Why You Should Make Your Competitors Your Frenemies

Posted on Dec 27, 2010 | 25 comments


Yesterday I wrote about how to talk to investors about your competitors.  In short, acknowledge they exist, be transparent about strengths & weaknesses and use your differences to talk about how you want to position yourself in the market.

But more important than how you talk about them, how should you actually treat your competitors?

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 actually some benefits to having something that galvanizes your team.

But many startups take this too far and I would actually encourage a dose of enemy & 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” as depicted in the simple logo to the right.  It emphasizes both cloud computing and salesforce.com’s differentiation – they’re not “software.”

Of course they’re 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 & who is good vs. evil helps journalists, market analysts & customers.

2. No Enemies, No Market – The first instinct of a journalist when they hear your story is to reach for the “compare & contrast” story.  No journalist wants to publish your press release or print what you tell them verbatim without saying, “while this new company is plotting a brave new world, but there are some storm clouds.  Their competitors have already made some progress – here’s what they do and why it won’t be a one-horse race.”  It’s almost a requirement of journalism – in part because that’s also what readers want.  It’s why we all love the “horse race” stories of every election cycle despite people lamenting this and wanting journalists to just cover the issues.

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.

And as I talked about in my “talking to VCs about your competition” post, 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 and/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’re done a great job in 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 all about limited resources, huge time pressures and a constant struggle to time market adoption and investor financing.

So when you need your engineering team to dig deeper and crank out code despite working “yet another weekend” it helps to have the Evil Empire.  If you’re sales & 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 worth its while.

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

When Frenemies are Better

Yet keeping our competition as only 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 2 weeks later.  They must have been working on them at the exact same time.  Funny that.  Turns out it’s how 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 talked about 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, well informed and decent people.

I also learned that we had way more in common with each other than I had thought.  We had way 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 early 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 competition.  These meetings were my best source of what our nascent market was REALLY up to (not the tech press version of it).

In the end, 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 & 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 after meeting them I knew it was “just business.”  They were pretty normal guys.

When the Enemy Mentality Harms You

And there’s a more destructive side to over-demonizing the competition: You start to believe your own internal hype.  I often meet startup companies who come in vilifying their competition telling me stories about how bad they are at this or that.  As a VC you often have 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 to 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.  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 focus on your customers & market.  But be paranoid about how good the competition is.  Use this as a motivator to drive yourself harder.
  • and finally, it is unbecoming of you to belittle your competition in front of us or in front of customers.  You look 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 very few get away with this.  And even Marc only gets away with it because of his extreme success.   In stead 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.

  • Bob

    it's 'rooting', not 'routing' for sports teams :)

  • http://www.victusspiritus.com/ Mark Essel

    Totally agree with your last bullet Mark, and it's the central idea behind the Art of War within the social web. I believe it's important to be aware of what your competitors are doing, but to maintain primary focus on your customers and internal business health and direction. In other words, keep your competitors in your rear view for glancing at, while you keep your business plans ahead of you.

  • http://bothsidesofthetable.com msuster

    Damn! I always make that mistake. Thanks for spotting. ;-)

  • http://www.zoscomm.com jonz

    I agree whole heartedly with your point on Frenemies. It works in sports from peewee to professional. It should be essential in business. If anyone has a challenge in approaching their frenemy, break the ice with the passion for your industry (conference, LinkedIn, twitter, etc). There is nothing better than a shared passion for what you do. Grow the pie (aka, the market) together.

  • http://bothsidesofthetable.com msuster

    True about sports. The best athletes I notice competing hardcore during the game and hugging afterward (think US football)

  • http://www.facebook.com/people/Robert-Owens/1489622577 Robert Owens

    Very good article – it is always better to know what they are doing so you can replicate NOT duplicate the efforts and make the replication a better model.

  • http://www.facebook.com/people/Robert-Owens/1489622577 Robert Owens

    Also could you tell Marc that I would like a personal meeting with him. We think on the same cosmic plane.

  • http://twitter.com/adamdbradley Adam Bradley

    Powerful comment: “you rarely will have anything that’s TRULY unique. Victory is often about better execution.”

  • http://bothsidesofthetable.com msuster

    It's funny because we all think our offering is super unique but it rarely is. I learned this over many years. Yet still I meet many first-time entrepreneurs who are convinced that what they are offering is totally different.

  • philsugar

    I think the biggest reason is that you are all fighting against “no decision” or “status quo”.

    To make a sale you have to get a person to make a buying decision.

    The easiest choice always is to not make a decision and stick with the status quo.

    Therefore as I commented in the last post the biggest, baddest competitor on the planet is “no decision” and if you have to fight him with no help from competitors you better have a lot of time.

    Every competitor has a common enemy…..”no decision”

  • Susan

    Mark ~ A great piece, very much in line with Seth Godin's current post http://bit.ly/fMUpEg about how tempting it is to demonize. It brings to mind a quote I came across recently. Florence Shinn wrote, “The game of life is the game of boomerangs. Our thoughts, words, and actions return to us, sooner or later, with astounding accuracy.” You wrote that, “[v]ictory is often about better execution.” That seems consistent with things Jeff Bezos has said about Amazon, i.e. that it's focus on creating the optimal customer experience incorporates what it learns from the competition. Compare quotes 11, 19 and 20 with quote 49 on this list: http://bit.ly/ezjyYY. Thanks for another great post, Mark. Hope you're faring well in all the snow. Susan

  • Susan Alexander (@SusanRPM4)

    Mark ~ A great piece, very much in line with Seth Godin's current post http://bit.ly/fMUpEg about how tempting it is to demonize. It brings to mind a quote I came across recently. Florence Shinn wrote, “The game of life is the game of boomerangs. Our thoughts, words, and actions return to us, sooner or later, with astounding accuracy.” You wrote that, “[v]ictory is often about better execution.” That seems consistent with things Jeff Bezos has said about Amazon, i.e. that it's focus on creating the optimal customer experience incorporates what it learns from the competition. Compare quotes 11, 19 and 20 with quote 49 on this list: http://bit.ly/ezjyYY. Thanks for another great post, Mark. Hope you're faring well in all the snow. Susan

  • Lstream

    Nice article. It leads to a question. My company is pursuing a new market category, and has two small startups as competitors. One of them is good for the market, and appear to compete fairly. But the other one puts us in a very difficult spot, because they consistently lie and misrepresent their product in the market. We have caught them red handed claiming to have industry certifications they don't have. FCC approval is one. Our products require FCC Part 15 and they deliberately mislabeled their product, when they had no approvals. They claim features and functions that don't exist. Some of these require a trained eye to spot, and customers often find out the hard way, AFTER they buy the product that they product doesn't perform as expected, and that the web site greatly exaggerates what the product can do.

    We end up competing with these guys, but we compete with a real product, while they compete with a web site that describes a fantasy product. So customers tell us that we are going to be eliminated from consideration, because we don't have feature X that these guys claim to have. So we are forced into a tough spot, where we lose because we don't want to call our competitor a liar. They were actually eliminated from an RFI process a couple of months ago, because they were caught lying three times on the first page of their response.

    Some customers come back to us months later after they get burned by these guys, but others end up jaded on the entire product category, and assume all competitors are sleaze balls. No matter what, many months of progress are lost. This is bad for the market.

    I am interested in what advice people have when faced with a competitor like this? By the way, in an actual head to head competition, they have never beaten us, but we can get eliminated before having a chance to compete fairly.

  • http://www.cosential.com Dan Cornish

    Great article. I would add, ignore your competitor while design your product. If you pay too much attention to them during design, you might as well ask your competitor to design it for you instead of making it your own. During the sales process, always show respect, bad karma has a funny way of coming back to you.

  • http://www.trifonic.com LT

    A good analogy here is how sports teams (rather than sports fans) approach their competition. Good teams go to battle with their competition when it's game time, and believe they can win. But they never underestimate what the opponent is capable of… and off the field almost everyone is actually friends.

  • kermit64113

    Both articles are excellent. I think with customers and investors you have to relate the business to your strengths. For example, with Mobile Symmetry, one way we think about data is the display of information, especially if that individual is not (accurately) in your contacts. Some of our competitors think a lot about the communication function (e.g., sending a group text) but not about display of incoming calls/ SMS to replace caller ID providers.

    Ditto for our distribution strategy: as a former Fortune 100 Wholesale executive, I care more about others' success and the interfaces to make this efficient and easy. Others take a “viral” retail approach with ad-supported free apps. Play to your strengths.

    The investors who follow the herd will be critical. And sometimes we're wrong and have lost our way, which is why you keep your competitors closer than your friends. But when you cross between traditional views of a business (e.g., Caller ID/ calling reason delivery, Opt-in Mobile 411, Parental controls of child contacts), it gets fun and where there's fun, chances are there's value.

    Thanks – way behind on my reading, but the last two were a good catch-up.

  • http://davidlew.is thedavidlewis

    Mark, thanks for another great article.

    I've used the frenemy strategy twice with great success. The first time was years ago in banking. We got 19 banks together to discuss online banking and the issues we had with Intuit, Microsoft and Checkfree. Avoiding collusion was a very big issue as it was banking. If anyone mentioned a price, screams erupted, people pressed keys on their phones… you get the idea. We accomplished a lot.

    I brought that over to loyalty shopping. I had a new, small site in the field. My “suppliers” kept telling me “Everyone else is OK with it.” So I called two of my biggest competitors and asked them if they were, in deed, OK with a few issues. They were getting the same line. Six of us got together and began having a monthly call and using an e-mail list. 4 years later we have solved a lot of industry problems, changed the development schedules of our mutual partners and never shared a single proprietary detail. Oh, and it helped my company appear to be more of a player in the field.

  • http://twitter.com/jad714 Joshua Davis

    Come on, people. This is age old advice. Keep your friends close and your enemies closer.

    http://www.philstockworld.com

  • Rob_Berman

    Many industries have conferences or working groups where common issues can be discussed without crossing the line to colluding. Same principle would apply to these start up companies. Knowing your “enemy” is better than thinking you know them.

    Rob

  • http://lmframework.com David Semeria

    Slagging -off people generally reflects badly on who's doing the slagging.

    Politicians do it all the time – but that tells you more about the electorate than the politicians.

    But in smart company, it's usually a very bad idea – at least that's what I think.

  • Mazmazi911

    hi Mr.Suster
    sorry for asking this again i tought maybe you don´t check the comments on the old post ,so my question is :

    do you also do seed founding´s in europe,my case germany?

    It´s realy hard to get money oever hear :)

  • Mazmazi911

    best shown on facebook,old idea,great execution=win²

  • http://startupmeme.com Sardar Mohkim Khan

    informative.. I think the new word for enemy is friend

  • http://twitter.com/BrowseMob Matthew Hurewitz

    A little late to the party, but better late than never.

    Your competition is a great source for information, potential hires, customer leads, MOTIVATION, etc. What they are excited about gives you insight into their roadmap. Meeting someone stymied by the decision making process of an 800 lb gorilla, can be your next PM hire. Who they are trying to sell, let's you know who you should be trying to sell (If they are pitching wal-mart, you should be at Target / a little more down stream competitor). Lastly, there is no better motivation than a competitor telling you why your business will never work…I'll share that story, one day, when I'm certain he wasn't right : )

    If you are a young startup, the big guys probably won't view your company as a threat and that mentality has put me in an advantageous position more than once.

    Great Post! Happy New Year!

  • DavidR

    Thanks for the post. We are a small startup with some traction in our industry and I think now is a good time to become “frenemies” with our two closest competitors. They are both larger and more established then we are and I've never met them or spoken to them but i'm fairly certain they are aware of us. We have our industry's largest trade show coming up in two weeks and I think that would be a good time for me to meet our competitors CEO's. Do you have any suggestions about the best way to approach / contact them about having an informal meeting?