Innovation versus distribution

Earlier this year, I attended a talk in NYC by Vinay Hiremath, co-founder of Loom. He explained a mental model that's stuck with me.

Here’s the model: When a startup competes with an incumbent, it has an innovative product but seeks distribution. The incumbent has distribution—all its customers—but seeks innovation. So, they race: the startup tries to capture the incumbent’s customers before the incumbent can develop a better product.

Sometimes, the innovator wins, such as when Google surpassed Yahoo or the iPhone overtook BlackBerry.

Other times, the incumbent prevails. In the case of Slack vs. Microsoft Teams, Microsoft Teams now reports about ten times as many daily active users as Slack. Salesforce has also stood the test of time against many innovators.

Some ongoing races include Linear vs. Jira and ChatGPT vs. Google.

To win with innovation, small companies need to be hard to copy (like Figma), have strong network effects (like Facebook), or be ignored by incumbents (such as Lyft eschewing taxi laws).

Big tech companies should not be underestimated. They have become skilled at building products and often let startups do the hard work of validating new markets before they compete. They sometimes engage in tactics that are unethical and potentially illegal, such as cloning features to stifle emerging competitors—a strategy Instagram notoriously employed against Snapchat and later TikTok. These actions often go unchecked because if the incumbent dominates the market, the startup may not have the resources or time to pursue legal action.

I often think about this model because it applies well to many markets. As a startup, you should always ask, “Can somebody just copy this?” As an incumbent, you should ask, “Are we nimble enough to keep our product competitive?” Either way, the first step to winning a race is recognizing that you’re in one.