Most companies see competition as a threat. If someone’s products could substitute for mine, they’re a competitor; and if a potential customer chooses another product instead of mine, that’s a bad thing.

Lightweight startups take this even further. If you see a need, but another startup has already started addressing the need, then you came at it too late. You’re lightweight, and so your only real advantage is speed. But someone beat you to market. Makes sense, right?

Except it doesn’t work that way.

Going it alone

The typical, but wrong, paradigm goes like this:

• Competition is bad

• Competitors are enemies

• Fewer competitors are better than more competitors

• An opportunity addressed by a few people already is “taken”

• An opportunity with zero competitors looks attractive

There is some truth to these things. Growing in the web search market today is pretty difficult. So is the operating system industry. So are dozens of other industries, and in these spaces, competitors may be be enemies.

But these are mature, settled industries. If you want to create a new search engine, or a new operating system, more power to you – but Google and Microsoft ARE going to be threats. Of course, most startups don’t try to dislodge Microsoft. If you’re working in an emerging market, on a disruptive or innovative technology, you might want to consider a different approach to competition.

Running in packs

This alternative model was described by Andrew Van de Ven of the University of Minnesota in an article called Running in Packs Versus Going It Alone. Andrew and his team found that in emerging, information-based technologies, competition often does not occur between individual startups, but between groups of startups. So as an alternative to trying to go it alone, startups may be better off running in packs: coordinating their efforts by simultaneously cooperating and competing.

This means that when a disruptive technology appears on the scene, its success is dependent upon the whole field of companies working on the technology, not on a single company.

So startups who run in packs should seek the growth of the entire market, in addition to trying to grow their own market share. Better to have a good slice of a growing market, than total domination of a dead market.

Actors seek both to maximize their total surplus and their respective shares in the surplus. ... This draws actors together and drives them to cooperate because no one actor has sufficient resources, competence, or legitimacy to do it alone.

Running in packs works for at least two reasons. First, competitors may help speed adoption of the emerging technology. Second, strong competition may improve and sharpen the quality of the technology.

This also means that politics is important when running in packs, as startups both compete and coordinate.

Actors with political savvy – an ability to recognize the interests of key actors and enroll them to one’s viewpoint – will be more successful in effecting institutional change and realizing their goals than actors without political savvy.

Van de Ven also found that the (disputed) first-mover advantage only really materializes with technologies with strong IP protection, and which can’t easily be reverse engineered, imitated, or substituted. Most web startups these days fall squarely in the “easily imitated” category – including giants like Facebook, Digg, Flickr, and Twitter. And even with a head start and strong patents, first movers may be better off seeking a pack to run with rather than going alone.

Of course, the advantage of running in packs probably only works up to a point. Settled, mature, and (worse) shrinking industries are far more competitive than emerging industries. This means that they’ll have a harder time working together to grow the whole industry, that adoption is less of a problem, and that technological improvement is slower.

This perhaps is why population ecology studies have found that having more competitors in a new organizational niche increases the survival probability of its members until a threshold level is reached where resource scarcity limits the growth of all members of a population.

A retail example

For a low-tech example of running in packs, look at clothing retailers. If going it alone worked in the retail industry, stores wouldn’t pay huge sums for space at the Mall of America – they would avoid it like the plague. After all, clothing stores are highly competitive – one can be substituted for another quite easily, and innovation happens slowly, with the basics (pants, shirts, socks) having been around for quite some time. So you would think that these stores would want to destroy their nearby competitors and be the only place to buy clothes for miles.

But in reality, the opposite is true. Retailers like to locate near other retailers, because going it alone as a retailer apparently doesn’t work very well. When someone needs a new pair of pants, their first thought is to go to a place where lots of people are selling pants. A shopping mall acts as a center of gravity to pull in buyers, and a lone clothing store without competition gets forgotten. So the stores simultaneously coordinate (bringing in lots of buyers to a single area) and compete with each other (for individual buyers). And as a pack, they compete with other packs of stores.

Consulting and Rails

Running in packs works for some location-based businesses, and it often works in emerging industries (the internet, mobile devices, etc.). But it also works with non-commercial technologies, like programming languages.

I’m a co-founder of Slantwise Design, a Ruby on Rails consulting shop. We mostly build web applications for startups. And while there are lots of companies trying to build web applications for startups, a majority of the time, our clients didn’t solicit bids from other competing shops. And as far as I’m aware, after 30+ projects and twice as many proposals, we’ve only competed directly with other Ruby on Rails shops twice.

(There are a few reasons for this, and I won’t go into them in much detail. The most important one is that by the time we give a proposal to a client, they’ve already made up their minds. They don’t want to decide between 10 consulting firms; they’re trying to confirm that we’ll do a good job.)

Ruby on Rails is still a growing technology, and adoption is still increasing. If you want to provide Rails consulting services, there is far more room to grow by taking business from Java or PHP shops than by taking business from other Rails shops. And the technology is still improving, so the growth of the Rails industry is fueled by knowledge sharing between Rails shops. Hence, not only is competition rare between Rails shops, but competitors should be seen as friends, not enemies.

So running in packs works for both Rails consulting firms, and for the proliferation of the Ruby on Rails technology itself.

What about you?

Every startup is different. But a lot of us need to start running in packs. Which model is best for your startup: running in packs or going it alone?

	Run in packs	Go it alone
Market size	Lots of growth potential	Level or shrinking
Degree of innovation	High – you spend time educating your customers	Low – everyone already understands
IP protection	Low – your startup could be imitated or substituted	High – given time and money, someone could do what you’re doing
Industry concentration	There is room for lots of companies to profit	The industry will only support 1-2 companies

And of course, this leads into a second question: which sort of industry would you like to be a part of?

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Further reading

This post is based on “Running in packs to develop knowledge-intensive technologies,” by Andrew Van de Ven. MIS Quarterly, June 1, 2005. You can buy this article at Amazon as a downloadable PDF for $3.95

For other thoughts on startups in emerging markets, check out Steve Blank’s Four Steps to the Epiphany.