6 reasons your startup should welcome competition

A new competitor can be a frightening prospect, but it's actually an opportunity for you to lift your game
5 minute read
Adam Smith @HomebrandAdam
Technical Co-pilot
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Competition can be frightening, but it's also an enormous opportunity

When you launched your startup, you probably saw yourself in a David and Goliath scenario, taking on the entrenched corporate power structures and disrupting a stagnant industry. A few years down the road, though, and some hot young startup is entering your industry vertical, trying to disrupt you. The nerve!

Competition can be frightening, especially if you've been working in a vertical where competition is scarce. But, scary or not, you should welcome it. This is why:

1. Competition helps define your value

If you're operating in a relatively untouched market, it's easy to define your value proposition to your customers. After all, you're the only game in town. Bringing another competitor into the market forces you to think more deeply about the value you really offer to customers.

When you have a direct competitor, you need a point of differentiation. It's no longer enough to just offer a product or service. You have to give customers a reason to choose your product or service over someone else's.

How you choose to differentiate yourself is up to you. You could compete on price, service or product features and functionality. But competition forces you to choose, and it helps set your company apart as unique.

2. Competition brings attention to your industry

The more competitors there are, the more consumers notice your industry. If you're in an industry that offers consumers few options, it's likely they don't put too much thought into their choice.

Take Uber, for example. It's highly unlikely the taxi industry was top of mind for many consumers. But with the rise of Uber and other competitors like Lyft, consumers suddenly began to put thought into their commuting options.

Financial services has seen a similar trajectory. As fintechs have entered the market, it's brought more attention to banking and banking products. Airwallex VP of Engineering Craig Rees tells Freelancer that competition has been great for capturing the attention of consumers.

"It's that old quote of 'a high tide raises all boats.' I think that’s what we’re seeing in the fintech industry," he says.

3. Competition helps you focus

In much the same way that competition helps you define your value as a company, it also helps you to hone in on your areas of expertise. When you're faced with a crowded market, you have to find specific areas where you can outperform your competitors. That's the advice Craig Rees gives to new startups looking to enter the fintech sector.

"The banking sector is huge. It's so wide. And as an entrepreneur, I think you need to look at the opportunities in a small sliver," he says. "Look at a vertical slice where you can optimize and create a targeted and better experience than the banks. Because the banks are looking more generally and trying to create this raft of services across everything that you as a consumer or a business could ever want to do. The opportunity is to come in and innovate in a particular area. Pick a thin slice."

4. Competition makes you more innovative

As you find more niche areas in which to compete, you'll also be forced to be more innovative about the solutions you offer to customers. When you find a competitor offering the same product or service as you, you'll need to think creatively to differentiate yourself.

Having a competitor drives you to find ways to deliver more product or service quicker, more efficiently, cheaper and with a better customer experience. John Pecman, Commissioner of Competition at the Workshop on Emerging Competition Issues, told the Edison Awards that competition was vital for innovation.

"Competition is a key driver of innovation. In open and competitive markets, firms are driven to adopt more efficient production processes, and to offer new and improved products and services to customers," Pecman said.

And research backs up this claim. In a study for the Harvard School of Business, researcher Daniel P. Gross found that graphic design contests hosted on platforms like Freelancer showed a correlation between the level of competition and the creativity of the entries.

"You could see very clearly when participants were tweaking a single idea, over and over. Other times, they [would] branch out and completely change course. I wanted to understand what was driving that decision," Gross said.

Gross found a "Goldilocks Zone" where the number of competitors was optimal for inspiring original and innovative designs. Introducing the right level of competition into the equation meant that all the participants thought more creatively and individually.

Likewise, having competitors in your industry can inspire you to come up with more creative and unique solutions.

5. Competition helps you understand your market

Because competition increases the need to differentiate your offering, it also helps you understand your market and customers. By seeing which segment of the market your competitors are catering to, you can understand their needs and find gaps in your own offering.

Likewise, you can gain valuable insight from your own customers. Having competition means the customers that do choose you are making that choice for a reason. You can delve into the reasons that customers are choosing you, the products and services that they're choosing that are unique from your competitors and the features they use most.

These learnings can help you focus in on the offerings that provide your customers a unique point of difference from your competitors. It can also help you know how to market your product to communicate this point of difference.

6. Competition helps you find new partnerships

Competition doesn't always have to be cutthroat. At times, it can provide an opportunity for partnership. If you're serving a very specific set of customer needs and your competitor is serving another, you could choose to partner to serve a broader set. According to Craig Rees, this is what many fintechs choose to do in their relationship with traditional banks.

"We're both competing and partnering at the same time. It's not like we can get away with the banking industry," he says. "I think the banking industry is realizing there's an opportunity, that they can't move as fast as consumers want, and therefore if they can partner with fintechs we can move the industry move a lot faster and support expectations and basically raise the bar."


There's no doubt that competition can be a scary prospect. But if you view each new competitor as an opportunity, you can use competition to lift your game and create better products and services. Ultimately, competition ends up delivering better outcomes for customers. And if your primary objective is creating great experiences for your customers, competition can be a win for everybody.

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