A Twitter thread by Micah Rosenbloom.
🥈It's OK being #2 🥈
🎉 Good News: You’ve just founded a startup with a unique take on the market. Sales are humming and you raised a seed from a top firm!
☠️ Bad News: You’ve got three direct competitors that each raised 3X as much and are getting better PR.
What do you do?
😱 First, don’t panic. The overstuffed VC market has led this scenario to play out at least a dozen times over the last few years. A competitor raising a bunch of money and even taking an early lead in the market doesn’t mean the end of your startup. If you play it right...
0 Remember, It’s not zero-sum: Few startups actually have winner-takes-all/network effects dynamics. Casper Mattresses leads its space in metrics like money raised and public awareness, but *TWO* of its competitors have been acquired for over a billion-dollars—each!
💳 DO NOT try to compete in fundraising: It’s tempting to use your competitors fundraising success as an incentive to go raise your own war chest. This is almost always a mistake. @epaley explains why here:
🔪 Cut bad customers/channels: One way to keep focused is by paying attention to your customers. Is there a customer profile or acquisition that’s just not performing? Fire these customers ASAP. You’ll take a short-term hit, but will have more money for high-value growth.
👛 Focus on unit economics, not scale: Often, when startups raise a lot of money, growth at any cost becomes the mantra. This is fine as long as the investors stay confident, but eventually, patience runs out. Hopefully, by then you’ve unlocked profitable growth engines.
🔥 Let your competitors burn themselves out: There was a time when Reddit was thought to be *doomed* because Digg raised a lot more VC. The easy money ended up killing Digg, and Reddit is now a top 10 web property. Be patient!
🖼️ Reframe your story: Playing the long-game is the right play, but you do need to keep your team/VCs believing that you’ll win in the end. Spend some time rethinking your startup’s positioning. Try to create a new category so you're not bucketed with everyone else.
⚔️ Arm your VCs: When you’re losing the PR battle, your existing VCs will become critically important in pitching the next round of investors. Give them crystal clear bullet points about why you’re the next-big company, not the also-ran.
🤔 Consider selling/merging: A lot of this advice is based on the premise that the market leader is using capital as a crutch and doesn’t have a path to viability. If the company is out to a major lead, and executing well, it may be worth kicking off an M&A process.
🐢 Remember, slow and steady wins the race: There’s nothing more galling than having to explain your startup by referencing another startup. But remember the fable of the tortoise and hare. The basic lessons apply in this startup scenario as well.
😡 Don’t let this frustration dictate your fundraising
📈 Focus on unit economics and product/market fit, not scale
📓 Find a new way to tell your story
In time (and with a little luck) you may swap silver for gold.