Clutter.io announced they raised $9 million from Sequoia, arguably the best venture capital firm that exists. Congratulations. Sincerely.
Conventional wisdom says I shouldn’t tell you this because I invested in their main competitor, MakeSpace. I know my MakeSpace friends will forgive me because I just don’t believe the conventional wisdom is right. And it’s part of what can go wrong in startup land.
For starters – the co-founder of Clutter.io, Ari Mir, is a friend and 6 years ago I backed the first startup he co-founded with Ophir Tanz, GumGum. Ophir was and is the CEO and is running what is now a spectacularly successful business. Clutter is LA based and many of my friends invested. So why would I want to damage a bunch of friendships for no reason?
But the bigger truth is the competition is important. We will have two well-funded companies educating the market on why this market opportunity for the $24 billion US storage market is ripe for disruption. When we funded Sam, Rahul and team at MakeSpace > 2.5 years it was hard to get other investors to see this unsexy market as ripe for innovation. Fast forward to today, as you can imagine our phone was ringing off the hook with investors wanted to reengage in discussions. Why? Simple. The realize there is some market validation when there are competitors. Not market guarantees, but more like, “Ok, I heard your story 2 years ago, how has it gone?”
But more importantly this same phenomenon will happen market-by-market. More consumers and businesses will hear about our solutions and want to learn more. And our competitors are not really each other but the incumbent businesses that have 99.9% market share today and are stuck with high real-estate costs, shitty customer service, bad value propositions and no ability to respond to competition because they have effectively become real-estate holding companies that store stuff for cashflow.
I’ve seen this play out a million times and usually in self-destructive ways where unhealthy focus on your competitors leads one to take one’s eye off of the customer and market opportunity. Which is why 5 years ago I penned this still important piece on “Why You Should Make Your Competitors Your Frenemies.”
- The competitors are the incumbents
- Healthy competition keeps you on your toes
- Competition creates a market with choice and improves consumer awareness, investor awareness and journalist awareness
- No competitors means you have a relatively small idea that nobody cares to compete on. Competitors backed by great VCs means you’re likely on to something.
What mistakes do people make?
- Trying to copy every product release
- Launching artificially in markets to compete on perceived “land grabs”
- Bad mouthing the competition in public / focusing more on the competition than the customer
What should you do when a competitor announces a big fund raise?
- Stay focused on your business, your market and your customers
- Reassure your company that it’s healthy to have competitors (after all – all startups are naked in the mirror in the morning). Pretending the funding didn’t happen is dumb. Everybody reads the tech press
- Send a quick note to your investors that you read the news, you feel good about your market positioning and your product. If well capitalized (like we are at MakeSpace – remind investors of that)
- If for some reason you think your business ISN’T competitive then you need to address your shortcomings. But honestly you have have known that before the funding
- Don’t feel rushed into responding in any way (trying to quickly raise $, trying to do a ton of marketing, changing your product plans or geography plans)
- Reach out and get to know the other team. My guess is that over time you’ll have more in common (like working with big cos, working with regulators, dealing with inertia in the market) than you do have against that company
- Quickly get back to your day job
Don’t get me wrong. I still believe in competition. I still believe in winning. I still believe in knowing how your product differentiates to things others in the market can buy in stead of your products. I believe in hustling, using natural advantages and measuring oneself relative to others doing what you do. But that doesn’t need to be unhealthy competition or obsessiveness on the wrong goals.
So rather than selling you on all of the positive attributes of MakeSpace (which I will do from time-to-time because I’m a passionate believer that we’ve figured out the right formula to a billion+ dollar eventual exit and I am as obsessed with MakeSpace’s business such that I talk to the team minimum once / week) – today is a different day. It’s Clutter’s day.
It’s the day to acknowledge the hard work and achievements of Team Clutter. And wish you the very best successes in the market. Congratulations.
(Cross-posted @ Both Sides of the Table)