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??

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.

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.

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.

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 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.

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.

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