories: primary, secondary and tertiary.

Primary or direct competition is VHS challenging Betamax, software companies that help SMEs automate their payments in similar ways, or apps that allow people to order their takeaway online. Think Deliveroo and Menulog, two businesses who have benefited from the lockdown.

Primary competition can come from an incumbent or a company that may solve customers’ problems in a different way. It can arrive after an unrelated business makes a lateral move to leverage existing strengths in a new area.

Menulog and Deliveroo might not have considered Uber a traditional competitor, but its existing rideshare business made it easy for Uber Eats to start a three-way food fight. Now Menulog, Uber Eats and Deliveroo all vie for a slice of Australia’s $280 million online food-delivery market.

Maybe, maybe not

The secondary or indirect competitor is more difficult to identify. VHS also faced competition from drive-ins in earlier days and then outdoor cinemas, both secondary competitors. These competitors may offer a similar version of your product but may sell it to a completely different audience or make money in another way.

To protect itself against competition, a startup must be more than just a product if it is to succeed. A startup needs to anticipate all competitive threats and how well placed its product is to maintain growth in various competitive scenarios.

Hidden competition

Tertiary competition is harder still to identify. This bucket covers all the alternatives open to consumers that can serve as a substitute product.

In the case of home movies, tertiary competitors are restaurants, nightclubs and the ballet.

Today, video conferencing and webinars serve as strong secondary competitors to airlines, meetings and conferences. To understand this landscape it pays to spend time with customers and get to know what is competing for your share of their wallet or time.

Investing in competitor analysis

When founders are presenting the competitive landscape to investors there are three popular ways of demonstrating this: the matrix approach, the Gartner Magic Quadrant and the petal diagram.

The matrix approach with its ticks and dots can polarise investors, with many cynical about the selective bias of metrics that founders use.

The Gartner Magic Quadrant allows founders to measure up the competition on two main attributes, with the goal of ending up in the coveted top right-hand quarter. But again, investors need to be reassured that the metrics reflect important factors to potential customers.

Finally, the petal diagram enables the founder to show how their product or service combines functionality and replaces individual components offered by competitors. This shows the players in the ecosystem and depicts how the startup will engage with an ecosystem.

As a stand-alone representation, investors may find this less insightful for spelling out product differentiation, as it generally offers no metrics to measure against competition.

Investors care greatly about the accuracy and fairness of competitive positioning in pitches so this needs to be carefully thought through. In response to this, founders need to show the most important reasons that the startup will succeed, and the factors that will lead to clients or customers choosing their startup over the competition.

Becoming number one is easier than remaining number one

Understanding the competition is a dynamic process that should be revisited regularly and requires founders to constantly update their competitor audit. 

A downturn is not the time to relax as many successful businesses have been founded in tough economic times. And when the economy starts to pick up, other startups will come out of hibernation and new startups will emerge.

These businesses may have used the time to invest heavily in product and engineering, lying in wait for the upturn.

At any stage of the economic cycle, founders who understand the competitive landscape and can talk about their competition with a dose of reality, respect and insight, will be leaps and bounds ahead of those businesses that sit back and enjoy their dominance. For dominance is often short lived.

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