The traditional advice for tech companies is that you should ignore your competitors. Just talk to customers and put your energy towards making yourself as great as you can be. Hit the gym, practice gratitude, focus on yourself king.
At least in SaaS, I believe that this is wrong. If you ignore your competition, you’ll get to experience capitalism in its rawest form: competitors who are more aggressive, more vicious, or more desperate than you will pillage your customers and put you out of business. This is bad for your startup and your wallet.
Don’t let this happen to you. Having seen many, many rounds of direct SaaS competition, here are a few of the main lessons to keep in mind.
Play To Win
Competition is everywhere. If you don’t see competitors for your product it’s often a sign that you’ve picked a fundamentally unviable or impractical market to attack. All good markets are warzones.
Most markets settle into a long-term stable system where 1-3 players gain effectively all of the market share. The ultimate goal of competing is to be one of the top players in your space who are going to get all of the value.
In order to be one of the top players in your space, you typically need to either be the #1 player in a reliable subset of the market, or you must be the overall category leader. Examples of a defensible niche include: The low-cost player. The very premium player. A player in a very specific industry (“We’re Salesforce, but for life sciences”). The only local player in a market (“We’re Shopify for Asia”). But regardless, you must be considered the best in some discrete market at a minimum.
Look For Knockdown Blows
The way that you become the best in a discrete market is by dealing knockdown blows to your competitors, causing them to eventually retreat.
You do this by incentivizing them to change their product-market fit such that it doesn’t overlap with yours: typically by beating them in deals (or winning over their customers), thereby forcing them to change product, marketing, or sales strategy to avoid you. This is how you carve out your niche; eventually if the niche gets big enough, you become the leader of the category – the Microsoft, Salesforce, Intuit, or Palantir of your industry.
Note that the goal of competition is not to put your competitors out of business. Generally speaking, you should assume that any competitor with >$25m ARR is essentially unkillable – expect to compete against them effectively forever. SaaS margins are too high and SaaS products are too sticky (which is why it’s such a great business).
Knockdown blows come in a few forms, such as:
Layoffs
Founder exits or transitions to less critical roles, especially founding CEOs
Business model pivots
Forced sales, or acceptance of weaker M\&A options
Essentially, you’re looking to force competitors to take painful steps that make them open to resetting their strategy, with the new strategy being something that is further from your areas of overlap. Knockdown blows can take many forms but they are all downstream of the same cause: a competitor losing the will to fight you for market share.
To Deliver a Knockdown Blow, Target Their Revenue Operations
Knockdown blows are solidified by a very concrete first step: a company’s revenue operations team (who handles sales quotas, territory mapping, and general Go-To-Market (GTM) investment) raises the flag that they view a particular business area as unviable. When this happens, their next step is to either invest more to win, or divest to cut their losses – reallocate resources, spin down investment, stop the bleeding. Your role is to make them reach the conclusion that divesting is necessary as quickly and confidently as possible.
Your only point of leverage against a SaaS competitor is your ability to negatively impact their top sales representatives’ quota attainment. This is the point where your business directly contacts theirs; it is your only point of leverage. Everything else – the LinkedIn influencer posts, the Magic Quadrants, the billboards on 101 – are all just noise compared to the direct grappling of head-to-head sales.
You want all of the best sales reps who compete against you to be nervous and force internal change: this is how you need to break their will. The general way that this works is:
Reps who compete against you can’t hit their quota. Many of the strong sales reps quit for greener pastures while the weaker reps stay and are managed out due to underperformance.
The strong reps who remain complain about how they need more support from marketing and product
Some combination of the marketing, product, and finance teams eventually trigger the discussion of asking why the company keeps throwing good money after bad. You have achieved a milestone – competing against you has become a career liability. This means that you will no longer compete against the best & brightest armed with the lion’s share of their organization’s resources, and your winning streak can continue.
Shortly after this point, most companies will capitulate and stop sending more resources against you.
Every company’s timetable varies, but generally speaking you should expect that startups will only allow you to pummel them for 2-3 months, scaleups for 2-3 quarters, and enterprise companies (say, >1000 employees) for 2-3 years before they’re forced to react. Mega-cap companies (Salesforce, Intuit, Adobe, ServiceNow) will hold out the longest – you may need to compete for a decade.
Morale and momentum matters tremendously in enterprise sales. At the end of the day, SaaS is a luxury good – nobody starves tonight if they don’t buy Workday. Sales teams thrive on the confidence to make sales in the absence of urgency and shaking their confidence can break a team.
As a result, knockdown blows will be visible on Glassdoor and Blind 2-6 months before their effects are public. A key metric that you can iterate your competitive strategy towards is Glassdoor reviews that are well-written, well-reasoned, typically quite long (5+ paragraphs), and highly negative. These reviews should call out competitive pressures or flagging product-market fit as the cause of dissatisfaction, as well as strategic gaps (“we don’t have a plan” or “we’re completely reactive”). In some cases they will literally call your company out by name.
Be Persistent
The key trait for competing effectively is not cleverness, but persistence. You need to apply competitive pressure with very little positive feedback for many quarters (or years) to get any sort of return. This is why founder-led companies, or companies with founder DNA, are the best at competition in the long run.
But many leaders do not have the stomach for real competition. Competing means admitting that your competitors are strong; it means admitting that you aren’t infallible. You must be willing to show vulnerability, if only internally, in order to take the required competitive steps with the required intensity.
Most steps that are necessary to compete are obvious. Some startups psyche themselves out, looking for that one “differentiated product” (read: magic trick) that will flip the market in their favor. You should just assume that this trick does not exist, and not overthink things. If you just lost 3 deals because you didn’t have feature X, you should just build X rather than wondering whether you’d be better off digging in your magician’s cap for a rabbit one more time.
Beware of Strong Builders
There’s an order to how you compete:
If you’re much stronger, you compete with marketing: we have the best brand, we are the default choice. This is by far the easiest, and only requires that your product and post-sales motion are strong enough to keep customers happy.
If you’re moderately stronger, you compete with sales: we can outsell you because we have a better reputation and more resources (= stronger sales reps). This is harder, as it requires an excellent GTM motion. Note that most top SaaS companies have excellent GTM even if they tout their product teams.
If you’re close to equal in strength, or weaker, you compete with product: we’ll build a better product than you, and fight tooth & nail in every sales cycle to gain any product edge. This is very hard, and requires a full wartime mobilization of your company from product and engineering all the way to sales and marketing.
The scariest competitors will always be companies that can build quickly, because even if your GTM is stronger, they can threaten your product-market fit by leapfrogging your technology. Companies that build fast are disproportionately startups, and the best competitive strategists are very alert to startup competitors.
In some cases, a knockdown blow isn’t enough to make a competitor leave you alone. In some cases the only path to success for a competitor is to beat you in the markets where you compete – they can’t be discouraged from going right after you, because it’s existential for them. These companies will fight you to the bitter end. These desperate competitors can be the most dangerous, because they’ll often use sketchy tactics (negative gross margin deals; unlimited liability; lying about you) to try to win. If they’re product-oriented and founder-led, this is also when they will build the fastest and potentially leapfrog you.
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Great article and so many relatable memories. I would say that if you are competing with a mega tech company, it seems more likely they will acquire you rather than “give up after a decade” if they can’t find a way to kill you.
I also think your point at the end about builders is especially important. It’s easy to forget how difficult it is to build and maintain positive alignment between Marketing, Sales and Product and it’s easy for successful incumbents to become complacent and bogged down by process.
That is both a warning for established players and an opportunity for startups that can respond faster to customer needs with good-enough sales and marketing.
This is a great article.
I've got to send it to my co-founder as we are a build fast startup who is looking at taking on a large competitor in the space and knowing it'll take 2-3 years for them to really even react is good to know.