Too many entrepreneurs think competition is a bad thing, but smart ones know better.
A couple of weeks ago I attended a business networking event and overheard two people chatting behind me. They were talking about different markets in which to launch a startup, and one of them mentioned that he was hesitant to enter a particular market because it was “too saturated.” His tone made it clear that he viewed this as a negative thing, as if the market was already saturated and any attempt to compete was an exercise in futility.
That hesitation caught my attention because it reveals a fundamental misunderstanding that many inexperienced entrepreneurs have about market saturation.
Unfortunately, I couldn’t interrupt them without looking creepy for eavesdropping. Instead, I’m going to tell all of you exactly what I wanted to tell them:
Crowded markets are nothing to fear.
In fact, a crowded market is usually a good sign that you’re on the right track. But don’t take my word for it. Instead, let’s take the word of one of history’s most notorious bank robbers: Willie Sutton.
Willie Sutton spent the early part of the 20th century robbing banks. During his lifetime, he is estimated to have stolen around $2 million, a tidy haul considering that his fortunes peaked around the time of the Great Depression.
Sutton was caught several times and also escaped from prison several times. During one of these arrests, a journalist asked him why he continued robbing banks. Sutton replied humorously:
“Because that’s where the money is!”
The phrase became so popular that it eventually became Sutton’s Law, a principle of medicine used to teach young medical students to look for the most likely diagnosis rather than chasing after obscure things. In other words, “that’s where the money is” is an important reminder to doctors about the value of not trying to avoid the obvious just because it’s obvious.
I share Sutton’s words here because the same sentiment is as true for business owners as it is for doctors. If a market is saturated, there’s a reason for it. It means the market has value. It means customers are willing to spend money, and businesses are fighting to capture that value. A saturated market, in the words of Willie Sutton, is where the money is.
While most entrepreneurs think a crowded market is a bad thing, experienced entrepreneurs know that the opposite is likely true. In fact, when entrepreneurs tell me they’ve found a market with no competitors, my immediate reaction is not enthusiasm, but skepticism. It’s skepticism. Why are there no competitors?
The answer is usually one of two things.
The first possibility for thinking that a market is not crowded is that the entrepreneur simply does not understand the market well enough to know or recognize the competitors. This is obviously a problem with the entrepreneur’s experience and rigor, and is a red flag about the quality of the entrepreneur.
But let’s ignore that reason. Suppose an entrepreneur who has found an empty market is the kind of thoughtful, thorough person who would certainly do due diligence on a market and still come away discovering a serious lack of competition. In this case, the lack of competition suggests that the market is not viable. Instead of getting excited, the entrepreneur should get nervous. It’s time to figure out why the market lacks competition.
For example, if there are no other companies in a particular market, the reason might be that potential customers are not willing to pay for solutions. Or the problem might not be as important as it seems. Or previous attempts to enter the market have failed, and those failures have scared away other potential entrants.
Whatever the reason, the bottom line is that markets without competition are always empty for a reason. While it’s certainly possible to find a hidden gem—a market that’s been overlooked and has untapped potential—the odds are slim. More often than not, a market without competitors is a dead end.
In contrast to empty markets, a crowded market is a great sign. It indicates the presence of customers who are already spending money on solutions. It also indicates the existence of significant demand. Yes, the presence of many people trying to capture pieces of the same market means that competition will be tough, but always remember that the challenge of being better than other companies is preferable to the risks of trying to get customers who don’t exist. Of course, entering a saturated market doesn’t mean you can enter and expect to succeed without a plan. The key to thriving in a competitive space is differentiation. How can you offer something unique? What can you do better than existing competitors?
To be clear, being better than your competitors won’t be easy. It requires deep market knowledge, a clear value proposition, and the ability to execute at a high level. But at least it’s possible to be better, and that’s the key differentiating factor. When a market has lots of customers, you have a chance—however small—to acquire them. If a market has no customers, however, acquiring them is impossible.
This distinction between difficult and impossible is what Willie Sutton emphasized when he told people he robbed banks because “that’s where the money is.” He knew that if he robbed a place with no money, he would be taking on all the risk of a robbery without any of the potential advantages. Even if it was easier to rob a business with no money, who cared? He couldn’t gain anything.
The same is true in the business world. If you start a company targeting a small or non-existent market, you’re going to have to spend a lot of time, effort and money chasing the market. And for what? There’s no chance. It’s better to target a large market, even if it’s crowded, because, in the end, that’s where the money is.
