I’ve sometimes joked with companies in our portfolio that the best way to deal with a better funded competitor is to use their own relative lack of funding to their strategic advantage.
But actually, this solution isn’t meant tongue-in-cheek – I’m being dead serious.
While we have a few companies in the portfolio that have, for various reasons, raised significant amounts of capital, many of the businesses in which we have invested haven’t. Not only are they reasonably capital efficient measured alone, but when compared with their peers, a number have raised far less capital than companies with which they compete.
I’m serious when I tell companies that the best way to combat an overfunded competitor is to take advantage of those things that capital constraints naturally bring along with them and I’ve seen it often work very effectively. Sharpen your company’s focus, don’t make stupid mistakes, don’t get distracted by the 10 things that sound cool but that you really have no business doing, keep your marketing efforts extremely focused and tight, don’t over-hire in sales, don’t over-hire everywhere else, draft where you can on the money spent by your competitor, stay laser focused on product and don’t panic.
I’ve watched this play out a large number of times. And while sometimes the brute force that additional capital brings allows a company to push harder and faster, often having a relatively large amount of capital available simply means that you’ll waste a bunch of money, get distracted and, stumble. With the capital markets heating up and more and more industries seeing 1) a greater number of competitors and 2) too much capital invested, these lessons have never been more important. I wrote about the same idea a few years ago when I suggested that you were burning too much money. The same holds true now, with the difference being that you may be in a great position not only not to burn too much yourself, but also to take advantage of someone else who is on the opposite path.