Never Enough Competition

One thing I often hear when I talk to other venture capital professionals when I mention a particular deal is “There are a ton of people in that space” or “So many companies have tried that before.”  

I never figured out why that’s a bad thing.

If a problem is worth solving, of course a lot of people are going to go after it.  That’s why there are a million ad networks and more security software companies than you can shake a stick at.  These are huge markets and numerous companies are minting money in these spaces.  In fact, I’d beware of spaces where absolutely no one is playing.  Capital moves pretty efficiently.  If anyone else thought there was money to be made in what you’re doing—I find it hard to believe no one else would be trying it.

Not to mention that, if there are a bunch of people trying to do something, chances are no one has completely solved the problem.  Last I checked, ads are still pretty irrelevant and people still hack into things.

On top of that, we all know that being first doesn’t necessarily mean you’ll be the winner.  Google certainly wasn’t the first search engine, and Facebook wasn’t the first social network.  Apple didn’t make the first MP3 player either.

Rather than being dismissive about there being too much competition or a bunch of people who have tried to solve that problem and failed, I’m going to start pushing back when I hear this.  Why did they fail?  What did this next company figure out that might enable them to succeed?  Where these companies just too early?  Did they fail to develop a key feature?  Did they misunderstand how people wanted to use the product?

Often times, it’s a small feature that makes a big difference—like how del.icio.us basically redid Third Voice, but had tags instead of folders, and defaulted to public sharing. 

Whatever the case is—if you’re an investor and you feel like you’ve seen 20 other companies in this space, you should spend some time trying to figure out what you believe makes a winner—and why everyone else hasn’t had success yet, before you completely dismiss the whole space.