Every entrepreneur that I know has lost sleep worrying about their competition. Here’s why I’ve decided to stop worrying…
This is part eleven in our ongoing series, Journey to $100K a Month. Earlier posts can be found here.
As I frowned at the mirror and traced the lines with my finger, I couldn’t help but think that 32 is way too young to be getting wrinkles around my eyes.
I was stressed, and it showed. I wasn’t sleeping well, I wasn’t eating right, and I was bummed out.
Simply running a business is more than enough of an excuse to make almost every other stressed-out entrepreneur nod their head sympathetically, but I wasn’t ready to accept it.
So a few months ago, I set out to find and eliminate (or at least reduce) the specific sources of stress in my business life.
What I realized was that by far, the most disproportionate — and controllable — cause for anxiety was the hours I spent thinking about what our competitors were up to.
- Are they stealing my customers?
- Are they better at running a business?
- Are they building some new industry-defining feature that I haven’t thought of?
And while I knew I had to stop focusing so much on the competition, the fixation couldn’t simply be turned off. I had to work really hard at it.
And while I’m doing a much better job these days at managing stress and focusing on the right things, sweating the competition is still something I have to deliberately stop myself from doing.
To that end, what follows is as much a reminder for me as I hope it is for you.
I’m happy to say that after a whole lot of conversations with advisors and other entrepreneurs far smarter than I am, as well as honest reflection on the state of Groove and our goals, I’m no longer losing sleep over competition, and here’s why:
1) Competition Validates Your Business
I’ve told this story on the blog before, but early on in Groove’s development, a fairly well-known VC asked me:
Why on earth would you want to enter this space? You’ll be fighting an uphill battle against huge players. Zendesk, Desk.com, plus an overcrowded market of smaller companies.
And he was absolutely right — our customers had dozens of options.
But that was exactly why I wanted to get into this market.
Fifty other companies trying to solve the exact same problem?
Fantastic. I’ll take that over trying to convince people of a problem they didn’t even know they had.
The frenzy of customer support software companies shows that it’s a problem that people want solved.
Plus, we don’t have to be better than Zendesk.
We just have to be better than Zendesk for our specific audience.
Groove isn’t right for everyone, and neither is Zendesk. Or Uservoice. Or Desk.com.
But by building the best damn support software possible for our small-ish niche of potential users, Groove can become the no-brainer best option for enough customers to still achieve our goals as a business.
There are 125 million SMBs (small or medium businesses) in the world.
Let’s say 5% could benefit from SaaS customer service. That’s probably conservative.
So, rounding down, we have:
6 million potential customers.
Apply the 80/20 rule and say that 80% of these potential customers follow the herd and pick one of the top 3 providers like Zendesk.
So, 20% of the market is left for Groove and the smaller guys.
That leaves: 1.2 million potential Groove customers.
How many of these customers does Groove need in order to get to $100,000 per month?
The product costs $15 per month per user. Being conservative, let’s suppose that all their customers have only one user [Note from Alex: this number is actually higher, see my explanation below].
So, they need 100,000/15 = (rounding up) 7,000 customers required to hit the goal.
That’s just a tiny fraction of the potential customers, 7,000 / 1,200,000 = 0.58%
Inversely, the market can potentially support 1,200,000 / 7,000 = 171 companies like Groove could potentially reach $100,000 per month in sales.
Mark’s approach is spot on, but our average customer has closer to three users. So, the number of customers we need to hit $100,000 is more like 2,222 — fortunately about 3x lower than Mark’s estimate.
Takeaway: A competitive marketplace means that there’s a need for a solution, and there’s no way the biggest players are solving the problem for everyone. There’s always a (potentially profitable) niche to carve out, with the caveat that you can’t simply build another solution; you must build a better one for a targeted audience.
2) Stressing Over Competition Might Not Help
For some people, stressing over competition is the path to victory.
If you’re looking to make a billion-dollar exit, you need to destroy your competition. The potential benefit is huge when you look at exit multiples, as Jason Lemkin beautifully illustrates.
But Groove isn’t looking to make a billion-dollar exit.
That approach lets our whole team strike a balance between working hard and living the way we want to.
And it lets us happily push forward without trying to figure out how to destroy our competitors.
With that said, our audience is certainly looking at the competition when they evaluate their options, so we need to make sure Groove is better for our customers’ specific needs. But there’s a fine line between building a competitive product and being obsessed about competition.
Takeaway: Figure out what your end goals are. If you want a huge exit, then focus (some of your energy) on your competition. But if your goal is smaller and more sustainable, then there’s a lot less to be gained.
3) In Fact, Stressing Over Competition Could Kill Your Business
I love watching other startups succeed, and I’ve been cheering on Fab.com since they hit the scene.
It’s hard to watch their recent struggles, but there’s a valuable lesson to be learned: focusing on your competitors can come at a huge cost to your own business.
Jason was hell-bent on destroying Fab’s European competitor, and he sunk so many millions into doing so that it wasn’t long before the company hit a financial wall. The layoffs and executive abandonment have left a painful hole in Fab. I hope Jason can turn things around, and I’m rooting for him.
Of course, there were many other factors involved, and the above is a huge oversimplification, but it still gets at an important point: distraction is a business-killer.
We learned the same lesson the hard way when six months of waffling on early acquisition offers stalled our development nearly killed Groove — you can read all about it in my post about our early fails.
Takeaway: Don’t get caught focusing on your competitors at the cost of making wise decisions about your own business. At best, it’s a waste of energy and resources, and at worst, it’s a startup death wish.
4) Even Worse, It Could Kill You
I’m not a doctor nor a health expert, but I believe the British Medical Journal when they say that even low-level stress can increase the risk of heart attack or stroke by 20%.
What do health risks have to do with a startup blog?
As I mentioned above, I’m in this game for the long haul. That long haul is going to be a lot shorter if I worry myself to death.
The startup community loves to glorify the high-stress 24/7 slog of a lifestyle that entrepreneurship brings, but I’m doing my best to not fall into the same trap.
So while I still worry plenty about things that can make a big impact on our business — conversion rates, user experience, customer support — the less sleep I can lose, the better.
Easier said than done, I know, but reminding myself of this little fact helps.
Takeaway: Most entrepreneurs already carry enough stress to do real damage to their health. Adding to that by worrying about something you can’t even change? Not worth it.
And at the End of the Day, Your Competitors are Just as Worried as You Are
I try to bare it all on this blog: wins, fails, goals, excitement, disappointment, fear…
One of the most enlightening lessons for me has been reading the comments and seeing how many entrepreneurs echo the ups and downs of my emotions.
We’re all riding the same roller coaster, and your competitors have the same fears and concerns that you do.
Given the damage that competition-induced stress can do to a business, I’m more than happy to let our competitors do the worrying, and trade in my own stress for a competitive edge.