VC #3 | Offence is the best defence?
Is aggression the best strategy for category creating first movers?
So, let’s meet our entrepreneur. They have just launched a company that is creating a new category. Most potential buyers don’t know that they even need this solution/product, let alone that it exists.
However, a few foresighted VCs have seen fit to back this new category creation play (more on this in detail at a later date). So our intrepid entrepreneur has cash in the bank.
Now, What is the strategy from here on? Frugality or Naked Aggression?
I will argue that aggression is most likely the winning strategy. Here’s why:
Category creation is a first mover game. The company that has the largest number of customer relationships comes to define the category. We don’t copy documents, we Xerox them. And we don’t Ola to a club - we Uber.
Customers are not going to put in effort beyond a point. They will buy the best known brand 90% of the time. They will evaluate if the solution / product works for them, but it will take a few years. If you are already working with the market leader, why change? No one ever got fired for buying IBM. Its unlikely anyone ever got fired for buying from IBM either.
Early customer relationships provide extremely critical feedback. As the product iterates, this is a moat by itself. By the time competitors are on version 0.1, our entrepreneur is likely launching version 2.0.
The first mover is able to frame the rules of the game and be the gold standard (if we may use such a term). They are the anchor for the product, the pricing, the feature set. They are the ones to beat (usually). This is not to say that they would not get disrupted, but the first mover will be able to hide their shortcomings for a little bit longer. Until that happens, each potential competitor or substitute needs to spend time, effort and money on reframing (subverting?) the First Mover box. It is not a comfortable position for the competitors.
Effectively - aggression allows for better distribution. It plays and feeds off the inherent risk aversion built into buying behaviours, particularly in B2B contexts. In a cash rich environment - as we find ourselves in today - cash isn’t the only determinant of success. Our entrepreneur’s potential competitors my raise more funds and have a better product, but they still have to climb uphill and fight time itself. Time, that was ceded to our Entrepreneur when they were the only game in town.
At some point I will frame this as a game theory problem and put it out.
Until then, if you are in the enviable position of being a category creating first mover - charge ahead. Everyone’s busy trying to catch up to you.
Update (Aug 18): A few readers have asked me if I have just done a full 180 from my FOMO post. I don’t think so. Even aggression needs to be durable, sustainable. Throwing away investor capital to just acquire users who aren’t necessarily transacting or giving you value for your CAC isn’t a sustainable model (except that it fills the bottomlines of Google, Facebook et al).