To put it another way: If you had zero well-funded competitors, you might have to second-guess moving forward. This is the opposite; this is a great thing. You just have to focus on becoming the Google to their Lycos.
Just a side note though: you might want to consider slipping something extra into your slide deck/whatever to mention the competition in the space and how you plan on adding value over your competitor's product. Good luck!
They said cool, and kept on working.
Unless you're Microsoft or Google, there are always audiences in your niche who haven't even heard of the other guys. I encounter this all the time in my own business.
So unless your business was something specific like creating a scheduling system for vetinary surgeons based in Utah, you've just had your business idea partially validated and you still have a huge audience who are not yet your customers. Be agile, outinnovate your competition, and use all the advantages you have. There's room for both of you.
What you have gained is free market research. Since they have funding, they are going to be fairly public about how they progress. Look at what they do, consider why they did it and weigh the responses. DON'T shy away from things that they are doing - if they had a great idea you didn't think of, TAKE IT. If they have the same idea, don't change it, look at their results and see if it can be improved. Otherwise, keep it the same.
You have the advantage of being reactive. Let them spend money and effort validating, you can focus more on executing.
- Same problem being solved
- Same solution to the problem being solved
- Same solution to the problem with exactly same target audience and brand positioning
etc..
I hope you see what I'm getting at.
You need to look at your target customers and see if they are going to disappear - if no, then just keep working on the idea, and serve your customers well. If the space is such that the customers will use both products great. If you feel they are targeting the same segment and have already started eating your customers (and you can't offer anything to them that will take them away from that product), cut your losses and pivot - see whether you can solve the same problem differently, more elegantly, or identify a different target audience (for e.g. move from consumer market to Enterprise, or target different geographies).
Think about it as a business - wanting to survive. Don't compete for competitions sake - try to contribute the best you can. If someone else is doing a much better job than you at something, take a step back and see whether you can outdo them or it's easier to do something slightly differently.
Before WhatsApp there was ICQ.
Before Facebook there was MySpace.
First isn't always that important. Whatever your current vision is ... it's likely to evolve in ways your competitor may view differently. It's rarely about the original idea, but often way more about how you execute, and how your idea evolves over the long-term.
Pretty sure there were a few other IM platforms in that 15 year or so gap :-)
How you should respond often is dependent on the situation. The hard part is that the only person who is truly acquainted with the relevant facts is you (and your co-founder, if you are so fortunate).
The first time, I was blindsided by the launch of a startup I should have known existed. Despite doing tons of market research, it somehow flew under my radar, and the result was that I ended up wasting months of my time.
In that case, deciding not to play catch up to a company with more traction, funding and resources than I had, in a space with very little room for differentiation, was probably the right call to make. It burned, but in hindsight the decision to move on was almost certainly for the better.
Using that experience as a catalyst for the idea that followed, the second time there would be no blindsiding. Instead, I became aware of the other startup almost as soon as it came into existence. While not a threat initially, I watched over the course of a year as it became more and more similar to what I was working on, gaining incredible amounts of traction along the way. It felt like my product was dying in slow motion before even being born.
The only difference this time, was the particular space allowed for quite a bit of differentiation. While that's a good thing, it also makes the questions you have to ask yourself that much harder.
After agonizing for quite some time, I came to realize most of my fears were irrational. Internalizing what it truly meant to have a second mover advantage helped tremendously on this front.
Now I think in terms of celebrating their success, and building off of it every way I can (in an ethical manner). The more successful they are, the more successful my product will be.
For anyone in a similar situation: chin up, don't torture yourself, and try to build off of it in a positive way. It might have been that you were only in competition with yourself.
If your idea is to build a social network or similar community thingy where value is directly proportional to how many people use it and your monetizing strategy is to get big enough to make money off of advertising, then you should pivot your idea.
On the other hand, if your idea is to provide a service or product that has value even if only 1 person ever use it (e.g. you file out people's tax forms with 1 click of a button, you host adult fetish videos, you write funny stories, you make ridiculous little wooden figurines of LoL / Dota characters, you make low-calorie edible women's undergarments for men, etc.), then you should keep at it.
Good ideas are ubiquitous and are neither necessary nor sufficient for building a successful company.
They have spent the last few months raising money, not building a product. They will likely end up doing this again.
They now have a different incentives than you. Their investors will encourage them to sacrifice short term growth for potential explosive growth (likely to the detriment of the company).
Make sure your version of the idea is differentiated in a way that's not too easy to reproduce.
You make a good version of your idea => they have more money => they clone what you've done and market it more effectively => not a winner for you.
"Do it better than them" is the right idea, but they should be thinking the same about you.
Cut your losses and move on. Seriously, there are plenty of other untapped markets to try out, don't burn your bank accounts needlessly like I did. I lost all my savings, my 401k and almost my house.
It's a lot harder to walk away than you might imagine.
I'd also like to point out that keeping pursuit of your idea, you should ensure that what you are offering would be at par or greater than the one which got recently funded.
I am in a similar situation. I am trying to bootstrap my startup, and someone who has exactly the same idea got some funding - I don't know how much, I would guess between $500k and 1M.
I spoke to the guy about two months before he got his funding, to see if we could work together, and at the end I chose not to because it was clear to me that he had no clue on how to build the product we both had in mind.
How did I react to the news of his funding? I personally took it well. I am not too worried about competition given the size of our market, so it validates my idea. And if things don't go well with my unfunded startup, I will probably be able to get a job for him, so it becomes an insurance for me.
So, unless your product is in a very small niche, you shouldn't worry about that. I don't recall his exact essay, but Paul Graham said that what kills startups is not competition, but rather the lack dynamism to try and try new ideas.
best of luck!
In my opinion, the best way to a successful start-up is to ensure that your own economics works (cost of customer acquisition + cost of serving customer < life time value of the customer). If your company can be profitable, it really doesn't matter what your 'competitors' are doing. In fact, focusing too much on your competitors can be a very bad thing.
If you idea falls into the camp of winner takes all, then you will need to raise money to capture the market.
In reality, very few start-ups fall into winner take all and the fact that there is funding in this space is a good thing. You don't ever want to work on an idea that cannot be validated in the market.
Also, you benefit from the second mover advantage in the sense that you get to learn from them and also benefit from the market they create and improve upon it.
However, one thing to note.. you said you're working on it "on the side", while the other company just got some funding which not only implies that now they have money but also that they were most likely already doing this fulltime. So, if anything, you need to make a serious decision right now - whether you want to drop it or pick it up fulltime. Most likely keeping on doing it on the side is not going to cut it anymore since the race is now on..
On the minus side, try to avoid focusing too much on competing and not enough on listening to the market directly and reasoning from first principles. It's good to watch this competitor and learn from them, paying particular attention to their weaknesses. But it's not good to fixate on them and direct your attention to trying to "beat" the other guy instead of giving the market what it wants. The market is your customer, not your competitor. It's also good to try to do things a little bit differently so your product doesn't end up being a mere imitation -- if you do that, you'll probably lose.
1) Do I need to go from an "idea on the side" to full-time? Pretty sure the funded company has multiple full-time folks.
2) Is it possible to function without funding? This totally depends on your business. If it's a SaaS app that can be funded by customer payments, you're probably ok. If it's a consumer app that relies on network effect (marketing spend), you may have issues.
It's not a zero sum game.