The Art of Coopetition: Maneuvering Through the Startup Battlefield

"It's no exaggeration to say that business is war. Either you already have a turf, and you have to defend it against all comers, or else you have to invade somebody else's turf and take it. We are playing defense and offense at the same time. Either way, conflict is inevitable. Only the government can print money; the rest of us have to take it from somebody else. I love a win‐win deal as much as anyone else, but it's much more common that business is close to a zero‐sum game." - Amp It Up By Frank Slootman

Hey Reader,

This week, we’re exploring the intricate dance of competition in the startup landscape. How to see competitors not just as threats, but also as opportunities.

Is business an outright war, or can it embody more nuanced, constructive shades of competition? Is the laurel of victory only for the ruthless, or can the ‘nice guys’ also taste success? Could your rivals be unknowingly unlocking doors for you? When they close a big customer (and let the world know about it), should you lament or rejoice – seeing as they’ve just validated the market and spotlighted your next focus area?

Game theory suggests a compelling alternative to the zero-sum game – “coopetition”. It advocates for cooperation among competitors, fostering a larger market that benefits all. But then again, wouldn’t each player want a larger slice of this enlarged pie?!

Coopetition: An Unexplored Strategy

Streaming services like Netflix, Amazon Prime, and Hulu fiercely compete for viewers. Yet, they cooperate by hosting each other’s services on their platforms, thereby boosting overall consumption and expanding the market. Welcome to complex Coopetition.

What if your competitors weren’t just rivals, but unconscious allies? Coopetition is a strategic framework that integrates cooperation and competition, two concepts traditionally considered as separate and incompatible. The term, derived from Game Theory, brings a new dynamic into the business field by blurring the lines between competitors and collaborators.

The most obvious example is the relationship between Google and Apple. These tech giants, despite being rivals in text messaging standards (green vs blue!) or mobile operating systems (Android vs. iOS) and web browsers (Chrome vs. Safari), also cooperate in significant ways. Despite their surface rivalry, Google remains the default search engine on Apple devices, indicating that even within the trenches of competition, there are unexpected alliances. It’s this kind of intricate dynamic that underscores the art of coopetition.

Echo-Chamber Effect: A Consequence of Coopetition

The ripple of innovation across a sector is known as the Echo-Chamber Effect. When a competitor pioneers a new approach or technology, it creates an echo effect, with other companies adopting or refining the concept. This propagation can amplify the impact of the original innovation, benefiting the entire industry, even if the initiating startup remains oblivious to their ripple effect.

The ‘Stories’ feature across social media platforms introduced by Snapchat, was quickly adopted and modified by Instagram, Facebook, and LinkedIn. Even if Snapchat wasn’t directly benefiting from this imitation, their innovation was magnifying its impact, shaping the entire industry.

We witnessed this yesterday, with Tesla EV charging tech being embraced by GM & Ford, rendering the existing standard (CCS) obsolete overnight.

Finding Your Niche and Nurturing Relationships

In the early stages of growth (typically under $10m ARR), knowing your competitors inside out is crucial. Aside from a broad understanding of the competitive landscape, it’s a real relationship with the CEO.

You’re often grappling with similar challenges, and sharing insights can lead to unexpected outcomes. Being a recognized and respected player in your sector can pave the way for potential alliances and partnerships, especially important in current markets where raising funds can be challenging. Horizontal mergers and private equity consolidations are not uncommon, and having a positive rapport with your competitors can create opportunities.

However, when it comes to selling, the strategy pivots. You don’t want prospects comparing you directly to your competition in a feature-by-feature face-off. You need to stand out – to be the apple in a sea of oranges. Lay strategic ‘mines’ based on your unique value proposition, and position yourself as a leader so that you become the de facto voice of the industry. You may even want to downplay your competitors, casting them as non-contenders.

This dichotomy is important: while you foster relationships and engage in coopetition behind the scenes, your customer-facing image is all about differentiation and leadership. The two strategies are not mutually exclusive; in fact, they can enhance your business growth when skillfully combined.

Learning in the Shadows: An Effective Competitive Strategy

Shadow learning is a powerful tactic in the startup world, this observation of competitors and adopting valuable insights from their strategies, products, or customer engagement methods. This is more than just observation; the next step is implementing these learned strategies (good & bad) to drive your own advantage.

The Software-as-a-Service (SaaS) business model, pioneered by Salesforce is the go-to example. As Salesforce set new industry standards, we all stood in the shadows, observing, learning, and eventually incorporating this model into our operations. This ‘shadow learning’ benefited countless businesses and ultimately led to the widespread acceptance of both cloud transformation and the SaaS model.

An epic manifestation of this tactic is evident in the phenomenon of simultaneous innovation, the emergence of ride-sharing giants Lyft and Uber. Their simultaneous arrival on the scene raises an interesting question: How did the same groundbreaking idea come to fruition in two places at once? Contrary to the common belief that a lone genius is single-handedly inventing the future, ideas aren’t invented – they are discovered. (next weeks topic)

Despite being staunch competitors, Lyft and Uber operated in a state of mutual symbiosis, each contributing to the overarching goal of promoting the benefits of ride-sharing. They worked together directly in areas such as government lobbying and indirectly in educating the market, proving that even in a competitive space, coopetition can drive industry-wide progress.

The Invisible Handshake: Unaware Cooperation

In the business battleground, competitors can often inadvertently bolster each other’s growth. This indirect support may manifest in various ways: validating and expanding the market, raising industry standards, or cultivating a shared talent pool. This unseen alliance, where cooperation is intertwined with competition, can lead to mutual unintentional benefits.

Your adversaries, in their quest to conquer the market, can unknowingly facilitate your progress. This concept, coined as ‘Unaware Cooperation,’ becomes apparent when a competitor invests heavily in educating the market about a new vertical. As they deploy resources to forge this path, you have the opportunity to strategically position your startup to capitalize on this newly informed market.

A historical example is the infamous Browser Wars between Internet Explorer and Netscape Navigator during the 1990s. As these tech titans vied for dominance, their rivalry inadvertently spurred innovations and improvements that advanced the entire industry. This is how competitors, in their pursuit of supremacy, can mutually shape each other’s trajectories and propel the industry forward.

Similarly, the rivalry between AMD and Intel. These two microprocessor giants, while in constant competition, have driven technological advancements that have not only impacted the entire PC industry but have also significantly influenced the consumer electronics market at large.

Final Thoughts, If You’ve Made It This Far:

A target, be that beating a competitor, or constantly beating your self, is a ridiculously effective and clear motivator for high performing teams, when actively and vocally communicated over and over again. (quote)

Book Recommendation:

“Co-Opetition” by Adam M. Brandenburger and Barry J. Nalebuff — explore more on how cooperation and competition can coexist in the business world. The book is dated, but stands the test of time.