Competition is not market validation
This post shrewdly dissects the fallacy that high competition automatically validates a market, a common misstep for founders seeking product-market fit. It argues that crowded spaces often result from an oversupply of capital, founders, or cheap infrastructure, not genuine demand. Hacker News readers appreciate this sharp, counter-intuitive analysis, offering practical frameworks and litmus tests to navigate complex market signals.
The Lowdown
Startups often mistakenly equate high competition with market validation, a fallacy that can lead to significant misdirection. This article, penned by Antoine Boulanger, dissects why a crowded market doesn't necessarily indicate a large, viable opportunity, offering a critical framework for founders and investors to re-evaluate their assumptions about market dynamics.
- The article posits that competition is merely a prerequisite for a large market, not proof of one, especially for founders in a pivot.
- It introduces a framework considering the startup itself as the 'good being produced' to better identify problematic market patterns.
- Supply-side factors contributing to crowded verticals include:
- Oversupply of money: Low interest rates lead investors to deploy capital into 'hot' spaces, regardless of actual demand.
- Oversupply of founders and ideas: Easy idea generation, low opportunity cost for laid-off executives, and relatable problems increase startup density.
- Oversupply of infrastructure: Cheap cloud, low-code tools, and 'vibecoding' drastically lower barriers to entry.
- Demand-side conditions also create crowded, small markets:
- Startups that should be consulting firms: Markets with highly idiosyncratic user pain points appear scalable but require bespoke, consulting-like solutions.
- Startups in perfectly efficient markets: Mature markets with numerous undifferentiated products (e.g., 500 email marketing tools) offer little room for new entrants to thrive.
- The author advises founders not to avoid all competition but to view it as one signal among many, prioritizing a focus on genuine user pain points.
- It provides litmus tests for evaluating seemingly crowded markets, including the Ease of Entry, Hot Space, Consulting/Lack of Scale, Budget Elasticity, and Me-Too Tests.
By dissecting both supply- and demand-side influences on market crowding, the article equips founders with a more sophisticated lens through which to assess true market potential, moving beyond the superficial allure of high competition towards genuine product-market fit.