You should fear competition more than you fear your competitors

The situation

An obsession with competitors

Most startups obsess over their competitors. They watch every move, rush to copy every initiative or feature, analyze their marketing, check whether they’re being outsold, and keep an eye on others’ funding rounds.

But is it useful? I believe competitors are a largely overrated threat, and that the obsession with competition is a much more dangerous killer.

In his book “The Mom Test: How to talk to customers & learn if your business is a good idea when everyone is lying to you”, Rob Fitzpatrick says: “They say that startups don’t starve, they drown. You never have too few options, too few leads, or too few ideas. You have too many. You get overwhelmed. You do a little bit of everything.”

If you think about it, software product development is not a race with other companies. Of course, sometimes there are new untapped opportunities where first-mover advantage is big, but most of the time it isn’t the case.

Good chances are, if what you’re doing is important, and nobody has done it before, no other company is going to jump on it just because they hear your idea. Also, two companies can never be the same: the internal dynamics, the people, the culture, the resources: all different. So it’s unlikely they’re going to produce comparable products.

A single-player game you can still lose

If you think about it, software product development is a single player game. If you win big, but some other company wins bigger, nothing bad happens. There are no negative consequences in being the number 2 or even the number 30 in your industry. Breaking even is enough to guarantee a startup’s survival. For large companies, the threat of hostile takeovers or negative perception on the market is there, but if you’re not a public company, any profitability is enough.

Even if software product development is a single player game, it doesn’t mean it’s easy. You can still lose. In fact, you can beat all your competitors and still fail to capture value from your chosen market in exchange for the value you deliver.

Yes, because delivering value to your market in exchange for the resources (money, trust, etc.) you need to survive is what the game is about. Software product development is essentially a survival game.

Focusing on the wrong things

And yet, most startups focus on the wrong things: outputs, growth, investment, metrics, efficiency, revenue, closing deals, market size, and their competitors.

Don’t get me wrong, there’s nothing wrong with caring about these aspects. Actually, it’s necessary. The problem arises when other aspects, which are more important, get ignored or neglected, in pursuit of these.

Yes, because for startups and SMBs, the obsession should be about outcomes, development, sustainability, culture, people, effectiveness, profits, market characteristics, and delivering value.

The why

Let me be clear here: overlooking these aspects to focus on the former is a deadly mistake. I’d say it’s the fundamental reason why so many startups die within their first five years.

Why do so many companies obsess over the wrong things then? This is so ubiquitous that there must be systemic attractors at play. There have to be some conditions intrinsic to human nature or society which heavily skew the probability in favor of this dynamic.

And, as it turns out, there are.

WARNING: what follows is a functional generalization, a conceptual model. Models are good when they’re useful, and to be useful they don’t need to be true.

Salespeople and creators

At their core, you could characterize every person as either a salesperson or a creator. It’s not a binary thing, but most people tend to be heavily skewed in one direction.

Salespeople

Salespeople worship competition. Their entire view of the world revolves around it.

The salespeople you encounter in SaaS companies tend to have been athletes, to have graduated from business school, and to have experienced service organizations. Their self-esteem comes from demonstrably being better than others. No wonder salespeople are naturally obsessed with quantifiable things and metrics. It’s all about KPIs, OKRs, P&L, and individual contribution.

So, naturally, they can’t help obsessing over their competitors, whether real or imaginary. There has to be an enemy to outsell. If anyone does better, it means they’re not the best, and being the best is what matters.

Creators

Creators, on the other hand, cherish getting better at what they do. Their world revolves around perfecting their craft.

The creators that end up in SaaS businesses would have been geeks at school, graduated in a STEM subject, and experienced product organizations. What gets creators out of bed in the morning is practicing their craft to the limit of their skills with people they respect.

And it can only follow that creators obsess over their creations, rather than focusing on competition. The enemies are laziness, entropy, sloppiness, and stupidity. If their product isn’t well-crafted or useful, it means they’re not great at their craft, and that’s what matters to them.

They don’t like each other much

Creators and salespeople have a hard time respecting each other.

Creators see salespeople as empty and soulless, insensible to quality, and incapable of producing anything useful. Creators tend to see marketing and sales as a necessary evil, fundamentally lies. In their ideal world, people would simply buy their creations based on their sheer quality. Creators often get pushed by salespeople to take shortcuts, feeling like Michelangelo would have felt if he was asked not to work on the back of his statues, as they’d be placed against a wall after all.

Salespeople can’t help seeing creators as naive. If only these geeks would be more pragmatic, they could close more deals. Customers demand features, so geeks should build these features, build them fast, and that’s all there is to it.

Every company needs both

Regardless of their mutual disrespect, every company needs both salespeople and creators. Ironically, both are right. Salespeople are empty, and creators are naive. Or better, most people tend to strike a balance eventually, while a company too skewed in one direction might develop these traits.

While you need both creators and salespeople, what’s key is placing them in the right roles. Creators best cover management roles, as the outcome is the management system, how the work works. Salespeople, on the other hand, tend to be great in customer-facing roles, where the game is building relationships.

Slightly off-topic, but should managers for customer-facing roles be salespeople or creators? They should be creators really, otherwise you end up with managers thinking that their job is to be the best salesperson in the department.

As founders

Walking up the management chain, you encounter founders and the CEO at the top. Now, founders are typically from different backgrounds, and this is a wonderful thing. You need diversity of strengths after all.

What about the CEO though? In a perfect world, their background wouldn’t matter much, as the chief executive officer isn’t the only executive officer. In reality, though, founder CEOs tend to see themselves as the owner of the company, managing the other executive officers. And both creators and salespeople push their characteristics to the extreme when in the top job. So whether a founder CEO is a salesperson or a creator tends to matter enormously.

Salespeople

Salespeople, as CEOs, think their strength comes from their domain and business knowledge. They might have been in their industry for a long time, and know it inside out. They know all the big players, whether they’re customers, suppliers, or competitors.

Their obsession with metrics often materializes as wanting to manage the various areas of the company by objectives. Everything becomes a return on investment discussion. What’s not measurable inevitably suffers.

Most salespeople become founder CEOs in pursuit of money. The company is a means to an end. The ultimate goal is always proving to themselves and others that they’re the best, and making a lot of money is the ultimate proof.

So when salespeople create a company, they often have the exit already in mind. They raise investment from VCs, obsess over growth, and aim at getting bought or going public. Even when they want to keep owning a business, the aim is maximizing the cash extracted as dividends to the shareholders.

Creators

When creators become CEOs and founders, they rarely possess deep domain knowledge in their chosen industry. What they tend to know is how to build software, and how products are discovered. The obsession is with craftsmanship and design.

Most creators become CEOs because they are disenchanted with the industry, and want to do their own thing to do it right. The company is a means to an end, and the goal is to practice their craft with people they respect. Making money is a necessary condition to continue exercising their craft.

So when creators found a company, they’re in for the journey. They hopefully get profitable sooner rather than later, and then just focus on the product. Revenues and growth are not the goal, and some companies purposely avoid growing their business beyond a certain limit, so they can keep enjoying what they do and how they do it.

The trillion-dollar question

The trillion-dollar question is now whether a SaaS software product company would be better off with a salesperson or a creator as founder and CEO. I say trillion-dollar question to indicate that it’s important but, if you consider that only 20% of SaaS companies survive their first 5 years in business, and only 8% survive their first 10 years, it’s easy to understand that this is an understatement.

Salespeople tend to get the top job because of how raising capital and acquiring customers work, and you tend to need money to start a business.

However, a salesperson CEO will almost always end up producing a service organization, as that’s all they have experienced and understand. This inevitably eventually fails, as service organizations are not structured to produce successful SaaS products, and they can’t generate the ROI investors expect for the money they put in the business.

Instead of me explaining why this is the case, I invite you to read the astonishingly amazing 4-part post by Jezz Santos, especially the third part.