I had a great conversation with an early-stage investor at a large fund recently. We discussed competitive markets and he shared some great views. He looks for traction by the company, such as an increase in the number of customers or users or in revenue. And more importantly, if the market is competitive, he wants to know the “why” behind the traction. What unique insight does this company’s founders have that’s driving the traction? If they can articulate that, he’s happy to consider the investment even though it’s a competitive market. According to him, traction and a unique insight can be a winning combination.
I like this investor’s perspective. The existence of competition isn’t bad: it can indicate a large or growing market, which can be good (you can build a big business). The question is whether your company can do better in the market than others. This investor wants to know whether founders have a unique understanding that positions their solution to create more value than their competitors’ do. I think he’s spot-on.
Founders shouldn’t be deterred by competitive markets, especially if they have founder–market fit. They should ask themselves, “What do I see that others don’t? Will this insight help me win?”