I was talking to a portfolio company CEO today about his sales pipeline and one of the key items of interest for me was understanding competitive dynamics. Besides looking at the raw numbers, I like to understand whether or not we are seeing more or less competition, why we are winning, and why we are losing. As I started to dig into this area over the last two quarters I have noticed that the big boys or incumbents have started to show up in more deals. In my mind that is a good sign because incumbents don't enter a market unless they believe it is worth pursuing. I also typically do not mind competing with the larger players as they are generally less agile and less innovative than startups.
That being said, incumbents tend to add confusion in the marketplace and lengthen any startup's sales cycle. Their typical tactics including saying they have the product when they don't, promising they will have the product in one to two quarters (maybe three or four or never is the real answer), or giving it away for free in a bundle of other things that the customer buys. The last one is a tough one to counteract - I mean if the customer gets it for free, then it doesn't have to be as good as an innovative startup's product, does it? So how do you compete against these tactics?
First, as a startup you have to get away from a feature/function battle because you will always lose against a big boy. If a customer has already bought a product from an incumbent, they are more often than not willing to stay with that incumbent if they can deliver the extra feature/function soon enough in a good enough way. What I like startups to do is win with the product roadmap and vision. Show the prospect how you solve their needs today better than the incumbent but more importantly why you are different and how your approach will solve their future needs. If you can differentiate on this level, it gives you a much better chance to win.
One other piece of advice is that you must qualify the opportunity early in the sales process. If the incumbent is esconced in the account, you may be better off walking away quickly in pursuit of greener pastures. As I got off the phone with the portfolio company CEO today, what made me happiest was not hearing about all of the wins against the incumbents, but how we walked away quickly from those types of deals. Just today the CEO had a conversation with a particular prospect who said that our software was the best but the incumbent was willing to offer it for $30k instead of $150k. We ended up walking away from this deal and told the prospect to return to us when the product didn't work. Having been through this before, I can tell you that many of these prospects will come back to you. Over the long run, if the market is big enough and you build enough market share and critical mass early it will always be easier for an incumbent to buy you rather than start from the scratch. If not, you may want to figure out how you can partner with the incumbent or their competitors. Either way, remember one of your key advantages is to keep innovating and staying a product generation ahead of your competition.