David vs. Goliath: How Startups Can Compete with Tech Giants

Now in 2020, the world is fighting the effects of an unprecedented threat to life, a pandemic known as Coronavirus (COVID-19). Consequently, startups are effectively fighting two battles: an economic one for survival (investment levels will drop this and next quarter), and against big tech.

In this article, we look at how startups can survive and thrive against big tech giants, such as Google, Facebook, Microsoft, Salesforce, and numerous others. Resilience and innovation is what startups need. This equally applies no matter what the global economy throws at companies of every size.

How Big Tech Threatens Startups?

When it comes to innovative software solutions, the results are often hard to protect and patent, or copyright, in the early days. Protecting intellectual property (IP) is something every VC-backed or bootstrapped company should do; but it takes time and money.

Even when companies have the money and resources to fight IP battles, they don’t always win. It took seven years for Apple and Samsung to settle serious legal disputes over IP and patent theft. In the end, a California jury eventually awarded Apple $539 million for Samsung copying patented smartphone features.

Most startups don’t have high-priced lawyers to fight off a big tech company copying features, or even creating a competing product and aiming to win the same customer-base. Going the legal route is rarely an option.

Look at Slack, for example. Slack was growing at a rate of 5% every month, which is incredible even for Silicon Valley startups. And then Microsoft came along, launching Teams, four years after keeping an eye on the emergence and success of Slack. Microsoft then copied what made the app so popular, thereby grabbing the market share and reducing its growth, and later integrating Teams in with other products and services.

In other cases, physical products are copied and sold for a cheaper price. Amazon is a known offender for this. For example, Allbirds developed a niche line of wool shoes sourced and created in an environmentally friendly way. Amazon then copied the best selling product, almost exactly, including how the wool was sourced, and then sold them for half the price. Amazon and other tech giants, including Alibaba in China and South East Asia, have a history of doing this at the expense of startups, freelancers and entrepreneurs.

Can Startups Copy-Proof Innovation?

As mentioned earlier, lawyers aren’t very helpful when fighting against big tech giants. Going the legal route takes time and money. In a high-growth scenario, when time and money is everything, this is a luxury that can’t be afforded. Startups need to innovate in such a way that ensures they can survive and thrive without worrying about big tech stealing market share and potentially crippling growth prospects.

Some startups, with the right type of innovation, are very good at this. Wayfair, for example, was worrying about the impact of Amazon, especially if they would steal any advantage Wayfair had. Despite this, Wayfair was able to merge 200 niche product websites into their own brand in 2014. One innovation that Amazon didn’t or couldn’t replicate is the way that they took pictures of the products that helped customers picture where furniture would go in their own homes.

Wayfair did remarkably well pursuing this course of action. Five-year growth revenues from 2014 were 49% (CAGR), even compared to Amazon’s 26%. Customers loved being able to visualize the products in a home environment, which encourages higher conversion rates. With 14 million products, compared to billions on Amazon, it was far easier for Wayfair to implement what Amazon couldn’t. But at the same time, other furniture eCommerce brands with fewer products, haven’t replicated this innovation either.

Zulily, another company that could have fallen under Amazon’s relentless drive for market dominance, took another approach. Zulily sells women’s and children’s clothing online. It knew it was up against Amazon Marketplace, when it came to attracting sellers and customers. Despite the generally good experience consumers have, Zulily provided a better service to suppliers. Fairer purchase prices were offered, orders were placed in larger volumes, and a much better level of service was provided than Amazon could offer.

Consequently, Zulily attracted a much better range of suppliers, on an exclusive basis, which ensured it could grow quicker. Revenue accelerated enormously, until Qurate, the owners of QVC and HSN, bought it for $2.4 billion in 2015, according to a HBR report.

Dropbox also drove forward growth taking the somewhat unconventional approach. In the early days of cloud-based storage, Dropbox knew the big money is in winning over business and corporate customers. However, that would require a sales team, which would take time. Consumers on the other hand, were easier to win over. Consumer adoption made it easier for professionals who loved using Dropbox personally to encourage managers, CIOs and CTOs to purchase Dropbox for Business.

How Can Startups Apply These Lessons?

When it comes to tech products, startups are always going to be concerned that larger companies can quickly copy products, or features, and get those solutions out to thousands or millions of customers. So even if the ideas come from a startup, a larger tech company is going to secure the advantage and profits.

Avoiding the fate of startups that have been copied out of growth, or even existence, is enough of a concern when there is a known major player in your market/niche. Startups that need to take appropriate action therefore need to think of the following:

  • How can we implement a better quality of service (on-boarding and customer success teams)?
  • How can we offer better value, whether that means the quality of the product/service, or the cost-effectiveness of the solution?
  • How can we be agile, or ensure that we can use our innovations against the size of a larger competitor?
  • If we are copied, how do we maintain growth and market share, or differentiate to keep one step ahead of a competitor?

Most startups don’t need to worry about this too much. However, in eCommerce and software in crowded markets with big tech competitors, startups need to take proactive steps to avoid getting crushed. Providing high-quality customer service, more agile products and services, and being more responsive to what clients need are some of the most effective ways to outcompete tech giants.

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