Can you use competition to validate your idea?
Can you use competition to validate your idea?
Say you've found a competitor that provides a suite of features and one of their features is something similar to what you are building. Since the competitor is doing well (~$60MM funding), can you assume that the feature you are developing is valuable?
Don't mistake funding for money that customers are paying.
True, but remember that investors will only invest if they have strong signals that customers will pay.
I disagree. It's an expected value calculatation. If you think the space will take off then you bet on all the horses (or enough of them). If you think the horse will win and the jockey is good enough to then you might take that bet too. Alternatively you don't think the horse will win but you decide to back a phenomenal jockey so that when he finds a good horse you and him are homeboys then the economics of that strategic relationship play out.
Just looking at all the angles. Given VC success rates I don't take funding as validation. I take it as interest and speculation.
Good point.
IF they indeed have paying customers (+ something that I saw in another comment, "are excited about it"), there is clearly a market for it.
From there, execution would be the variable.
Absolutely. If real customers are putting their money diwn, that's the strongest indicator. If they only have funding and no customers yet, that might just be one unlucky VC making a but he's entirely willing to be wrong about.
I guess, like almost everyrthing, it's just better to start and validate it yourself, otherwise it's just theory crafting from the bench.
You don't learn anything as well, by just trying to guess if something will or won't work.
A big part of validating the idea for Indie Hackers itself was seeing the success of similar stories and discussions being shared on Hacker News. This site was an attempt to improve on those.
Rather than looking at funding or other indirect heuristics, what I'd try to focus on is customers and their reactions and usage patterns. Are people actually excited about, using, and/or paying for what your competitor is offering? Do you know how to reach these people? And can you build something the market finds sufficiently valuable given the fact that your competitor exists in that market?
I like to think of validation as not only the viability of the idea but also testing a viable marketing channel. If you have a big competitor with $60MM in funding, are you also competing with them for the same marketing channels? In other words, are they going to price you out of AdWords or an alternate marketing strategy?
Having competition probably means there is a real problem there and the idea is viable, but it doesn't mean you have the resources available to compete. I'd want a solid idea of how I was going to compete for users when I don't have the benefit of a bunch of money to blow on marketing.
Hmm..., it seems like the bigger companies will always have a marketing advantage over you. What sort of marketing or user acquisition strategies do you suggest for small startups?
Target a niche. Build something for a group of people that your competitor can't afford to waste time catering to, because their sights are set higher. Of course, that niche can't be too small or too difficult to reach, otherwise your business won't have a shot. You also need to understand the niche well enough to build something they'll consider a significantly better option. This is easier or harder depending on the niche, the industry, your skillset, etc.
If someone's already making money on it then that's validation. If some is throwing money at the problem then that is lesser validation. If the feature that you are targeting is just one part of their offering then the validation is diluted further. Sounds like you need to get some more concrete information.
For my project, I have several competitors. One in particular is a very close match. I read everything about them, read their annual accounts for several years, stalked them on LinkedIn and so on to build an image of their revenue sources, cost base and profits. That can validate the market but still doesn't tell me if customers will use my service over theirs.
Thinking whether a decent amount of people would benefit from the offering is a better metric than searching for someone already established in the niche.
In fact, looking for an untapped market provides a better opportunity for growth and learning.
Competition should be observed only to get ideas for adding new features to the offering I think.
Great discussion! This is what I wrote on this subject some time ago:
https://medium.com/we-are-builders/7-reasons-why-people-skip-customer-interviews-while-they-shouldnt-6cb1d9d36501
#7. Company XYZ does the same and has customers, I’ll do better so my model is valid and I’ll have customers!
Customer Development gives you an edge over competitors. It provides you with a competitive advantage, because you learn something about the market other people don’t know (yet). You need this information to nail a solution which will lead to a lot of 💰 and happy customers.
You could copy the business model of a company you admire, but eventually those who do learn from their customers will become the market leaders. Your company will lag behind in features, pricing, customer success, marketing etc. So yeah, if you’re into that, go ahead, but eventually it will catch you.
Also, keep in mind the company you’re copying might also have skipped Customer Development, or did a poor job and you end up with a sub-optimal product.
The easiest way is to build a quick landing page, buy Ads or reach out directly to people that your competitor is targeting & talk to them about their needs as well as how you can help them, followed up how much they're willing to pay.
As someone already mentioned, competition is only an indicator there is some movement in that market segment, not necesarrily financial success.
May you can consider that the MVP is validated, but there is still something else to create in order to reach a temporary break point compared to the competition
Competition is one data point and means it's more likely to be valid. But you need to look at lots of sources, especially talking to potential customers.
The question isn't "is the idea valid or not?" It's more "is it likely enough to be valid to pursue further?"
When I was in corporate world, this practice seems to work. If the underlying core technology is already matured, competition is pretty much the only measure for product planning. Sounds boring, but it was pretty much my 5 years in competitive analysis/strategy in the super competitive mobile world.
So I took that lesson into my own business.... FillTable is pretty much OpenTable + Waitlist (acquired by Yelp), minus everything restaurant owners hate about those services (fees [upfront, monthly, per reservation], user comment/rating, etc). My strongest competitive advantage is cost. Tech is mature enough. I don't have thousands of employees need to feed.T here's a need, there's an opportunity, so I invested my time to build the service. Tech is done. Then all my direct competition pretty much got acquired one way or another. Now I am stuck analyzing my marketing strategy, mainly on whether it is worth to invest in the actual 'sales'.
Bottom line is, competition shows the feature is valuable. But whether it has value depends on if you can actually build a business around it.
Also, depends on what you are building. If competition already made money, you should look at revenue, growth, profit... those are reasonable measure than funding...