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5 Ways Tech Startups can Compete with the Industry Leaders

Alexey Chalimov Alexey Chalimov, Eastern Peak
0 Comments| March 18, 2020

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It is a common thing for any established industry to be dominated by several large companies. There are eBay and Amazon for eCommerce, Facebook and Snapchat for social media, Uber and Lyft for transportation, etc.

Beating such competitors is a tough challenge every startup has to face when targeting an existing market. The industry’s “big boys” either don’t give the newcomers a single chance to succeed or hurry up to buy any company with a potentially winning product.

Is there any chance for the tech “Davids” to survive and thrive in a world increasingly dominated by the “Goliaths”? What does it take for a startup to win over a market leader? Let’s consider some real-life examples.

The Davids vs the Goliaths: Understanding your strengths

First of all, it is important to understand that both large companies and startups have their strengths. Namely, there are 5 reasons industry leaders can win over small businesses:

-        They have as much resources as needed (and the best ones - skilled employees are more likely to work for bigger companies).

-        Big companies can afford to invest millions of dollars into innovative technologies and risky projects.

-        They work at scale and can offer lower pricing.

-        They are easily recognized and trusted, so when it comes to choosing a provider, they

-        typically come to mind first.

-        They have the best marketing specialists (and million-dollar budgets) to put their services/products in the spotlight.

Yet, this doesn’t mean startups don’t stand a chance. To even the score, consider the 5 benefits of running a small business:

-        Small companies are agile. They can pivot fast and with minimum risk or investment.

-        Startups are more humane. They usually don’t have the bureaucracy of large companies. Customers can talk directly to the business owner, as opposed to speaking with some individual working from a call center in the Philippines.

-        They are more personal. Startups are more flexible and can tailor their services/product to match the needs of every customer.

-        Startups have greater control over the quality of their product/service. With little intermediary between the engineers, sales managers, or customer support workers, a business owner can directly supervise every aspect of the business process and ensure perfect quality.

-        Startups are more likely to do their best to please every customer. Every single online customer review can make or break a business when it is just trying to establish its market presence.

Both startups and established companies have certain benefits in their arsenals. Yet, having the required resources (both human and monetary), established market presence, and a loyal customer base, large companies seem to be one up on startups. Does it mean that startups don’t stand a chance?

Not necessarily. There are many examples of successful startups competing with the established industry giants. Here are some lessons we all can learn from them.

How to beat industry leaders at their own game: 5 ways tech startups can win over established companies

1.    Make your product your main advantage

Regardless of the industry you are focusing on, having an exceptional product/service is the most obvious way to win the market. First of all, your product should be useful and should have undeniable value (and make sure the potential users see it too).

From a sustainable backend infrastructure to a pixel-perfect UI design, a good product speaks for itself.

Case in point: Hotel Tonight

Hotel Tonight is a good example of a successful startup, competing with such giants as Expedia and Booking.com. “I was disappointed with the quality of travel apps for booking last-minute hotels,” Sam Shank, Hotel Tonight founder admitted in his interview. So, he decided to target this opportunity.

The product was initially focused on quality first, providing a user-friendly app with a sleek design and extremely good performance. And it is being constantly improved. Another competitive advantage lied in the fact that the product was mobile-first, which was a rare thing back in 2011.

“No matter how much you spend [on marketing], you need a quality product or no one will buy it.”

Sam Shank, founder at Hotel Tonight

2.    Focus on doing one thing extremely well

Rather than trying to please as many people as possible, narrow down your focus. Be it a specific audience, location, or one problem you can solve, you need to start small. Choose a certain niche, build a product that can solve one main issue (but can do it extremely well).

Build your product around a certain feature that existing solutions lack. Remember Periscope, the live-streaming app? It basically introduced something that most social networks lacked at that time, and in just 4 months from the time of its launch, was able to attract 16 million users (and got acquired by Twitter).

Case in point: Tophatter

Tophatter, an mCommerce startup, is another good example of a company with a narrow focus. The app is built around flash auctions, a feature that was initially a part of eBay. From the time the eCommerce giant switched to a traditional online marketplace in 2008, this niche remained vacant, despite a high demand among consumers.

Tophatter capitalized on this and catered to the needs of this audience. Having built its product around flash auctions, the app attracted 12 million users and remains profitable (with revenues in 2017 reaching up to $300 million).

3.    Put your customers first

Happy customers should be your first priority as a startup. Forget about automated replies or hassling with long waiting times when contacting a call center.

79% of consumers want the human touch to remain a part of customer service. 65% of them believe to get better service when speaking to a person on the phone or in-store.

Thus, a personal touch paired with fast and hassle-free issue resolutions should be built into your customer service by default. Make sure you are always there for your customers, and to welcome and reward customer feedback (and also deliver on it).

Case in point: Zappos

Besides focusing on a specific niche market, i.e. selling shoes, the company is known to be extremely customer-centric. The startup quickly turned into a billion-dollar company without spending much on traditional marketing. Instead, Zappos earned loyalty and trust within its audience by offering little extras, such as free shipping, a flexible return policy, and excellent customer support.

As for customer service, Zappos aims at quality over quantity. Customer service agents receive rewards for longer phone calls (the longest one was almost 9.5 hours), not the highest number of processed queries.

“We view the money that we spend on customer service as marketing money that improves our brand.”

Tony Hsieh, CEO at Zappos

4.    Pivot fast and adapt to the current market needs

One of the benefits of being a small team is that you can make decisions extremely fast. As a result, you will come up with a winning solution to meet the market demand before the industry giants can barely schedule a meeting to discuss this opportunity.

For a startup, building an MVP first does not just help you keep your operations lean. It can also boost your speed to market. Thus, you will be able to launch the product faster, get instant feedback, and start polishing your product (or pivot, if needed) in just several weeks instead of months.

Case in point: Pinterest

You might not know about it but one of the most popular social media platforms, Pinterest, started out as a mobile shopping app. The app, Tote, offered the capability to track the prices of items and a user could save any of the items to their favorites. It utilized a user’s location to tailor the product suggestions. Yet, it was too early for the mCommerce market to emerge. The audience seemed to have more interest in creating collections of Favorite items than actually making purchases through their mobile phones. That is why the startup soon pivoted to better cater to their audience’s needs.

5.    Don’t be afraid of competition

Think of any competitor or challenge you face as an opportunity to improve your product and expand your business. Evaluate the strengths and weaknesses of your rivals and figure out what your competitive edge is. What’s more, consider turning your competitors into strategic partners.

If your competitors start copying you or are looking to acquire your company (which most business owners would consider a great outcome), you’re moving in the right direction.

Case in point: Apartment List

A long-term rentals marketplace, Apartment List, works closely with several leading real-estate marketplaces, including Homes.com and Realtor.com. What’s more, the startup was recently chosen as one of the main providers to power the apartment rental listings on Facebook’s Marketplace.

This strategy has been working great for the startup. The company has recently closed another round of funding, bringing its total funding to $110 million.

***

While these strategies are undoubtedly efficient, judging by the listed examples, there is one more important thing to consider when building a successful startup. That is your team.

While large companies are more likely to attract the best specialists, you still can build a great team by hiring people who really believe in the product and care about it deeply. That is something your customers will most definitely notice.

Plus, as a startup, you can build a tight-knit, efficient team with little effort thanks to direct communication and transparency, be it a remote development team or on-site employees.

Conclusion

Of course, there is no silver bullet or one size fits all strategy for outcompeting such giants as eBay, Facebook, or Uber. Many startups tried to do so. None of them succeeded.

However, finding your unique way to win your share of a market, even a highly saturated one, is totally possible. It’s up to you to choose the approach. You should take into account the current market trends, existing demand, or opportunities. We cannot teach you how to do that.

Here is one thing that can cheer you up and help you get through this challenge: Always remember that most companies we consider “giants” today were once startups too, with huge ambitions and a strong belief in their product.



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