Startups vs. The Big Guys: The Power Of Caring For Customers

Written By: Dharmesh Shah January 30, 2007
I’ve been working in and around startups for most of my professional career.  A topic that often comes up in startups I’m advising or considering an investment in is:  “How will the big guys respond?”.  This is an interesting question and for all the obvious reasons, should not be dismissed as being irrelevant.  Too many startups answer the question on big competitors either inaccurately or inappropriately.  [Note:  I use the phrase “big guys” throughout this article as informal short-hand.  No gender bias is intended.]

Instead of the common arguments of why one of the big guys (Google, Microsoft, Oracle or whoever) can’t/won’t compete with you, it’s sometimes helpful to answer a slightly different question and look at this through a different lens:

Here is what BigCo would have to do to win in this market.  First, they’d have to <x>.  Then they’d have to <y>.  Finally, they’d have to <z>.

You get the idea.  Instead of making decisions on behalf of the other party, let them decide on their own how hard it will be for BigCo to do x, y and z.  As a potential investor/advisor, I like to see the startup founders have an objective stance on competition and can accept that one thing those of us that have been around the block know a wee bit about is the realistic impact of competition from big players.

Having said that, I came across an interesting article recently that should provide some comfort to startups.  It was interesting not because it revealed some startling fact, but because I was not all that surprisng.  The title of the article is “190,000 Office Live beta accounts left in limbo.”  It was penned by Phil Wainewright whose blog I follow regularly and who I believe has a reasonably balanced view on things.  If nothing else, at least his arguments are usually pretty objective.  The best I can tell, neither Phil nor I hate Microsoft (quite the contrary, I’ve been a customer for years, build on top of their platform and own Microsoft shares).


The thing that leapt out at me about this article is that the article didn’t leap out at me.  I have read about similar things all the time with big software companies – particularly those that deal with smaller customers.  This brings me to a couple of points I’d like to share with you:


  1. When the ratio of the size of the software company and the size of its customers is very, very large (as in the case of most big businesses selling software/technology to small businesses), there’s the danger of a lapse in customer service.  In the aggregate, they do really well.  But, often, individual customers or groups of customers can get really, really screwed.


  1. The reason for the above is that as a company gets larger another important ratio starts to slide downward.  This is the ratio of the number of people in the company that genuinely care about customers to the number of customers.  


So, when you’re up against big competition, try to figure these ratios out.  What’s the company size / average customer size  and what’s the people that care about customers / total number of customers.  Of course, the latter is not easy to come by in terms of hard data, but simple looking at the world through this lens is helpful.

I generally tend to believe that the fiercest competition for a startup often comes from other startups, but that doesn’t mean the big guys should be ignored.  Often, the most reliable source of competition eventually is the big companies.  This kicks in if and when you become moderately successful (and thereby the big guys start to care enough to come after you).  

What are your thoughts?  Any war stories from the trenches in having gone up against competitors many, many times your size?  If so, would love to hear them and any other comments you might have.

Related Posts