A Crowded Market Is a Good Sign

This is from the section headed “Competition” in Paul Graham’s “How to Get Startup Ideas” (November 2012). The section opens on the founder who has just found someone else building the same thing: “Worrying that you’re late is one of the signs of a good idea.” Ten minutes of web search settles whether a competitor exists, and finding one is not a reason to stop, because “It’s exceptionally rare for startups to be killed by competitors.”

Graham attaches a condition: you can enter a crowded market “so long as you have a thesis about what everyone else in it is overlooking,” and the thesis has to be more precise than “we’re going to make an x that doesn’t suck.” His example is Google. The search engines before it had noticed the most radical implication of their own work and backed away from it: “the better a job they did, the faster users would leave.” A search engine that works sends people away instead of keeping them on the page. Google’s plan was what those engines would have done had they followed their own insight through.

The flip side is a market that is obviously big and yet has no competitors in it, and in Graham’s telling that market does not exist. The crowd is the evidence that the demand is real, so if the demand were obvious, someone would already be serving it. That leaves two ways in. Either you enter a market that already has competitors and bring a “secret weapon” that takes the users away from them, which is what Google did, or you enter a market that looks too small to matter and turns out to be big, which is what Microsoft did. A footnote adds that most successful startups have elements of both.