What To Do When A Tech Giant Decides To Eat Your Lunch

Editor’s Note: This is a guest post by Mark Suster (@msuster), a 2x entrepreneur, now VC at GRP Partners. Read more about Suster at his Startup BlogBothSidesoftheTable.

WWDC. The annual Apple event where no real hints about what products they plan to release are floated in the public domain in advance. No private head nods are given to small startup companies to help them prepare. We’re in a market where 800-pound gorillas throw their weight around and the rest of the market races to react and survive.

Any company who develops products reliant on iOS spends weeks crapping their pants before WWDC. No vacation schedules allowed for weeks before or weeks after. The announcements come out in one day and then even if you survive the annual release announcements you often still have to scramble to make sure your product is ready to work on time.

It’s madness.

This happens with Google, too. Every change in the algorithm wipes years of effort off of the traffic numbers of affected companies as anybody hurt by the Google Panda release will tell you.

Or Twitter launches its own photo-sharing app integrated into their product.

What is a startup to do?

For starters, fear not. The world seldom ends. You just have to deal with some insufferable VCs and journalists for a while. They risk little but of course knew better all along.

It is the same movie I saw 10 years ago when every VC would say to me, “yeah, I get that you’re an online document sharing service, but what’s going to happen when Microsoft enters the market? You’ll be dead.”

Puh-lease. Tell that to DropBox. Or Box.net. Tell that to DocStoc, Scribd or SlideShare.

Right. Just like Microsoft stopped AOL from winning the early online wars. And AOL stopped Yahoo! from winning the Internet portal wars. And Yahoo! in turn killed Google when it came to search. While Google stopped Facebook in their tracks when they built a social networking company. And Facebook stomped out Twitter from building an open social network. And we know how Facebook stomped out FourSquare.

And on and on. eBay / StubHub. Amazon / Zappos. Twitter / Instagram.

Focus wins.

In your head you know that the reality is that bigger companies simply cannot compete effectively on all fronts. Focus by extremely talented teams beats breadth. It’s why we all exist.

The golden rules to live by are:

  • Platforms are channels not businesses. Don’t confuse the two. If you put all of your eggs into one platform shame on you, not them. If their business torpedoes you, you should have been diversified.
  • You need to be clear on what your sources of differentiation are from the biggest competitors or you’re dead anyways. If your product isn’t 10x better in your own mind, hang up your cleats now.
  • You need to be “known” for your sources of differentiation so even when the press declares you dead because Facebook, Google, Apple, Twitter are going to eat your lunch they are describing the threat in terms of them copying you. When they talk about “check-ins being dead” it’s because you created them. Or “gamification.” Innovation has become synonymous with you.
  • You need to stay focused. Have clarity of purpose. Don’t be scared. Be willing to shift positioning based on new market information but not lose your inner core.

Here are some examples.

FourSquare – I was recently asked on Quora whether I thought FourSquare was dead now that Facebook was going to launch “Places“. Others feared Yelp. Me? I chuckled. Sure, if Zuckerberg thought that check-ins were the single most important part of his future business and put 200 engineers on the problem and all of their market might, they’d squash FourSquare like a bug. That’s not going to happen.

In reality Facebook will have a small team on it. They’ll have to integrate with every other initiative on Facebook and adhere to common internal standards. They’ll fight for resources. End users come to Facebook to share photos, chat with friends or play games. Checking in is an afterthought for most. FourSquare is a different and unique product. The law of large numbers means Facebook will have plenty of check-ins on Places but that doesn’t negate a focused competitor.

I can’t tell you whether FourSquare will end up being a huge and lasting company or not. I’m not on the inside. But I feel confident that its future is its own to execute and innovate on and whether it succeeds or not will have little to do with Facebook itself. I have on several occasions said publicly that I felt the biggest challenge for FourSquare is to know what comes after the check-in? What is the next major innovation. They seem to have several interesting ideas.

It will certainly be interesting to watch.

Group Messaging –  We just came off of another annual WWDC. In it Apple announced its new iMessage product. Apple built the product, so no doubt it will be freakin’ awesome. I’m sure I will personally use it as we own 2 Macs, 2 iPads, 3 iPods and 2 iPhones. Yes, we’re a fanfamily. The New York Times came out with their list of companies impacted by Apple’s new releases and all of the major group messaging companies were on the list of companies in need of checking their shorts.

The major players are GroupMe, Kik and TextPlus (I’m an investor). Actually, I wouldn’t consider all of them “group messaging” companies but ever since SxSW that seems to be what the press wants to talk about.

Let’s look at some simple facts:

  • Apple will let you communicate seamlessly with all of your other friends using Apple devices. That’s a lot of people.
  • But the much larger market for smartphones will be non-Apple and all of the app-to-app messaging companies allow you to communicate with a much broader set of smart phones. iMessage will not. At least not initially. It does for the Apple world what BBM was for the RIM world.
  • And beyond app-to-app messaging some of the products will allow you to also send SMS messages to the 10’s of millions of people who don’t yet have any smart phones at all.
  • Many of the services are moving toward providing you phone numbers, voicemail and eventually free phone calls
  • Some services like Tango already do video calls. This is already better than what Apple’s Facetime provides out-of-the-box.
  • Beyond that I see the market bifurcating into “utility players” that provide iMessage-like services on a cross-platform basis and those that evolve into either mobile, social networks or mobile, social games companies. iMessage will not quickly follow either route.

BBM will have another major push and we expect an inevitable Google rebuttal to iMessage. Purely being “group messaging” will be stuck in the cracks of the giants. Group messaging isn’t a market, it’s a feature.

Are the companies competing in this sector shitting their pants? Hardly. They’re focused. They know their purpose. They know where they’re going. It will be differentiated. It will be hard for the largest players to compete with their vision. If they don’t get there one day it will be their lack of execution.

Bit.ly – Remember when Twitter announced that they would be embedding their own URL shortening and the Bit.ly obituaries were written in the first 24 hours? As far as I can tell Bit.ly is still around. In fact, they continue to be the dominant URL shortner and provide a plethora of analytics data to go with it. Next market moves? I dunno. But dead? Hardly. I still use them nearly every day.

Boxee – I remember talking with Avner Ronen before the announcement of the new Apple TV last year and just as Google TV was ramping up their marketing messages. Boxee had gone from marketing darling to dead man walking in the press in a matter of months. Avner was so calm. He pointed out that Apple would build a closed system that would appeal to part of the market. Ultimately a small percentage of his total opportunity. Boxee was about being open. It was about freeing up content to be displayed on big screens regardless of the source or content type. Where Apple would veer toward control, Boxee would bend toward open.

And whenever you see closed systems all of the major players not invited inside the velvet rope will search for technology partners. The enemy of my enemy is my friend. So every OEM not included in the Apple TV universe now knows they’re on notice to innovate. And no TV manufacturer with a brain doesn’t see that Apple will likely one day have its own Internet TV that will be scooped up by adoring fans like me. They already have beautiful monitors that are practically TVs. So hardware players need some software friends. Boxee might just be what the doctor ordered.

And GoogleTV? Yeah, that would slow down his discussions with OEMs whom he hoped would be building on the Boxee software stack more quickly, but he said to me,

“Mark, we’re not looking to build a quick flip. We have a long-term vision that video content will be widely available whether you produced it and it sits on your computer, whether it’s the sports you love but is currently only available on a content bundle or whether it’s long-tail content that appeals to large audiences of people who currently can’t get it over the Internet. And we’ll build the best discovery engine to find the best content.”

Will he get there? I’m not sure I’d easily bet against Avner. He really does have a great vision in a market that will undoubted be disrupted. But his story doesn’t map to an easy headline. Let’s see if he can put up the numbers over the next 3-5 years.

It’s not a sufficient strategy to think you’re going to win because you’re competing with big, dumb companies. They’re usually much smarter than you think. But they’re not nimble. They can’t take as many risks. They can’t iterate as quickly. They can’t easily have a focused set of marketing messages and a user experience that will have clarity of purpose for users.

You must figure out how you deliver real differentiation. What you’ll stand for, be known for. You have to have a core. You can’t let the market machinations and press proclamations worry you. The big guys can’t crush you as easily as others think. Be a cockroach. Be indestructible. And remember that competing with the big boys is not for wimps. Fight hard. No cry babies. The big boys will do what the big boys will do. And if you raise VC make sure your backers have a long-term vision and the internal fortitude to last the periods where it seems that the big boys will eat your lunch.

And if there are no big boys—you’re probably in the wrong market.

Good luck.

Image courtesy of Fotolia via @ryanborn