Robert Ochtel’s Blog

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Entrepreneurs, Don’t Ignore the “800 Pound Gorillas”

Many times, first time entrepreneurs are enamored by their start-up company’s technology, product or service offerings.  As such, they often ignore the large established players or the “800 pound gorillas” in the market. Instead, they believe that their product offering alone will provide them with the long term competitive advantage that will allow them to gain market share as well as to outpace and out maneuver their competitors. What these same entrepreneurs often forget, or choose to ignore, is that these same 800 pound gorillas have access to deep pockets, a multitude of technologies and resources, and well established sales channels that individually or together can immediately provide them with a strong market position, instantly change the competitive landscape, and in some cases, crush these same early stage start-up companies, by either substantially diminishing their positions in the market or forcing them out of the market all together.  This article outlines some of the reasons why these same entrepreneurs and their start-up companies should not ignore these established market players, or 800 pound gorillas.  It also provides two relevant examples of large market players, Microsoft and Intel, using their vast resources to establish their presence in burgeoning markets, even when they were late to market

Established Players Often Wait to Address Burgeoning Markets

Burgeoning markets, especially those related to technology, often take years to first get established and then grow to a level that will make these same markets of interest to large, established players.  On the other hand, start-up companies often stake their existence on these same burgeoning markets, hoping that they develop rapidly, and at the same time that their technology, product or service offering is not only first to market, but has the ability to secure significant market share within these same burgeoning market spaces.  This all or nothing strategy may be good for a start-up company, but the amount of risk associated with entering a burgeoning market too early, is often much too high for established companies to incur.  As such, many of these same large, established market players, or 800 pound gorillas, often wait until the market develops and then use their market muscle, deep pockets and broad technology bases to first establish and then create their positions in these markets. This wait to play strategy is a low risk approach to determining if a burgeoning market is attractive enough to provide these same large companies with associated return that is in line with the internal hurdle rates established within large corporations. 

Just Because They’re Not Players in the Market Don’t Ignore Them

One of the biggest mistakes that start-up companies make is that they believe that they have the only technology, product or service offering that will be successful in their targeted market(s).  More often than not, they forget about alternative products or substitute product offerings.  In addition, just because large, established companies have not entered their target market space does not mean that these same start-up companies should ignore them.  These same large players have the vast resources and established sales channels to immediately make an impact on an attractive market opportunity. Believe me, if there is a high growth market in which they can make money, these large established competitors will move into this market space and make their presence known, and quickly.  They not only have the resources to make their presence known, in some instances these same large, established companies have crushed their start-up counterparts, even with inferior technology, product or service offerings.  Therefore, it is naïve for entrepreneurs to believe that attractive market opportunities will be theirs for the taking.  In fact, the opposite is true, if the market is ripe for making money, and is large enough to support a number of competitors, the large, established competitors will come, and they will not take mercy on their smaller, resource limited counterparts. These are the rules of a capitalistic market.  So, just because you cannot see these large established players in your immediate rearview mirror, they are there and are often “closer than they appear”. Therefore, as Andy Groove has often said, “only the paranoid survive”, this is not only true for Intel, it is especially true for start-up companies and their technology, product or service offerings.  Be aware, the 800 pound gorillas are just around the corner.

The following are two examples of large established players making their presence known within burgeoning growth markets, even after being late to market in these same market spaces.  

Microsoft and the Emergence of the Internet Browser and the World Wide Web

In the early 1990s, a small start-up named Netscape, founded by a college student at the University of Illinois, had established a strong presence in a new, emerging market called the Internet, or World Wide Web. This technology, developed by the U.S. military in the 1960s, was originally called ARPANET[1] and used only by the academic community as a way to communicate using the existing worldwide computer infrastructure. The limited use was primarily based on the fact that there was no easy way to communicate information using the Internet without using a difficult computer programming language. Netscape, developed a programming language called Hyper Text Markup Language (HTML), which allowed for ease of communication and ability to post information such that it was easily read and readily available to the end user. Now, computer-based communications via packet switching and worldwide computer infrastructure using an Internet browser was viable, and it would allow for businesses to post their technology, product, or service offering information to their customer bases in a usable manner. The Internet explosion began, and Netscape was the market leader.

Sometime later, Microsoft realized it had missed this huge market opportunity defined as the Internet and the HTML-based browser technology that would provide them access to hundreds of millions of customers. Microsoft then set out to establish itself in this market, and at the same time, crush Netscape. This was played out in the press. With its massive amount of resources, market presence, and well-established name, Microsoft started bundling its own browser technology with its Microsoft Windows operating system at the exclusion of Netscape and its browser technology. This put Netscape at a serious competitive disadvantage in the market, since Microsoft would now have its new browser technology installed in every new personal computer in the market. Netscape went to court and the court ruled that Microsoft could not bundle its browser technology and, at the same time, exclude Netscape. But, the damage had already been done. Netscape did not have the resources to compete with Microsoft and was eventually sold to America Online. Microsoft, even though it was late to market, had crushed the competition and established itself in the Internet browser market, with its sheer marketing muscle and ownership of the market channels.

Intel and the 802.11 Wireless Fidelity (WiFi) Market

Intel, the dominate player in personal computer-based microprocessor chips, is a well-known company with a massive amount of resources to compete in emerging markets. In the late 1990s, a start-up company named Atheros had developed a new chipset to address the emerging, short-range wireless technology market called 802.11 or wireless fidelity (WiFi). Originally targeted at 5.0 GHz, Atheros, a Stanford University spin-off, had developed a new disruptive approach of using CMOS silicon technology for their radio frequency (RF) chips. Armed with a strong patent portfolio, Atheros was out to change the wireless market by using standard CMOS fabrication technology to develop their WiFi RF chips, an area that traditionally used the much more expensive BiCMOS technology due to the performance requirements of RF chips. Atheros entered the WiFi market with their leading-edge technology solution and took a strong, market-leading position. Aimed at the growing laptop computer market, Atheros at the time was the clear leader in the emerging WiFi (802.11) market.

Intel, recognizing it was late to market, needed a WiFi chipset solution themselves. Being too late to develop their own WiFi chipset, Intel licensed their original WiFi chipset offering from a third-party chip company, and offered it as part of their product offering for laptops, branding the product offering as “Centrino” in the market place. Because Intel owned the PC market and had the ability to create its own brand name in the market, most consumers believed that Intel had the most technologically advanced and most cost-effective WiFi chipset solution in the market. This was far from the truth; in fact, at the time Intel WiFi chipset was several generations behind the Atheros WiFi chipset solution. This fact did not stop Intel from dominating the laptop computer portion of the WiFi market, putting them in the market leadership position. Atheros eventually went public and did very well, but Intel continues to be the dominate player in the WiFi market due to their strong position in the personal computer microprocessor market.

There are hundreds of examples of large, established companies being late to market or not offering the most compelling, technologically advanced solution in the market and still being a success. What one should remember, as an entrepreneur of a start-up company is that large, established companies have many different ways to enter into and then dominating a new market. In many instances, early entry or a compelling technology, product or service offering are not necessarily the paths forward to success, for these large, established companies. In addition, these same large companies should not be counted out as competitors, even if their market entry point to addressing a given market is not obvious. As has been shown, more often than not, it is these same large, established companies that can immediately change the dynamics of the market due to their market presence, channel ownership, established name, and the massive amount of discretionary resources available to them.  So entrepreneurs be aware, do not ignore the “800 pound gorillas” they can and will change the competitive landscape of burgeoning markets, more often than not, to the detriment of your start-up company.

 This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to http://www.carlsbadpublishing.com


[1] ARPANET (Advanced Research Projects Agency Network) developed by DARPA of the United States Department of Defense, was the world’s first operational packet switching network, and the predecessor of the global Internet.

July 27, 2009 Posted by | Business Development, Business Planning, Competition, Large Established Companies, Market Traction, start-up, Venture Capital, venture finance, Venture Funding | 1 Comment