What to do When a Tech Giant Decides to Eat Your Lunch

Posted on Jun 13, 2011 | 38 comments


An edited version of this post originally ran on TechCrunch. This version has some additional details on a portfolio company I’ve invested in, which are disclosed below.

WWDC. The annual Apple event where no real hints about what products they plan to release are floated in the public domain in advance.

No private head nods are given to small startup companies to help them prepare. We’re in a market where 800-pound gorillas throw their weight around and the rest of the market races to react and survive.

Any company who develops products reliant on iOS spends weeks crapping their pants before WWDC. No vacation schedules allowed for weeks before or weeks after. The announcements come out in one day and then even if you survive the annual release announcements you often still have to scramble to make sure your product is ready to work on time.

It’s madness.

This happens with Google, too. Every change in the algorithm wipes years of effort off of the traffic numbers of affected companies as anybody hurt by the Google Panda release will tell you.

Or Twitter launches its own photo-sharing app integrated into their product.

What is a startup to do?

For starters, fear not. The world seldom ends. You just have to deal with some insufferable VCs and journalists for a while. They risk little but of course knew better all along.

It is the same movie I saw 10 years ago when every VC would say to me, “yeah, I get that you’re an online document sharing service, but what’s going to happen when Microsoft enters the market? You’ll be dead.”

Puh-lease. Tell that to DropBox. Or Box.net. Tell that to DocStoc, Scribd or SlideShare.

Right. Just like Microsoft stopped AOL from winning the early online wars. And AOL stopped Yahoo! from winning the Internet portal wars. And Yahoo! in turn killed Google when it came to search. While Google stopped Facebook in their tracks when they built a social networking company. And Facebook stomped out Twitter from building an open social network. And we know how Facebook stomped out FourSquare.

And on and on. eBay / StubHub. Amazon / Zappos. Twitter / Instagram.

Focus wins.

In your head you know that the reality is that bigger companies simply CANNOT compete effectively on all fronts. Focus by extremely talented teams beats breadth. It’s why we all exist.

The golden rules to live by are:

  • Platforms are channels not businesses. Don’t confuse the two. If you put all of your eggs into one platform shame on you, not them. If their business torpedoes you, you should have been diversified.
  • You need to be clear on what your sources of differentiation are from the biggest competitors or you’re dead anyways. If your product isn’t 10x better in your own mind, hang up your cleats now.
  • You need to be “known” for your sources of differentiation so even when the press declares you dead because Facebook, Google, Apple, Twitter are going to eat your lunch they are describing the threat in terms of them copying YOU. When they talk about “check-ins being dead” it’s because you created them. Or “gamification.” Innovation has become synonymous with you.
  • You need to stay focused. Have clarity of purpose. Don’t be scared. Be willing to shift positioning based on new market information but not lose your inner core.

Here are some examples.

FourSquare – I was recently asked on Quora whether I thought FourSquare was dead now that Facebook was going to launch “Places“. Others feared Yelp. Me? I chuckled. Sure, if Zuckerberg thought that check-ins were the single most important part of his future business and put 200 engineers on the problem and all of their market might, they’d squash FourSquare like a bug. That’s not going to happen.

In reality Facebook will have a small team on it. They’ll have to integrate with every other initiative on Facebook and adhere to common internal standards. They’ll fight for resources. End users come to Facebook to share photos, chat with friends or play games. Checking in is an afterthought for most. FourSquare is a different and unique product.

I can’t tell you whether FourSquare will end up being a huge and lasting company or not. I’m not on the inside. But I feel confident that its future is its own to execute and innovate on and whether it succeeds or not will have little to do with Facebook itself. I have on several occasions said publicly that I felt the biggest challenge for FourSquare is to know what comes after the check-in. What is the next major innovation. They seem to have several interesting ideas.

It will certainly be interesting to watch.

Group Messaging –  We just came off of another annual WWDC. In it Apple announced its new iMessage product. Apple built the product, so no doubt it will be freakin’ awesome. I’m sure I will personally is it as we own 2 Macs, 2 iPads, 3 iPods and 2 iPhones. Yes, we’re a fanfamily. The New York times came out with their list of companies impacted by Apples new releases and all of the major group messaging companies were on the list of companies in need of checking their shorts.

The major players are GroupMe, Kik and TextPlus (I’m an investor). Actually, I wouldn’t consider all of them “group messaging” companies but ever since SxSW that seems to be what the press wants to talk about.

Let’s look at some simple facts:

  • Apple will let you communicate seamlessly with all of your other friends using Apple devices. That’s a lot of people.
  • But the much larger market for smartphones will be non-Apple and all of the app-to-app messaging companies allow you to communicate with a much broader set of smart phones. iMessage will not. At least not initially. It does for the Apple world what BBM was for the RIM world. KIK became large in the first place specifically because BBM wasn’t interoperable across platforms so you know the market is broader than one closed ecosystem.
  • Some services like Tango already do video calls. This is already better than what Apple’s Facetime provides out-of-the-box
  • TextPlus also lets you communicate with ALL of your friends for free. How? We terminate to SMS. That means you can message to all of your friends who don’t have smart phones or iPods. The majority of the country and world are still on not-so-smart phones. Apple won’t address this anytime soon.
  • TextPlus also gives users phone numbers. That matters to the millions of iPod Touch users who don’t yet have phones. Their TextPlus phone number has become their identity.
  • The WSJ recently talked about how messaging was a wedge that was leading to a decline in the lucrative telephony SMS business. They cited Skype (now Microsoft). Here are some interesting stats for you: Last month TextPlus generated 1.3 billion messages between 8.2 million of our 17.5 million customers. We estimate that this messaging volume is more than 30x larger than Skype’s mobile messaging. Why? Again, focus. We’re a mobile first company. Skype is an amazing web company.

BBM will have another major push and we expect an inevitable Google rebuttal to iMessage. Purely being “group messaging” will be stuck in the cracks of the giants. Expect big competition in the group messaging market.

But shitting our pants? Hardly. We’re focused. We know our purpose. We know where we’re going. It will be differentiated. It will be hard for the largest players to compete with our vision. If we don’t get there one day it will be our lack of execution. We can’t be babies and cry about the big boys. If there are no big boys – you’re in the wrong market.

Bit.ly – Remember when Twitter announced that they would be embedding their own URL shortening and the Bit.ly obituaries were written in the first 24 hours? As far as I can tell Bit.ly is still around. In fact, they continue to be the dominant URL shortner and provide a plethora of analytics data to go with it. Next market moves? I dunno. But dead? Hardly. I still use them nearly every day.

Boxee – I remember talking with Avner Ronen before the announcement of the new Apple TV last year and just as Google TV was ramping up their marketing messages. Boxee had gone from marketing darling to dead man walking in the press in a matter of months. Avner was so calm. He pointed out that Apple would build a closed system that would appeal to part of the market. Ultimately a small percentage of his total opportunity. Boxee was about being open. It was about freeing up content to be displayed on big screens regardless of the source or content type. Where Apple would veer toward control, Boxee would bend toward open.

And whenever you see closed systems all of the major players not invited inside the velvet rope will search for technology partners. The enemy of my enemy is my friend. So every OEM not included in the Apple TV universe now knows they’re on notice to innovate. And no TV manufacturer with a brain doesn’t see that Apple will likely one day have its own Internet TV that will be scooped up by adoring fans like me. They already have beautiful monitors that are practically TVs. So hardware players need some software friends. Boxee might just be what the doctor ordered.

And GoogleTV? Yeah, that would slow down his discussions with OEMs whom he hoped would be building on the Boxee software stack more quickly, but he said to me,

“Mark, we’re not looking to build a quick flip. We have a long-term vision that video content will be widely available whether you produced it and it sits on your computer, whether it’s the sports you love but is currently only available on a content bundle or whether it’s long-tail content that appeals to large audiences of people who currently can’t get it over the Internet. And we’ll build the best discovery engine to find the best content.”

Will he get there? I’m not sure I’d easily bet against Avner. He really does have a great vision in a market that will undoubted be disrupted. But his story doesn’t map to an easy headline. Let’s see if he can put up the numbers over the next 3-5 years.

Summary
It’s not a sufficient strategy to think you’re going to win because you’re competing with big, dumb companies. They’re usually much smarter than you think. But they’re not nimble. They can’t take as many risks. They can’t iterate as quickly. They can’t easily have a focused set of marketing messages and a user experience that will have clarity of purpose for users.

You must figure out how you deliver real differentiation. What you’ll stand for, be known for. You have to have a core. You can’t let the market machinations and press proclamations worry you. The big guys can’t crush you as easily as others think. Be a cockroach. Be indestructible. And remember that competing with the big boys is not for wimps. Fight hard. No cry babies. The big boys will do what the big boys will do. And if you raise VC make sure your backers have a long-term vision and the internal fortitude to last the periods where it seems that the big boys will eat your lunch.

Good luck.

Image courtesy of Fotolia via @ryanborn

  • Judy Shapiro

    Mark — My thanks on this piece.. Its depth of argument is both well aimed and practical. I’ve actually put it in my bookmark bar — for quick reference. 

    Rest assured – I appreciate the time it takes to write these posts. I don’t always agree but I always come away informed. Much thanks for this one and all the others too for that matter. 
     

  • http://www.demeterinteractive.com Jesse Bouman

    Is there an example of a tech giant unveiling a product that DID wipe out smaller companies and causes many to have this fear? 

  • Leland

    Excellent article, and very motivational for some of us who are repeatedly in this situation of trying to hop around the giants. 

  • http://www.piqqle.com/blog/ Daniel Kim

    Apple came out with Itunes and wiped out Odeo.. but then Twitter was born, so maybe that was the best thing to happen?

    I really enjoyed reading this post as every other day, a worry pops in my head wondering what if X company does this, or Y company does that. At the end of the day, it is not about other firms, but the ability fo us to  focus on what we can control and be the best at that little piece and like Mark said, Cockaroach it as much as possible.  

    Here is to being the only survivors of a nuclear fallout!!!

  • http://www.piqqle.com/blog/ Daniel Kim

    Apple did wipe out Odeo with Itunes, but then Twitter was born.  So I guess that is fate pushing forward something great.  

  • http://www.aaronklein.com/ Aaron Klein

    Bravo Mark. I’ve had a number of seed stage investors ask what I was going to do if Google decided to copy what my new startup was doing and I said “cheer.”

    Cheer, they said?

    Yes, cheer. If one of the best companies on the web wants to validate our approach to solving a tough problem by copying us, remember that they can only copy what we’ve already done.

    Which means they will always be behind.

    YouTube wasn’t killed by Google Video. TextPlus won’t get killed by iMessage. Facebook wasn’t killed by Buzz. Dropbox wasn’t killed by Windows Live Skydrive.

    Innovation wins.

  • http://twitter.com/starttowonder S Jain

    This is very helpful Mark. My product takes on twitter and at times i feel scared twitter copying my ideas out but this is very encouraging and tells me why I should always be excited about this.

    Thanks

  • http://www.clubvision.tv Doug Wulff

    That read like a creed. Killer stuff.  The startups you mention know how to amass a crowd and earn their loyalty. 

  • http://www.7Geese.com Amin Palizban

    Hey Mark, great advice and my favorite sentence from this
    post is “Focus wins.” I have a question I’ve been struggling with for
    a week. I would be grateful if you could let me know your opinion:

    Most of the differentiation examples you mentioned are
    product feature differentiation. do you think a start-up can survive if the
    core differentiation is more of a vision and less product features? For example, we are
    building an enterprise social network and our vision is helping end-users get
    into a state of flow (when they are in the zone, happy, and super productive). We
    do that by making a fun gamified product that helps satisfy the pre-conditions
    for flow to occur that are: having clear, visible, and challenging goals and continuous peer feedback/recognition. Can
    our marketing message say that we are an enterprise social network that focuses
    on getting company employees into the state of flow? Or do we need to make our
    differentiation less abstract by focusing on product features such as goals?

  • http://arnoldwaldstein.com awaldstein

    Great advice Mark as the pain and fear are real when the monster (any monster) switches its segment crushing tail.

    ” Long-term vision and the internal fortitude’ maybe even more important than focus at an early stage as markets are just squishy in the beginning and everything looks like the competition till they sort and striate themselves out.

    Useful post, thanks!. 

  • Anonymous

    Great article.  I’d love to see you write about the people who are helping keep these people calm.

    I recently called a friend (who happens to be a VC, not investing in my area) when a potential competitor raised $9M and hired some really senior and experienced people.  He quickly talked me off the ledge and gave me some great advice. 

    But what really made me feel better was at the end he said: I have this call several times a week, from n00b’s to people with three exits.  It’s the human reaction and you just have to learn to ride it.

    -XC

  • http://twitter.com/easyrevolver Ben Watkins

    Mark, I really take your writing to heart. I hope others do too.

    I’ve long felt that executives are too quick to shut down programs simply because a competitor has announced a similar agenda. Fearing failure we naturally prefer low hanging fruit and profit without competition, but technology companies especially must be able to work in an environment of competition and innovation with tenacity. It’s the nature of our industry and has been since the early days. Value gets rewarded.

    Case in point: Recently, I was reading about the explosive growth of Hotmail (a mostly free email service that Microsoft continues to host today). When it launched way back when, free email was a big deal. Adoption numbers proved this to be true month over month (for the first year and a half, especially). Lots of Microsoft white-papers described the math of network dynamics and growth in the age of the internet.

    But then Google launched Gmail and Microsoft did not respond much, perhaps due to organizational inertia or a lack of focus on email in general (the loss leader). The Google email innovation followed the launch of their free search service. Not only did Gmail survive, but Google wound up taking the lion’s share of the entire email market by providing enhanced inbox features, organized by a usability centered design methodology. They stayed focused and won.

    I still use both services today, but I use Gmail more often. Google’s role as a trusted brand was significantly enhanced (far me at least) by their ability to stay focused, delivering value every time I go to my inbox. This makes me happy and keeps me coming back for more.

  • Dave W Baldwin

    Well put Aaron!

  • Dave W Baldwin

    One of your best posts Mark.  You do have to think long term no matter what.

    The giants will throw things around trying to scare the little guy.  Micro did their “Our VA coming in 2 yrs” (over 2 years ago), a major company in the arena of DARPA doing their VA that would be coming “this Fall” (it didn’t come out until following year and they claimed they never said it was a VA)… and so on.

    For those with a big idea, get the ducks (tech) in a row and be patient.  The above subject applies to investors also.  It is easier for someone who doesn’t have the long view to claim it is already taken care of… if so, remember they probably weren’t a promising source anyway.

    So, both sides (Devs and Investors) need to take a breath, remembering the story on any of these products will change a few times before anyone even uses it!

  • http://twitter.com/jvandenbroeck Joris Van den Broeck

    Great, as always :)

  • Paul Azous

    maybe these smaller ones will get acquired.

    thx

    Paul Azous
    CEO, PPM.net

  • http://twitter.com/CamiloALopez Camilo Lopez

    As long as your message is clear and your customers understands and values “state of flow” you are ok. 

    Mark said it simple and to the point “Focus”! If productivity is your focus, make sure they know how you are doing it, make sure your differentiator is obvious!

    Good Luck! 

  • http://twitter.com/CamiloALopez Camilo Lopez

    Focus, Focus, Focus!

    So simple, so hard!

  • http://twitter.com/dariusvasefi darius vasefi

    Thanks Mark, one of the most valuable blog posts I’ve read.  The golden rules are truly Golden.

    And this section shows what happens in real life in large companies:
    In reality Facebook will have a small team on it. They’ll have to
    integrate with every other initiative on Facebook and adhere to common
    internal standards. They’ll fight for resources. End users come to
    Facebook to share photos, chat with friends or play games. Checking in
    is an afterthought for most. FourSquare is a different and unique
    product.

    Large company executives should also read this before they jump into a new project and waste their resources.  They also need to focus on their core business as they stand to lose a lot more if they lose their main focus.

  • http://twitter.com/jaredhansen Jared Hansen

    Fantastic article as usual – thanks Mark.  

    With good reason, I often field questions along the “yeah, but what about [BigCo]?” lines, and I keep coming back to the same points you make here about focus, openness, the incentives of the big players to silo their users off, the advantages of neutrality, etc.  

    I’m forwarding to the rest of our team — this article will definitely be worth re-reading on the inevitable days when it seems that Google/Apple/HP/MSFT/* might eat our lunch.  Thanks again.

  • Todd

    This is exactly right.  Look at Google’s attempt at check-in’s, looks like an after thought, just another check box feature that they added to maps.  

    I don’t think it’s the team size that matters though because most of the companies mentioned have pretty small teams, it’s the weight behind the effort that counts.

    Google, facebook, etc. it’s always about how Y can help strengthen their primary business, not how to grow Y into a primary business, in some ways these new ideas are like viruses invading a body, the companies either transform them to look like other bits of the company or they kill them.

    Great post 

  • http://www.researchandcompare.com Alex Murphy

    This is the best post that I have read.  Focus rules the day!

    Funny how some investors say “what no competitors, no market” and then turn around and say “too many competitors, they’re going to eat your lunch.”

    This is the best approach: “We’re focused. We know our purpose. We know where we’re going. It will be differentiated. It will be hard for the largest players to compete with our vision. If we don’t get there one day it will be our lack of execution. We can’t be babies and cry about the big boys. If there are no big boys – you’re in the wrong market.”

    Thanks.

  • http://jessicaobermayer.com Jessica Obermayer

    Absolutely, Mark! What a great article – and one that sorely needed to be written.

    So many VC/deal journalist articles recently have not only proclaimed upcoming obituaries, but some of them also insulted the intelligence of the firms who build on platforms (e.g., Twitter and some of the other gorillas).Smart, nimble, focused – with vision and know-how –  can win against the 800+ gorillas if they diversify and keep innovating. Spot-on!

  • Pete Griffiths

    excellent

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  • inboulder

    Notice how Avner has almost completely disenfranchised the core Boxee audience by providing a buggy, over-simplified, inflexible user experience (check their forums to verify). Being 6 mo late on netflix and having to lock down the box almost entirely to satisfy big media’s reqs (not to mention no hulu+ in sight) somewhat negates your arguments, the gorilla muscle still seems to dominate small CEOs behavior, with very few able to stand up for their stated vision.

  • http://www.smallbusinessbible.org Small Business

    Focus!
    It’s never been that easy, I didn’t notice that, why?

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  • http://twitter.com/kevinjmireles Kevin Mireles

    One thing that helps is to piggyback on an existing initiative that people already understand and are executing toward so that your tool is a just a better way to achieve their existing goal with an existing budget. If your target customers understand what a state of flow is then that’s great but I’ve never heard that term and doubt I could get funding for it. However, we have a huge lean initiative, agile is big and there are dozens of  other existing concepts which your tool might fit into that already have advocates and budgets. For more detail  about piggyback marketing you can read http://bit.ly/mLCIyA  

  • http://twitter.com/kevinjmireles Kevin Mireles

    One thing that helps is to piggyback on an existing initiative that people already understand and are executing toward so that your tool is a just a better way to achieve their existing goal with an existing budget. If your target customers understand what a state of flow is then that’s great but I’ve never heard that term and doubt I could get funding for it. However, we have a huge lean initiative, agile is big and there are dozens of  other existing concepts which your tool might fit into that already have advocates and budgets. For more detail  about piggyback marketing you can read http://bit.ly/mLCIyA  

  • http://www.totallyseo.co.uk Search Engine Marketing

    Hi, nice article.Its great information.Its  very informative for me.This article clear my all doubts which i have before reading this article.Keep sharing with us

  • http://www.sixstringcpa.com Geoffrey

    One of the single best ways I have heard to describe a business execution strategy:

    “Be a cockroach. Be indestructible.”

    OMG, that is great!

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  • Patrick Allen

    great post, mark. as always. i rarely comment but with the private unveiling of google+ i wanted to resound the cry.

    i would assume there are a dozen+ group centric startups around the world shaking in their boots after the announcement. for the exact reasons you state above, we’re not one of them. from the beginning, we’ve had dozens of angels/advisers tell us to go bigger, expand our niche, and become more general purpose…and we’ve knocked it all back. i’ve got a note above my desk with 3 words – ” focus, focus, focus.” webgreek.com is built purely for the vertical that we know best; fraternities and sororities. after being in the market for over 2 years and listening to our users more than ourselves, we’ve discovered the market specific pain points that the giants would never even think of building. we’re 22-25 yr old scrappers…all i care about is getting on base with my first company so that when i start my next one, i can come to guys like you with a track record full of results, not “coulda woulda should been’s”

  • http://www.web-self-service.com Wesley Wise

    Very interesting article. I totally agree with your conclusion. It’s going to be difficult to compete with the big boys but good strategies can still come up anywhere that could help.

  • http://www.web-self-service.com Wesley Wise

    Very interesting article. I totally agree with your conclusion. It’s going to be difficult to compete with the big boys but good strategies can still come up anywhere that could help.