The Pros and Cons of Competition for Startups

Kristin Bachman 5 min read 20 Jul 2021

Starting a business is no easy task; there are a million things you need to consider at any one time and a million more that needed doing, well, yesterday.

It might go without saying that the number of topics on which you need to be well informed if you want your business to succeed is significant. Just one of those topics? Your competitors.

Competition comes with its pros and cons, and we’ll get to those shortly. As much as we might like to pretend otherwise, no business can exist without competitors - at least not for long - so it’s best to get a head start and examine them early.

That you will have competitors is a given. How you respond to them is not.

Competitors can benefit your business, help motivate you to do better, and increase the market – but they can also overshadow you, steal your customers, and distract you from your own business.

Pros

While most people view business competitors in a negative light, especially in an oversaturated market, they can be notably beneficial to your startup. Here is a collection of the best reasons to embrace your competition.

Makes the market stronger

Contrary to popular belief, competition does not decrease overall market value. Sure, you may need to adjust your prices if there is an abundance of competitors; however, the more businesses are competing, the more the market grows.

If you are running a tech startup in an area full of other tech companies, then your market may become the dominant area for tech products. If a lot of competition can survive in one market, that means there is a demand to be met.

Additionally, the more competition there is, the more likely word will get around. If there is an area with three restaurants and an area with 17, which do you think is more likely to be talked about? An abundance of competition can help turn your market into a destination.

Refines your startup product

Growing up, you may have been told to do your own thing and not worry about what others think. Well, when it comes to improving your startup product, you’ll need to do the exact opposite. To make a product that will truly stand out it’s essential to keep a close eye on what others are doing and to strive to make your product even better.

If a new competitor - let’s say a restaurant - has better quality ingredients than you and is drawing in more customers, you too will have to improve your ingredients. Similarly, if you notice that other clothing competitors are not doing well because they only sell women’s fashion, you could be the first to take advantage of the gap in the market by selling men’s or children’s fashion.

When you compare your product to other competitors, it becomes easy to tell where your products are lacking, or where you might be doing better. Without competition, it is very challenging to determine if your product is reaching satisfactory levels or if it just sells because it is the only option.

Keeps you personally motivated

In a similar vein, having competition is a great way to maintain motivation to continually improve your startup. Many people lack skill when it comes to self-regulation; however, some healthy competition is a great way to keep yourself motivated.

When a few companies are competing, they will always be making constant changes and improvements. Without competition, on the other hand, it is all too easy to settle for the mediocre. The drive to stand out among the crowd is one of the best ways to motivate yourself to not fall behind.

Every startup needs a purpose. Without purpose, you will lose focus and have nothing to base your decisions on. Competition keeps you inspired and forces you to stay relevant - that one wild idea you run with to stay ahead could just be the one that launches your success.

Can help you learn from others’ mistakes

One of the most obvious benefits of competition for startups is that competitors are like older siblings: they make the mistakes, so you don’t have to. Whether a competitor is successful or not, their experience, decisions, and existence can help you to learn what to do and what not to do, without having to risk trying it yourself.

If a competitor goes under because they make more supply than there was a demand for, didn’t advertise enough, or lowered their prices too much to compete, you already know not to do that. If a competitor surges ahead of the pack because they constantly introduce new, innovative products, or offer regular sales and coupons, you might want to try these approaches as well.

Local competition can be a fabulous learning opportunity because they are selling the same services within the same market, and therefore it is likely that what affects them will affect you.

Cons

There are two sides to every story, and that is especially true when it comes to competitive business markets. Just as competition can be an asset, it can also be a hindrance. Here are the biggest cons of completion to watch out for.

Can make you waste time and resources keeping up with the joneses

One of the obvious cons of trying to keep up with competitors is that, as a startup, you don’t have resources to waste. It’s nice that another company can offer spur-of-the-moment deals and freebies, but you’re just barely making a profit right now. Can you afford to give products away for free?

Another huge issue startups face when trying to compete, is that as small businesses, they simply don’t have the time or resources to extensively research other companies. Do you have a lack of customers because there is another doggie daycare right across the street, because you don’t advertise enough, or just because you’re new and haven’t fully expanded into the market?

If you’re not careful, devoting too much time and effort into exploring or chasing your competition may detract from your business rather than add to it.

Can lead you to copycat others’ ideas

They started handing out flyers, so you started handing out flyers. They introduced a new video calling app, so you introduced a new video calling app. They started handing out free pastries on Fridays, so you started handing out free pastries on Fridays.

Unfortunately, copying ideas verbatim does not guarantee success. In fact, it may lower your popularity and marketability. You don’t want to be known as the business that is always last to the game, recycling others’ ideas. Copying can be a dangerous game to play as it can quickly drain resources you don’t have, without much to show for it.

While making improvements based on the moves of competitors is a smart battle plan, you don’t want to be just like them – you want to be better than them.

Can pull focus from your own customers

Competition can be a problem when it affects your existing customers. Not only may you lose some of your customers to competing businesses, but you yourself may also be losing your focus on your customers. Remember, the main goal of your business is sales and satisfaction.

Just because the cosmetic store down the street changes the brands they stock every week, that doesn’t mean that that is what the customers want. Most customers will be loyal to a business that maintains consistency and quality.

Unfortunately, the hard truth is that with competition, you will lose customers. However, you need to remember that even though you see other businesses as competition, they see you in just the same way. They may have taken six of your loyal customers, but perhaps you took 10 of theirs.

How to maintain the right balance of competitiveness

It’s easy to get wrapped up in the fight to the top, but sometimes it is best to sit comfortably in the middle. You may not be the best, but the best changes every week. The sweet spot between competitiveness and ignorance is the true goal.

Ultimately, as a startup, you need to focus on your vision, your customers, and what is best for your business. A healthy level of competition can be a great asset, but don’t let it overwhelm your ideologies.

Join the competition

So you have a startup. You’re ready for the big leagues. And now that you know what the pros and cons of competition are, you can make fully informed decisions about how to tackle it.

Competitors can help you grow and improve your business; they will make mistakes for you and boost the market and can keep you motivated to do better. However, competition in business can take away your customers, divide your attention, and drain your resources.

You need to play it smart. Look, listen, and learn, but don’t get swept up in what other people are doing. At the end of the day, it’s your business, not theirs.

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