AgeTech Collaborative participant and co-founder of QED Investors Frank Rotman recently shared his thoughts on how startups can come out ahead of competitors in a post on LinkedIn. Frank, a fountain of information on all things investments and FinTech, likened the competition to the “cannon battles” of the 16th and 17th centuries in this fascinating write-up. Read the full text below and share your thoughts in the comments!
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Does a startup’s product have to be 10X better than existing options to take-off?
Many times the answer is “yes” but the answer can be “no” in ecosystems that are busy fighting “cannon battles”.
Startups win cannon battles when they have a product that’s a little better than their competitors’ products and being a little better matters a lot to their customers!
Let’s step back in history to the “Age of Sail”, a time in the 16th and 17th centuries when naval battles progressed from “grapple and board” combat tactics to battles resolved by “floating artillery.” The most advanced weapon of the time was the cannon and for nearly 200 years massive investments were made in its design and use. The reason for this is fairly obvious but worth stating:
If one ship had cannons that fired a small percent farther than those of another, it should win ONE HUNDRED PERCENT of the battles between them.
Minor improvements led to devastating advantage and therefore justified investment in continuous improvement. Rinse and repeat.
This is true for many segments of the financial services ecosystem. Lending businesses are a good example of the cannon battle concept. Small advantages can literally suck the oxygen out of a market and create havoc for the competitive landscape.
And the why is obvious: Because financial products exist in a world of increasingly near perfect information and good customers behave rationally.
I’ve observed this effect time and time again in my 30+ year career building and funding financial services companies and I can say without a doubt that the cannon effect is more present than one would initially think.
Which brings us to the moral of the story. Ask yourself how important small improvements in price or service are to your prospective customers. The more important they are the more likely you’re entering into a cannon battle. And when fighting a cannon battle, if you can’t definitively say that a rational customer would pick your product when faced with perfect information then you might as well give up before you start.
Why get into a battle you know you can’t win?
Follow Frank Rotman on LinkedIn for more great insights!