How Competition Strengthens Startups

In HBR this month, two British researchers reported on their study of the impact of competition on startups. In a study of over 2M companies spanning 10 years, the researchers determined that if a startup faced competition in its first year, it was more likely to fail. But if the startup survived its first year, it’s survival rate jumped nearly 30%.

This data screams survivorship bias. Of course the startups who navigate hostile waters deftly in their first year will have a higher likelihood of success. These startups' management teams have already proven they can develop marketing and sales competencies while bringing a product to market.

The takeaway from this study shouldn’t be any new insight about whether a startups should enter markets with our without competitors. There is no question startups should choose markets or market segments without competitors. Less competition implies more time to figure things out and ultimately better margins.

Instead, the data shows the importance of focus on a differentiated and defensible value proposition in the face of competition and the importance of building a team who can manage a company in the face of great odds. Without either, startups fail faster. Whether tested early in their development or much later, great teams building differentiated products win.

Published 2013-02-19 in

I am partner at Redpoint. I write daily, data-driven blog posts about key questions facing startups. I co-authored the book, Winning with Data. Join more than 20,000 others receiving these blog posts by email.

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