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[…] just read cool post describing a situation when, despite previous research, you suddenly find another company working […]

Competitors are a (potential) sign of viability of your market. Nothing wrong with having direct competors, particular ones that have not captured a large market. And even if they have captured a large market share, hope is not lost. Your stategy then wil focus on disrupting them.

On the other hand if you havn’t heard about “the large succesful” competior, chances are, you have not done enought due dilligence on the space. Time to rethink…

—S’l

Skipping straight to the second question. You’ve got to formulate a response before you share the problem. That way you are saying: “This is the situation and this is what we intend to do about it.” You could also ask if they have any alternative suggestions.
If you tell the investors first, it’s like saying: “We’ve got a problem and we don’t know what to do.” While it is good to be able to admit it if it’s the case, if I was the investor it wouldn’t fill me with confidence that you didn’t know how to deal with competition. Did you really think there would never be any?

Wow. A great question.

People currently already satisfy all their needs. New products and services are merely new ways of achieving old needs. The iPod was “just” a new way to listen to music, the Internet was a new way to consume information and interact with other people.

Any start-up which thinks it has no competitors is either casting its net over such a small area that they can’t see the obvious or is doing something for which there is no real demand. Your friend’s crest-fallen demeanor could either be because his serious plans to quit were suddently being called into question, or because his lack of research had been demonstrated.

Competition is a fact of life and any start-up needs to have well prepared plans for how to deal with it, as well as the operational flexibility to roll with the punches. If you can’t change your prices in under and hour and communicate those changes to your users, or launch a new registration promotion on the fly then you’re not building competition into your architecture you’ll fail.

If you don’t relish the idea of competiting with others in the space you share, you probably shouldn’t be giving up your job.

To answer your direct question. If someone has already launched whilst you’re at the ppt stage, but with funding, then you should absolutely tell them, and you should absolutely have through some strategic options.

Just to clarify — I dont think too many entrepreneurs are so naive as to think they WONT have competitors. I’d have to guess that wasn’t my friend’s shortcoming (he’s pretty thorough). But the problem founders face is that no matter how much research one does, you cannot know everything. You cannot know about every potential competitor, nor anticipate the particulars of all of your peers — this is especially true because so many startups launch out of “stealth’ mode. So no matter how prepared you are, you’re bound to be surprised at some point.
While this is just one more element of “uncertainty” that founders must learn to live with, how can we prepare ourselves to handle such surprises better?

roll up your sleeves, this is where the fun comes in.

I love competition – it’s the fire that creates personal growth and weeds out the weak ideas. That trouble in your stomach you are feeling is fear – fear that your implementation, your research, your team, your version of the idea will fall short.

Take that fear and use it as fuel for your gas tank. If your idea sucked – you wouldn’t have competitors, people would obviously just go fishing instead.

When a huge company moves into your space, revisit the idea of david and goliath. You’re smaller, you get ideas implemented faster, you can have more mistakes made and lessons learned while they’re still in meetings.

1) They’ve drawn their line in the sand. Surprise them with overwhelming execution on things they think they’re already good at. Once they’re reeling from the shock, hit them again with additional features that you’re exceeding their offering with.

2) Tell your investors in passing – this company xyz just emerged on our radar, doing about the same thing. But they lack these aspects of the special sauce, etc. It’s definitely worthy to manage them in this regard, but it would also give them great validation and minimize investors remorse if they knew that someone else (esp a competing firm) had invested in a similar idea. From their perspective it becomes two race horses betting, and may give them incentive to help you out a bit more.

ps.
i presume you work in a web based, low PPE capital business with short development cycles.

There’s an obsession in the blogosphere not simply about being the first to do something, but also to be the only player. I know that’s not the angle or the tone of this story, but it makes me laugh to read TechCrunch ‘breaking’ a story and seeing the flood of comments coming in, along the lines of ‘this sucks because x is doing it for half a penny less / for free / with a magic widget thrown in’.

The reality in most industries is that the first entrant doesn’t always win, and perhaps usually doesn’t win. Facebook will likely win the social networking wars, but they weren’t even close to being first. And Google’s the most obvious one of all — think of it, their pitch was basically a ‘better search engine’, and their investors were certainly smart enough to understand that other search engines, through their flaws, had created a need for something that did exactly the same thing but better. Better usually beats first.

I think it would be easy to get overly concerned about a newly-identified competitor. Unless there are intellectual property issues, it would likely be safe to assume that many if not most prospects didn’t know about them either.

In new markets, it’s actually often quite helpful to have a competitor, since that implies that the innovative product is for real.

The last thing you’d probably want to do is delay putting out a product (again, except for IP concerns) once you’ve found out you’ve got competition. Microsoft and its 7-year (1983-90) Windows vaporware campaign is the classic case study on that.

PS: success is 100% execution. ideas are worth nothing.

You shouldn’t worry about competitors. In fact it should assure you that there’s at least one other person trying to make a similar thing work. A little competition never hurt. If you’re doing what you should be doing and making sure your product is actually providing a valuable service and not just repackaging crap, then you shouldn’t have any problem.

Great question.

I actually had this “wow” experience about a week ago while researching for a company I plan on launching. I realize, my approach is a a bit different from someone looking to launch a web-based startup but I had 2 major revelations that helped ease my uncertainty…

First, if this company exists and is profitable I can be certain that there is in deed a market for it. Secondly, while I may not be first-to-market, i can use my delay to the market as an advantage. It gives me a chance to learn where my competitor is falling short, and what great executions that they have managed that i can mimic or adapt. Also depending on the approach and goal, there is also room to synergize efforts to create a win-win for both companies and consumers.

I think this question raises another good point. Due diligence is not just for pre-execution, it is an ongoing process. It is important to always anticipate and be prepared for a direct competitor to appear at a moments notice.

Google started up when Yahoo was dominant and it worked for them.

I call it the “Holy Crap” reaction to competition. When you stumble on something that looks like competition…or worse, an exact copy of what you’re doing.

Generally, that’s not the case – and you’re probably overreacting, but it happens to all startup founders…and with so many new startups popping up that “look” like competition, I’d wager it happens quite often.

Yeah I think it Validates what U are trying to do + hopefully do Better than yer Competitors*

Plus it seems a popular Option is to get bought out by Google or MySpace or Yahoo! or MicroPoop*

I know Slide + RockYou + even Flektor are already out there but I think I have something much Flashier!!

;))

Do any VC’s read this? or has Google got a few extra $Million to toss my way??