Q: Dear SaaStr: How Do I Compete with a Company that has Unlimited Capital — and I Don’t?
Do they have a strong brand? If not, it may not matter. There is no “winner” yet. The #1 brand trumps capital.
But if they have a strong brand and you aren’t even at scale yet … yes, it can be tough. They’ve started to reach escape velocity, and you haven’t. Still, this isn’t 2006 or even 2016. Today, every category can have multiple unicorns.
You have 4-5 related choices. All can work well:
- Be cheaper. As a space evolves, the leader generally gets more expensive. This almost always leaves room at the bottom. Salesforce is $200/month now for the edition you’ll likely use. That leaves a lot of money for a $20/month product.
- Have the best and most flexible API. If the market leaders aren’t API-focused, you can be. Make it 10x easier (and potentially cheaper) for them to integrate your service. This isn’t always a large enough market on its own. But when it is, it can move the needle.
- Be more expensive (by that I mean, really, More Enterprise). The leader sometimes isn’t the most upmarket. That also leaves room at the top. If your competitor is $500/month. Can you build a $5000/mo version that is more “enterprise-grade?” This can work well if you have the right enterprise DNA — and your bigger competitor doesn’t. If you don’t have this DNA though, it’s really, really hard to pull off.
- Be #1 in a vertical. Gorgias isn’t as big as Zendesk, for example. But it is the #1 contact center for Shopify. See how they got their first 1,000 customers below. Many folks took off by doing something like this in ecommerce, or insurtech, or many other key verticals. Klaviyo become a $10B ecommerce-focused Mailchimp competitor. Pick a vertical to win in, and build the specific features that vertical needs. You can often carve out a large niche that more horizontally-focused folks miss.
- Be 2–10x better — at just one important thing. (The rest of stuff for now you can be merely OK at). You don’t have to achieve parity with your Ultrafunded Competitor in everything. But if you have one important thing they don’t — Slack integration, localization, an important mobile app, a special dashboard, who knows — that the customers will pay for … you can still win those deals.
Fighting parity, with a hyper-funded start-up, is frustrating.
(note: an updated SaaStr Classic answer)