Leveraging your competitor’s narratives
Gil Dibner

Founders pitching their startups to VCs typically focus tightly on the narrative of their specific startup. In many instances, this is a mistake. There is a great deal of mileage to be gained by focusing on the narratives of the competitors and incumbents that came before. This can be a great way to highlight your industry expertise and share your insights on why your company has an opportunity to be disruptive.

The challenger. Last week, as I was doing customer diligence calls on a new investment (let’s call it NewCo), a customer referred to a competitor that I had not been focused on (let’s call it OldCo). He said that the NewCo was much better than OldCo. Better quality, better pricing, etc. Basically everything about NewCo was just “better.” When I tried to dig deeper, however, into the way NewCo was better than OldCo, his answer became increasingly vague. I thanked him and ended the call and began looking at OldCo.

The monster incumbent. As it turns out, OldCo is a powerhouse. It’s got nearly half a billion dollars in revenue and thousands of customers both very large and very small. It’s venture-backed. It has a snazzy website with all the right buzzwords. It’s even gone public (!) relatively recently. Because it’s public, I was able to see profitability data, however, and despite the huge revenue level, it’s still deeply unprofitable. That lack of profitability, however, could be explained in many ways — and it was the only potential negative datapoint on them that existed. Everything else appeared outstanding. I was intrigued. What makes NewCo (which is tiny) potentially better than OldCo? More importantly, why does the NewCo CEO think he has a chance against OldCo?

Unable to figure this out on my own, I started engaging with the CEO of NewCo. Over time, the story began to emerge. The key thing, I found, was asking the CEO to step out of his perspective as NewCo and step into the perspective of OldCo. When OldCo was founded, what were they trying to do? What was their thesis back when they got started? How did they manage to grow so fast? Why have they not yet managed to get to profitability?

Gradually, as the CEO of NewCo began to describe the perspective OldCo in his own words, the story of NewCo became much clearer to me. OldCo got started at a different point in time with a completely different thesis than NewCo. It engages with customers in a completely different way (in this case, merchant of record vs. pass-through SaaS-enabled marketplace). Because of this focus, OldCo is able to offer an outstanding value proposition to customers but only on a very narrow set of use-cases and — in truth — only to a very narrow set of customers who need something very specific. Suddenly the reasoning of the reference customer made perfect sense. On paper, NewCo and OldCo are competing with each other. There is overlap. In theory, he could use OldCo and NewCo interchangeably. But in practice, this is not at all possible.

Competitive context helps. Ironically, trying to go deep on OldCo was the best way to really understand NewCo. That conversation allowed me both to understand how and why OldCo had been so successful and why NewCo was really operating in a totally different (and, I think, potentially more interesting) category. This new understanding helped focus me on product and marketing challenges ahead for NewCo as well as potential unlocks from smarter pricing strategy.

So here’s an attempt at actionable advice: when telling your story to investors (or anyone), take a moment to tell the story of your biggest competitor or the incumbent you are trying to disrupt. Crucially, do it completely from their perspective. Show respect for what they have achieved and show an understanding of how they got to where they are. Communicate the essence of their genius before you turn to communicating your own. If they have been successful, there is probably something to learn from what they have achieved — and that story will help showcase and sharpen your industry expertise. Once you’ve set the stage in this way, focus on how you can position your company as potentially very interesting even in light of the competitive landscape you are operating within. If you do this wisely and well, it should help you to better tell your own story — and everyone listening will be smarter for it.

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EUROPE AND ISRAEL FUNDING NEWS

Israel / IndustrialTech. Exodigo raised $105M, led by Greenfield Partners, for its underground mapping platform.

Turkey / SaaS. Intenseye raised $64M, led by Lightspeed Venture Partners, to scale its computer vision-powered workplace safety platform.

Germany / SaaS. Inkitt raised $37M, led by Khosla Ventures, to continue growing its AI-powered self-publishing platform.

France / Cybersecurity. Filligran raised €15M, led by Accel, to boost global expansion for its open-sourced power cybersecurity platform.

France / Generative AI. Mistral AI raised $16M from Microsoft in a strategic deal for the OpenAI rival.

Germany / SaaS. Heyflow raised $16M, led by Singular, to accelerate expansion of its no/low-code platform for marketers building customer flows.

Israel / Fintech. Slice raised $7M, led by TLV Partners, for its AI-powered equity platform that ensures equity programs are compliant and tax-optimized globally.

WORTH READING

ENTERPRISE/TECH NEWS

Deep dive on Mistral. Ben Thompson of Stratechery goes deep on Mistral in his latest column. “Still, the fact the investment exists is notable: this is a very logical response by Microsoft to last fall’s upheaval at OpenAI. Microsoft is making massive investments in both Azure and in its products around AI that it doesn’t control, and the best alternative to not owning the AI undergirding both is to hedge its bets by increasing the number of suppliers. The important thing — which was revealed during that episode — is that Microsoft has leverage because it owns GPUs….Microsoft’s products are still being built around OpenAI, to be clear; the short-term outcome of this agreement is that Mistral will be available to developers as a part of Azure’s Models-as-a-Service. Building that out, though, also moves Microsoft down the road to switching over, should the need some day arise. This also, I should note, calls into question the idea that Mistral is going to be a European champion to rival the American tech companies. Foundation models matter hugely, but it’s not clear that they are going to be a sustainable point of differentiation; right now what matters is having GPUs, which by-and-large means the contenders are Microsoft, Google, and Amazon.”

Deep dive on Scale.ai Kenn So published an absolutely outstanding deep dive on the history of Scale.ai and its path to $760M in ARR (!). “Scale’s data engine is a feat of software and operations. The company relies on a global workforce of around 240,000 people across Kenya, the Philippines, and Venezuela, managed through its subsidiary, Remotasks. These individuals provide the ground truth data essential to the company’s success. Training this diverse workforce, including many non-native English speakers, is challenging. Extensive training is necessary for understanding US road signs and mastering complex labeling tasks. This process is further complicated by high workforce churn. For example, the annual attrition rate in the Philippines is 50%. Scale has developed software to automate the labeling process and review human work, resulting in a unique human-machine collaboration. Initially built with human annotations, machine learning models perform a first pass of labeling. This is then handed off to humans for review. If there’s a significant difference between human and machine labels, the task is sent to more humans for further review. The company’s ability to provide high-quality labels at scale and competitive pricing has drawn comparisons to Amazon.”

Next-gen ERP. Amidst YC’s call for startups is this interesting mention of ERP as a new area for innovation. At Angular Ventures, we very much agree with this.

HOW TO STARTUP

Expect your multiples to drop. Jason Lemkin of SaaStr reminds founders to expect their revenue multiples to compress as their company scales. “..many founders sort of think those high ARR multiples will play out into all the future rounds, too. At some point though, the multiples have to compress and equal those at IPO.”

Everyone should do just one thing. In this clip, Keith Rabois argues that every person at a startup should focus on just one thing at a time. “The insight behind this is that most people will solve problems that they understand how to solve. Roughly speaking, they will solve B+ problems instead of A+ problems. A+ problems are high-impact problems for your company but they’re difficult — you don’t wake up in the morning with a solution to them, so you tend to procrastinate…If you have a company that’s always solving B+ problems, you’ll never create the breakthrough idea because no one is spending 100% of their time banging their head against the wall every day until they solve it.”

AI-first service businesses. Louis Coppey of Point Nine published a comprehensive set of insights and questions on the challenges of and opportunities for building AI-first service businesses — companies that sell AI-powered services instead of software. There is no doubt that we are seeing a wave of companies in this category, and — like Louis — we suspect that some of these will become large sustainable businesses. One of Louis’ more interesting questions is on the trade-off between scalability and growth: “In between paying for “humans-in-the-loop” and the GPU costs of training models and running inferences, the gross margin of these businesses won’t look like software businesses from the get-go. These businesses will also always be tempted to grow faster but might do it at the expense of scalability. Imagine running one of these service businesses. It becomes easy to sell (you sell a service that everybody wants, potentially cheaper) but much harder to ensure that what you do is truly scalable (automated by AI vs. performed by humans). In an industry (the VC industry) where money follows growth, we believe that we’ll need to find new ways of sequencing these businesses rather than simply favoring growth. Pennylane, which is now building accounting software in France, initially started as an accounting service with 20 accountants on payroll before realizing that they would never be truly scalable. They ended up divesting entirely their accounting service to focus only on software.”

HOW TO VENTURE

Tech, war, and motherhood. Calcalist reports that “female partners like Renana Ashkenazi, Nofar Amikam, and Sapir Harosh are leading a paradigm shift in Israel’s VC sector, defying norms and driving innovation even amidst wartime challenges, symbolizing the growing presence of women in Israel’s male-dominated venture capital scene”.

PORTFOLIO NEWS

CruxOCM has been ranked #11 in the Top 100 Companies to Watch by FoundersBeta for 2024.

Groundcover launched a bespoke observability platform, inCloud, for enterprise use.

LightSolver’s CEO, Ruti Ben Shlomi, has been listed in TechRound’s Top 50 Women in Startups and Tech. The award acknowledges the women who are revolutionizing the tech and startup scene in the UK and Europe.

Forter achieved AWS Advanced Technology Partner status.