How To React When You Discover A Direct Competitor To Your Startup

When you pour your time, effort and money into growing a startup for many months and years, it can be a crushing experience when you discover another company is building a very similar business.

And while such occurrences can be hard to deal with and damage confidence, they can also be turned into a positive if you use the competition as a constructive tool to improve and hone your own business.

We recently asked the founders of online identification company Beehive ID, CEO Mary Haskett and CTO Dr. Alex Kilpatrick, about how startups should react if this happens to them, following recent experiences they had in this area.

In our discussion below, the two founders give some fantastic insight into how they personally reacted to this situation, and give advice to other startups about how to use competition to further their own products.

Read the full interview below:

When you see a startup that is very similar to your own, how do you react?

Alex: When I first started, if I heard of a company doing something similar, it really bothered me. I would immediately panic because I thought that because someone else was already doing it, we couldn’t do it. Now I don’t really react at all. It is just information – not positive or negative.

If I know that NO other startup is similar to mine, it does concern me, though. It probably means there is no market for what I am offering.

Mary: I have that same visceral reaction — as if there can be only one. But just because you have McDonald’s on one corner, that doesn’t mean you can’t have a Burger King on the other corner. In fact, you are more likely to see a Burger King on the other corner, because that location is proven to have an audience that wants to buy hamburgers. Most startups fail because they built something that nobody wants.

Can you name a specific time this has happened recently?

Alex: We recently soft-launched a selfie authentication product. About a week later, MasterCard announced their own selfie authentication trial program for verifying mobile payments. I was elated this happened for a number of reasons. First, they aren’t directly competing with us, so we aren’t losing any business because of them. Second, they will spend way more than we could dream of trying to get people used to the concept of selfie authentication. We have been watching the public perception and discussion of this closely. In effect, they are paving the way for us, and we are very grateful, even though they probably have no idea who we are.

Mary: My first reaction is always panic, but I remind myself about the dozens of hamburger places we have in Austin. We are using selfie authentication to give people a way to do “anonymous accountability” — we want users to be able to demonstrate that they are a real person and are willing to be accountable for their actions without having to disclose personal information. It’s different from what MasterCard is doing. But if Google announces they are going to start doing online identity verification, we will have to find something else to do.

Why do you think some startups might react negatively?

Alex: A lot of times startups feel like they have an edge if they are the only ones doing something, because they have no competition. That is sometimes true, but it is rare. In almost all cases if a startup has no competition it is because they are building something that no one wants. Having competitors provides some validation that you are on the right track, because at least someone else thinks it is a good idea to pursue. If your competitors have paying customers, that is even better because you know *someone* is willing to pay for the product or service.

Mary: It’s just human nature. You have this thing you are doing and it feels special and unique. But I’ve seen a lot of companies who say they are doing social authentication, for example, but I haven’t found anyone yet who is really doing what we do. They were either doing a very lightweight thing — if you have a Facebook account you are real — or just something else entirely. It’s easy to build a product that uses a webcam, but our technology comes from decades of building very complex biometric identification systems for entire countries, and we know it’s not easy to replicate.

What should startups do if they feel threatened by a competitor that is doing a very similar thing to them, how should they turn this into a positive?

Alex: Just look at it as a valuable source of knowledge and insight. Look at what they are doing. Are they doing things a different way from you? Have they thought of things you haven’t? Who are their customers? Can you do things better, or cheaper?

I really think the thing that kills most startups is a lack of knowledge. They just don’t know whether people want to buy what they are building. When you see competitors, you get free knowledge! You just have to make good use of that knowledge and not let your emotions come into play.

Mary: Back to the hamburger example — there is always a way to differentiate yourself in the marketplace. There are literally fifteen different hamburger restaurants within a five mile radius of my office, but somehow they are all different. Figure out how you are different and learn how to articulate it. Instead of traditional transaction-based fraud prevention techniques like geolocation or browser fingerprinting, we are focused on people and an easy way for them to establish their online identity in a way that preserves privacy. Even for a dating site, at first you don’t need to know their home address, driving license number and credit history. You just want to know if they are going to try to take advantage of you in some way.

With recent high-profile examples, like Spotify and Apple Music, many people want to pit companies against each other, saying there is only space for one. Do you think in many cases there is space for a number of competitors?

Alex: There is almost always room for competition. The bigger the company you are competing against, the more opportunities you have because big companies are rigid and difficult to change. In our DoD work, we have been able to successfully compete against $100M+ defense contractors because they need 10 people, 12 months, and five levels of executive agreement to do something that we can do in a month.

In your example, if you can do something better than Spotify/Apple Music and get 5% of their users to switch, then you would have a very successful business. It doesn’t matter how well established a business is, there will be people who are looking for something different. You just have to find them.

The one exception is something that is so dominant in the market that you will not have the resources to compete with it. You can build a niche Facebook, like maybe “Facebook for lawyers”, but it is going to be almost impossible to go head to head with the really big companies (Facebook, Google, Apple, etc.) in their core businesses.

Mary: People talk about how there is only one Facebook, but before Facebook there was only one MySpace. And if you can find one thing and do it really well, you probably won’t beat Facebook but if your technology is aligned with their goals, they may decide to acquire you. We reach out to competitors all the time and have conversations. Obviously you have to be careful, but often you will create opportunities to work together in a way that benefits both companies.

Do you think finding competition can help to crystallise what makes your product unique and different?

Alex: Sometimes, but not really. I don’t think people should react to their competition. If they do X, maybe you should do X too. Or maybe you should do Y instead. You do need to know how you are different from your competition, but you don’t have to be different just for the sake of being different.

Ultimately, you just treat your competition as a source of information and nothing more. You just want to know why they are doing what they are doing, and how that plays into your understanding of the market.

Mary: I don’t spend a lot of time thinking about our competitors. We will discover them at times and I’m interested, but it’s not something we focus on. But you do start to get questions like “How are you different from X?” and you have to be able to answer those questions.

How should you use what the other company is doing to help improve your product?

Alex: It varies a lot. It is your product and you understand your particular market and how your product fits into that system – you have to structure your actions in terms of your knowledge.

I’ve never copied a feature from a competitor, but I have gotten inspiration from features that led me to ideas of my own. Success and failure are great indicators – if a competitor does something that leads to a lot of traction, or something that fails, then we will take a close look at that. But we won’t necessarily act unless it makes sense for our business.

Mary: I think it’s easy to look at other companies in your space and think “Well, if they are doing X, then we should too”, and that’s a trap. You don’t know if that thing is working for them anyway. We look to our customers and prospects to improve our product. I love talking to people about BeehiveID. Even if there is no chance at all that they will use my product, I want to talk to them because we learn so much from hearing about the problems they face and how they are going about solving them. They are a much more important source of data for us than our competitors.

By Dr. Alex Kilpatrick

Find out more about BeehiveID’s online identification here, and read about Dr. Alex Kilpatrick’s past building ID systems for the US government in Iraq here.