How To Compete With Amazon and Google

Like how the hell does anyone compete with like one 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.

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Hello, this is Michael with Harj and Brad, and welcome to the Partner Lounge. Hey, so as YC partners, we work with hundreds of startups, and we find ourselves repeating the same advice, something that seems pretty obvious, over and over again. We found ourselves wondering why. 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. And today, we’re going to talk about competitors.

Harj, do you want to set this one up?

Yes, you know, one thing I’ve noticed is that I’ll do office hours with a company that's doing great, and they’ll be to psych themselves out because they’ll just want to talk about how worried they are about a competitor. It will be, you know, a big company or another startup, and they're just like, it's like they’ve lost their excitement for their company and replaced it with fear. 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? Well, it's because their competitor raised five million dollars.

Argent, we all know whichever company raises five million dollars first wins, right? Isn’t that how this works?

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

Well, I think when you start working on something, you think you’re the only one 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. Their product roadmap, it must be amazing so I should copy whatever they do without really thinking about it too much. 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. 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 gonna die. It's 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 account for is that there are lots of businesses where there are multiple winners.

Like how many banks are there? Like one 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 be like, let’s fear this out to the endpoint to see what you’re really afraid of. And like maybe when we open the closet, the thing in the, you know, the boogie man isn't actually there as opposed to like we’re sitting on the bed and just obsessing over all these things that could go wrong.

Yeah, the boogie man is not there. In fact, I think oftentimes your competitors are just as, you know, messed up as you are. You read about the fundraising in TechCrunch or whenever, and then years later you talk to someone that worked at that company, and they say, oh man, what a mess! Like 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.

Yeah, I think that's a really important point. So, you know, one 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. Like you're just hit in the face with it every day, right? And so you constantly feel like you're failing. You're not like, you don't know how to build product, you don't know how to manage people, all of this stuff.

And like you see everyone else's exterior, and it seems like they're doing great, right? Like Michael Room, the earliest YC, like I always just felt like everyone else was just crushing it and I'm like man, we suck. And so it’s not even, it’s not even their exterior heart, it’s their marketing, right? You're seeing their carefully crafted marketing. But then as a partner, you work with these companies, and you start realizing that like all of them are like kind of really badly flawed somehow, right? Like literally in any YC batch I could take every single company and like pick out some like fatal flaw. And like, you know that some of them are going to turn out to be worth like billions of dollars, but you can still do it.

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

But wait a second, Harj, wait a second. So maybe I shouldn’t be worried about my competitor, but this is a different situation. We’re in a land grab situation. Like I, if I don’t get those customers unprofitably as fast as possible, my competitors will, and then they’ll beat me.

We hear this all, like how often do we hear land grab situation at YC?

Yeah, it’s definitely a bit of a meme. I mean, there’s truth to it actually, right? Like I don’t think it's unfair to say that you want to get more customers than your competitors. 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 like ah, they just like hired someone from Google, like all these reasons.

But what I try to do in the office hours, I’ll be like, hey, like well, are your customers talking about them? Are you losing deals? 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 you guys find founders often answer those questions.

I mean usually things are fine, right? The customers are usually not talking about the other companies. It’s like a confusion of interfaces that the founder is thinking, oh my gosh, my competitor’s 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, you know hopefully we can get it through to them that that’s not what they should be worried about.

You know, it was funny because I was thinking about this in the context of my competitors must know something that I don’t, so I have to copy their stuff. I remember back in the day early in Twitch, back when we were Justin.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. Like I knew we were all looking at each other’s websites.

But there was this one moment where we built a feature that was exclusively for copyright owners taking content off of our site. Like and it was something you could see on the main site. It wasn’t obvious. It had no clear user value at all. And two weeks after we released it, a competitor released the same one, and we were like, oh crap! Like we’re, this is clearly the blind meeting the glide, like they don’t even know why we have this.

Like we wish we didn’t have this feature, but like they built it anyway. But then after that, you shut down the next day, right? Because it was a horrible disaster, right? That was it, that was the end of the company, right? 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 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? 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 let’s get back to it like keep going. Why are we stopping? Spend time on the things that you have control over, not the stuff that you don’t.

Well, okay, but let's be clear. Sometimes when we talk to founders, there are some reasonable competitive concerns, right? And I’ll start this one out and Brad, this is an idea you had before. Like when we ask like, so who’s competing with you and then the answer is like, well we don’t have any competitors. Like there’s no other way to solve this problem other than us.

Yeah, that’s a red flag, right?

Yes, that’s 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 one, the customer has never tried another solution to whatever the problem is that they’re trying to figure out, and you should know what those are.

Yeah, and then Harj, you were talking about like sometimes your competitor objectively has a better product. Like I’ve encountered this, like I remember the day after SocialCam sold one 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 videos.

Like 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 because there was a better product out there that he was actually using. What about structural advantages though, right? Like I remember when my former co-founders Justin, Emmett, they created a calendar company before their kind of success later and they literally six months into their company Google Calendar came out and just absolutely crushed them.

So like what happens when someone has like an actual product structural advantage?

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 eight or nine competitors, 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 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. So that’s a time when you should worry about competition, and so we sold the company.

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

Right? Like Microsoft’s move is to not innovate the good enough product; it’s to copy it like maybe five to ten years later. 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 like you see this with Facebook, right? Like I would say more often, right? Because like if you think about, like we’re scratching our heads trying to find examples of times that like a fang company launched a product that killed a fast-growing successful startup.

So like clearly more often than not, like structural advantage isn’t actually that much of an advantage. I mean, Snap, Snap lives, right?

Yeah, just the fact that it lives, right? You know, um, tis about a scratch, right? 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. 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. So there’s always an open door. Another good reason why I see example is Instacart.

Like Instacart from like day one, like the number one thing was what, Amazon’s gonna do this. Amazon’s gonna do this. Like how the hell does anyone compete with like one of the greatest companies of all time? Like on the thing that they're experts at, right? Like, um, and it turned out that just like picking the right avocado was too big of a challenge for like this trillion dollar company.

Like man, can you imagine how many times our people with Instagram must have just been like have to sit there and listen to some investor explain to them why like, like Amazon and Jeff Bezos is just going to crush the company?

Well think about Kyle and Cruz. When Cruz started, Google was already a decade into building self-driving cars, right? Like I, it was so funny because I remember talking to an investor about this and that was their whole point. They were like, Kyle's screwed from day one, and I just was like, look, like Kyle has built the most complicated products inside of our company.

Whenever there was ridiculously stupid technical challenge that no one else could do, Kyle volunteered for it. I would never bet against Kyle. Like and the crazier, the more I wouldn’t bet against him. And you know, 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. 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 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 man, just build a better product for your users, and you might get surprised at how well that strategy goes.

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

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