An occasional question from an investor that’s become a meme is,
What if Google (or Amazon, or Microsoft, or Facebook) builds this?
It’s a meme because it is a bad question to ask an early-stage startup. Startups fail for many reasons, but it’s rarely a large company entering their market. What Google (or Amazon) is planning to do is irrelevant to the early-start startup founders.
- Large companies find it hard to rationalize entering a small market. The opportunity has to move the needle or be strategic enough to do so in the future. These small-but-important opportunities are difficult to see.
- Large companies can’t navigate the idea maze, as well as startups. They can’t afford to launch products and then quickly kill them (although that doesn’t stop Google). Incentives aren’t as aligned — why pursue a risky strategy if you’re just an employee (and not an owner)?
- Large companies have structural issues why they can’t compete in a new market. Counter-positioned (actively cannibalizes core business), organizational (maps against a company’s internal structure), or even regulatory (e.g., crypto, fintech).
But behind every bad question is a shred of truth. For later-stage startups (let’s say $1B+), incumbents will enter the market. At that point, the question is probably more nuanced — how much better is the distribution, production, or other advantages?
Sometimes it’s too late, and they lose big — Google+ and Facebook. Sometimes they enter and shrink TAM and margins — Dropbox/Google Drive/Microsoft OneDrive, Figma/Adobe XD. But sometimes they use their distribution to their advantage and win — Snap Stories/Instagram Stories or Slack/Microsoft Teams. And a few more in the pipeline to be determined — Microsoft Loops/Notion, Microsoft Lists/Airtable, Google Tables/Airtable, Google Calendar/Calendly.