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Speaker 1

00:00

Like how the hell does anyone compete with like 1 of the greatest companies of all time on the thing that they're experts at, right? And it turned out that just like picking the right avocado was too big of a challenge for like this trillion dollar company.

Speaker 2

00:20

Hello, this is Michael with Harge and Brad, and welcome to the Partner Lounge.

Speaker 1

00:25

Hey, so as YC partners, we work with hundreds of startups and we find ourselves repeating the same advice, often seems pretty obvious, over and over again. We found ourselves wondering why.

Speaker 3

00:36

Before COVID, we'd often gather together in the partner lounge at the YC office to try to figure out why this was the case and how we could help startups figure it out faster.

Speaker 2

00:45

And today we're gonna talk about competitors. Har, do you want to set this 1 up?

Speaker 1

00:51

Yes. You know, 1 thing I've noticed is that I'll do office hours with a company that's doing great. And they'll be psyched themselves out because they'll just want to talk about how worried they are about a competitor and it will be, you know, a big company, another startup. And they're just like, it's like they've lost their excitement for their company and replaced it with fear.

Speaker 1

01:15

And we end up talking about this a bunch, right? Like what's going on? Like why is this company that's doing well, suddenly feel like they're failing?

Speaker 2

01:23

Well, it's because their competitor raised $5 million, Harj. And we all know whichever company raises $5 million first wins, right? Isn't that how this works?

Speaker 2

01:32

Like. What do you think, Brad? What lies do you think or how do you think folks are psyching themselves out?

Speaker 3

01:42

Well, I think when you start working on something, you think you're the only 1 that's had this idea, you quickly learn that's not the case. And then it can be very easy to start thinking that you have to compete with this company and have to beat them in order to succeed with your own company. And so you start thinking of things like, they're going to steal my customers, I have to steal their customers.

Speaker 3

02:08

I, their product roadmap, it must be amazing. So I should copy whatever they do, without really thinking about it too much. And it's just a very dangerous mindset that can take you away from thinking about your own customers and having like a first principles approach to building your company. But there's so many lies that founders tell themselves about competition and about what their competitors are up to.

Speaker 2

02:32

When I think about a YC company and competing with folks, oftentimes it goes to my head and the first thing I tell them is like, the depressing fact that most likely everyone's going to die. So Like you're not accounting for like the most common outcomes like you and your competitors, none of you will make something that people want. And then the second thing they don't count for is that there are lots of businesses where there are multiple winners.

Speaker 2

02:57

How many banks are there? Like 1 bank doesn't look at the other banks and say, well, I guess that's it, we got to fold up shop. There's already a bank in existence. And so I often think when I'm encountering this fear thing, I like to kind of run with the fear and like, be like, let's fear this out to the end point to see what you're really afraid of.

Speaker 2

03:16

And like, maybe when we open the closet, the thing in the, you know, the boogeyman isn't actually there as opposed to like, we're sitting on the bed and just obsessing over all these like things that could go wrong.

Speaker 3

03:27

Yeah. The boogeyman is not there. In fact, I think oftentimes your competitors are just as messed up as you are. You read about the fundraising and TechCrunch or whatever.

Speaker 3

03:43

And then years later, you talk to someone that worked at that company and they say, oh man, what a mess. Everyone was leaving then, the CEO was on a bender and was all sad because we lost all of our big customers. You just don't know. And it's so easy to assume that if you're having a hard time, everybody else must be having a great time when everyone is having a hard time.

Speaker 1

04:07

Yeah, I think that's a really important point. So you know, 1 of the things I remember surprised me the most about when I switched from being a startup founder to a YC partner, is that running a startup, you're exposed every day to how screwed your company is. You're just hit in the face with it every day.

Speaker 1

04:25

And so you constantly feel like you're failing. You don't know how to build product. You don't know how to manage people, all of this stuff. And you see everyone else's exterior, and it seems like they're doing great, right?

Speaker 1

04:37

I remember the early days of YC, I always just felt like everyone else was just crushing it. And I'm like, man, we suck. And so-

Speaker 3

04:45

It's not even the exterior, Harj, it's their marketing. Right? You're seeing their carefully crafted marketing.

Speaker 1

04:52

But then as a partner, you work with these companies and you start realizing that all of them are really badly flawed somehow. Literally, in any YC batch, I could take every single company and pick out some fatal flaw. You know that some of them are going to turn out to be worth like billions of dollars, but you can still do it.

Speaker 1

05:14

But like, you don't get that perspective when you're running your own company.

Speaker 2

05:17

But wait a second, Arch. Wait a second. Maybe I shouldn't be worried about my competitor, but this is a different situation.

Speaker 2

05:24

We're in a land grab situation. If I don't get those customers unprofitably as fast as possible, my competitors will and then they'll beat me. We hear this shit all, like how often do we hear land grab situation at YC?

Speaker 1

05:39

Yeah, it's definitely a bit of a meme. I mean, it's, there's truth to it actually, right? Like I don't think it's not unfair to say that you want to get more customers than your competitors.

Speaker 1

05:51

I think it's like what we see is that founders are really quick to assume that their competitors are going to win. And like Brad said, they look at the external signs. It's like, oh, like, you know, they just announced a fundraising round. Oh, they just got like an article in the press.

Speaker 1

06:05

Like, oh, they just like hired someone from Google, blah, blah, blah. Like all these reasons. But what I try to do in the office hours, I'll be like, hey, like, well, like, are your customers talking about them? Are you losing deals?

Speaker 1

06:17

Like, have you looked at the product? Do you like, you know, compare? How do you rank up? And it's funny, like, I don't know about how do you guys find founders often answer those questions?

Speaker 3

06:27

I mean, usually, things are fine, right? The customers are usually not talking about the other companies. It's like a confusion of interfaces.

Speaker 3

06:36

The founder is thinking, oh my gosh, my competitor is in the New York Times. Therefore my customers are having a worse experience with my product today. It makes no sense whatsoever. And as soon as we ask those questions, hopefully we can get it through to them that that's not what they should be worried about.

Speaker 2

06:57

You know, it was funny, cause I was thinking about this in the context of my competitors must know something that I don't, so I have to like copy their stuff. I remember back in the day, early in Twitch, back when we were just in TV, we were competing against this company named Ustream and another company named Livestream. And inherently I knew that we were copying each other's features.

Speaker 2

07:18

I knew we were all looking at each other's websites. But there was this 1 moment where we built a feature that was exclusively for copyright owners taking content off of our site. It was something you could see on the main site, it wasn't obvious, it had no clear user value at all. And 2 weeks after we released it, a competitor released the same 1.

Speaker 2

07:41

And we were like, oh crap. This is clearly the blind meeting the glide. They don't even know why we have this like we wish we didn't have this feature but like they built it anyway.

Speaker 3

07:53

But then after that you shut down the next day right because it was a

Speaker 2

07:56

horrible disaster right that

Speaker 3

07:58

was it that was the end of the company right.

Speaker 2

08:01

The company only started working when Emmett and Kevin started actually talking to the users and figuring out what they wanted. Instead of, you know, the years where all of us just looked at each other, all the competitors just looked at each other, copying each other's dumb features. I

Speaker 1

08:15

feel like that's what I'm trying to do in these office hours mostly is like founders come in and super focused on negativity around a competitor. And I'm basically just trying to get back to basic. What's your growth rate?

Speaker 1

08:31

Customers churning, like what's the pipeline on sales look like? And if they can answer all those questions well, you're like, well then like, let's get back to it. Like keep going. Like, why are we stopping?

Speaker 3

08:45

Spend time on the things that you have control over, not the stuff that you don't.

Speaker 2

08:50

But okay, but let's be clear. Sometimes when we talk to founders, there are some reasonable competitive concerns, right? And I'll start this 1 out.

Speaker 2

09:00

And Brad, this was an idea you had before. When we ask, so who's competing with you? And then the answer is like, well, we don't have any competitors. There's no other way to solve this problem other than us.

Speaker 2

09:12

That's a red flag, right? Yes.

Speaker 3

09:15

When we hear that in a YC interview, we buckle up. Yeah, because it just shows kind of a lack of understanding of the customer and what the customer is doing right now to solve the problem. It's very unlikely that no 1, the customer has never tried another solution to whatever the problem is that they're trying to figure out.

Speaker 3

09:37

You should know what those are.

Speaker 2

09:39

Yeah. Then Harjit, you were talking about sometimes your competitor objectively has a better product. I've encountered this. I remember the day after SocialCam sold, 1 of my close friends, you all know who they are, messaged me and said, okay, I can delete your app now because I've been using something else for this whole time to take video.

Speaker 2

10:00

And I was like, oh, I guess we didn't have the best. Like even my really close friend was only using the products like to, you know, make me feel good. Cause there was a better product out there that he was actually using. What about structural advantages though?

Speaker 2

10:18

Right, like I remember when, you know, my former co-founders, Justin and Emmett, they created a calendar company before their kind of success later. And they literally, 6 months into their company, Google Calendar came out and just absolutely crushed them. So what happens when someone has an actual product structural advantage?

Speaker 3

10:41

Yeah. That oftentimes, you should worry about that. With my company, Perfect Audience, we started off using the Facebook Exchange API. And so we had ostensibly 8 or 9 competitors.

Speaker 3

10:55

And we didn't, we tried not to worry about them too much. We worried about them too much. And we were all using the same Facebook guy API to sell ads. When Facebook announced that they were going to launch custom audiences and sell this themselves directly, Facebook was now a competitor and they own the platform, they wrote all the code, they control pricing.

Speaker 3

11:14

So that's a time when you should worry about competition. And so you sold the company.

Speaker 1

11:20

Yeah, I think a good recent example of this too is probably Microsoft Teams and Slack. And again, I'm talking about this as an observer of it, but Slack's a pretty great product. We all use it every day.

Speaker 1

11:32

And I haven't used Microsoft Teams, but I'll guess that it's not as good of a product as Slack, but good enough that Microsoft could actually use that like massive sales distribution advantage to kind of beat them in the enterprise, right? Like, what do you guys think about that?

Speaker 2

11:50

If you have a structural advantage, but you bring a crap product to the game, you'll lose, right? And like, you know, we saw that, Microsoft's done that too, right? Their music player, remember back in the day, their mobile operating system back in the day.

Speaker 2

12:02

So a structural advantage with a crap product doesn't win. A structural advantage with a product that's good enough can win. And man, it really helps when some startup specs the whole product for you. Like Microsoft's move is to not innovate the good enough product, it's to copy it maybe 5 to 10 years later.

Speaker 2

12:21

And so that is something to be worried about. But weirdly, just as often, they don't nail it. Like just as often, they just don't nail it. And you see this with Facebook, right?

Speaker 3

12:33

I

Speaker 1

12:34

would say more often, right?

Speaker 2

12:35

Because if

Speaker 1

12:36

you think about, we're scratching our heads trying to find examples of times that a fan company launched a product that killed a fast-growing, successful startup. So clearly more often than not, structural advantage isn't actually that much of an advantage.

Speaker 3

12:52

I mean, Snap, Snap lives, right? Yeah, just the, just the fact that it lives, right. You know, tis but a scratch, right?

Speaker 3

13:00

Facebook keeps hacking away at it and it's still alive. It's still a going concern. And I think for a lot of founders where structural advantage is something that comes later, they're just trying to build a great product. The takeaway is that Just build a better product.

Speaker 3

13:17

And if you do that, then all of these other advantages are just kind of moot points because it's really rare for the company that has the structural advantage to also put out a great product. But why would they? It doesn't make any sense. It's not the ideal allocation of resources to make it great when you don't have to.

Speaker 3

13:36

So there's always an open door.

Speaker 1

13:38

The other good recent YC example is Instacart. Instacart from day 1, the number 1 thing was, well, Amazon's going to do this, Amazon's going to do this. How the hell does anyone compete with 1 of the greatest companies of all time on the thing that they're experts at?

Speaker 1

13:55

And it turned out that just picking the right avocado was too big of a challenge for this trillion dollar company. Man, can you imagine how many times our people with Instacart must have just been like, had to sit there and listen to some investor explain to them why like, like Amazon and Jeff Bezos was going to crush the company?

Speaker 2

14:16

Well, think about Kyle and Cruise. When Cruise started, Google was already a decade into building self-driving cars. It was so funny because I remember talking to an investor about this and that was their whole point.

Speaker 2

14:30

They were like, Kyle's screwed from day 1. And I just was like, look, Kyle has built the most complicated products inside of our company. Whenever there was a ridiculously stupid technical challenge that no 1 else could do, Kyle volunteered for it. I would never bet against Kyle.

Speaker 2

14:51

And the crazier, the more I wouldn't bet against him. And that investor was like, you're right, Michael. And that person made a lot of money. Oftentimes, we have to give this somewhat depressing advice to founders which is basically like, this is a hard problem but not a complicated product.

Speaker 2

15:10

You need a better product. It's really hard to build a better product But it turns out you get such an advantage by delivering more value to your end users than everyone else does It's the it's the the club you can bludgeon everyone else with So like instead of worrying about all these stupid things like land grabs and whatever all the other crap. It's like yeah, just build a better product for your users. And you might get surprised at how well that strategy goes.

Speaker 1

15:39

Like stay informed, like know what your competitors are building and you know, how you stack up against them, but don't let it deflate you.

Speaker 2

16:00

You