➡️ How are you different and better than your competitors?
➡️ What makes you special?
➡️ What’s your competitive advantage, defensibility?
These are some of the investors’ favourite questions and the answer that there is no competition is not a good one. Yes, I also ask about it and I usually have in mind what makes the product or team special but I’m always curious how the founders think about it. Many times, they give me an answer that is way better and far from what I originally thought. Sometimes the value is not easy to spot at the start while going through the pitch deck or website and below I’ll share some of the best values I’ve heard so far that make the startup unique.
‘The faster a company becomes defensible the greater chances of success.‘
James Currier, Managing Partner @ NFX
👨👩👧👦 The Community – all people that stand behind the startups matter a lot! It’s not only clients, it’s other people who not only use the product but create communities around it, play, share and contribute. They are many times the best ‘BizDev’ team or ‘research’ group that comes up with missing features, additional, complementary products. It’s known also as a ‘network effect’ if you like.
📜 The Business Model – not always the simplest is the best. Sometimes, having different layers, tiers and offerings make so much sense. Sometimes, just one pricing or limited subscription options stop the client from signing up or buying the product. Being flexible to the extent it does not impact efficiency is a value that not everyone can offer.
🛠️ The Technology – either founders are ahead of the competition in the development or they are pioneering on the market where the tech is still not in common use. Here the geography of the target market matters a lot and the developing countries may be a good focus for some of the products. The speed of the tech development/implementation and go to market are other important aspects here. Being able to act immediately and keep the pace while you no longer ‘push’ your product but can see the ‘pull’ from the customers’ side is essential. Having people onboard and the whole infrastructure ready for scaling and global expansion helps a lot.
🧔👵👳🧑🦱 The Diversity – the fact that diverse teams perform better is no longer news. McKinsey conducted a study that found companies with high racial and ethnic diversity among their employees outperformed their counterpart companies by 35%. It’s not only about gender, diversity consists of ways of thinking, race/ethnicity, age, educational background, socioeconomic status, sexual orientation, physical ability, lifestyle, family status, body size or shape. None of the listed things is better than worse than the others but all together they create the best mix and often make the company successful. Given that by 2065, the U.S. will not have any single ethnic or racial majorities it’s gonna happen that diverse teams will become a new normal.
🛂 The Immigration Status – 55% of billion-dollar startups in the U.S. are founded by immigrant entrepreneurs. Some VCs already based their investment thesis on this statement (Unshackled VC, One Way VC) and consistently look for founders that made their way through and moved to a new country starting from scratch and finding their way to build their life/company from the ground up. They seem to know what it takes to make it happen and how to be unbreakable.
👩💻 The Experience – it takes time to learn and to understand how the world works and that’s a strong point that makes some founders ahead of others. I’m not talking about particular school or companies because founders without masters degrees but with a robust library of books and real-life experience in the space can say much more than attending classes. I’d say some people need the school if they are not able to educate themselves. Becoming an expert in the field requires a tremendous amount of self-discipline and the ability to understand things without someone explaining it. If you have domain expertise you see so much more than people from outside the space. You understand potential problems and you can easily see ways to overcome them or efficiently solve difficult situations.
🧑🤝🧑🧑🤝🧑 The Team – I intentionally left this part to the very end. I consider it the most important thing especially at the very early stage of the company. Founders obsessed with their mission, not the solution but with the problem, they tirelessly work on solving. You can easily see it, feel it when you talk to them. They seem to know and see more than you can possibly imagine at this stage. They are bold but respectful, willing to fail but base their action on research and customers feedback. They have something that doesn’t let them give up and it makes people follow and join the company. They don’t try hard they are just so certain about the new way of doing things that you just believe them and join the forces.
‘If you need encouragement, you should not become an entrepreneur’
Elon Musk
Many times founders are aware of the above and they simply say it. Yes, we are gonna succeed because we have X or Y or X and Y. They don’t stick to the solution and they easily pivot. It’s about solving the problem in the most appropriate way and not about introducing the solution that seems to be cool and disruptive just for the sake of it.
While the founder may be experienced and visionary, she is not self-sufficient and most of the time cannot run the company alone. She needs a team that at some point brings together more value than the founder alone. the company will grow and be joined by the smartest people in the space. Everything starts from the founder but then she/he steps back, makes sure the company is going in the right direction keeping the vision and putting the customers first.
I tried to visualize my thoughts and put some equations in place.
Here is what I came up with 🤔
Founder is necessary but not sufficient. He/she fills the air with the mission and keeps the teams together but the goal is that at some point the value of the entire team/company is bigger than the value of the founder him/herself.
Being aware of the competitive advantages and then building your defensibility is a good way to go. Once the startup has strong defensibility, it’s best if they can compound it. (Amazing article about the reinforcement and the compounding power of startup defensibility you can find here.)
As a last note, I’d like to list a few ‘advantages’ that had a strong value in the past and were successfully used as a benefit that not all startups had but it has depreciated since then.
No Longer Valid
- The Location (meaning we are based in Silicon Valley) matters but is no longer a ‘no go’ for building a successful startup.
- The Patents help but are not sufficient to prove the unique value.
- The Capital is necessary but is now more and more available on the market and the fact that the startup raised money is less important now than it was years ago.
