A wise person once said – Be wary of the startups launching in your industry. What sounds like an interesting idea with a small team working on it today can give all the giants a run for their money in the future.

The statement couldn’t be truer. We live in an era when upstarts or new startups have captured the majority of markets previously owned by giants or created their own markets that have affected more than a couple of domains at a time.

Think Airbnb, which has hugely impacted the hospitality industry and has forced hotel chains to reduce their costs to be chosen as a viable option for customers. Or Uber and Lyft, the transportation network companies that own the majority market share of the billion-dollar worth ride-hailing industry and sent the taxi and car rental industry tumbling down.

These are just a couple of examples. If you look around, hundreds of startups are springing up, trying to solve problems in a particular domain and attempting to become the next Uber or Netflix. Chances are they might even succeed since one of the major barriers to their growth—the availability of funding—is no longer existent.

With the remarkable rise of Venture capital firms and Angel investors enthusiastic about investing money in startups in hopes of riding the wave of projected profits, the only thing keeping these startups from becoming profitable is creating the perfect solution that would receive wide acceptance.

Perfectly crafted solutions to the domain’s itching problems, coupled with exceptional business models, could quickly give these startups an edge over the industry giants. That is why it is extremely important for companies to keep an eye on the newly created startups in their industry.

No matter how much of your balance sheet is allocated to research and development or how much you aim for disruptive innovation, a more strategic key always exists to innovate or own that innovation. And chances are, these newly launched startups could bring a better version of that technology to the table with a better business model.

However, industry giants can always overtake these startups, given the abundant resources available for R&D and better marketing and sales channels. With cleverly crafted strategies, it could only be a matter of time before companies develop innovations that could overtake the startups. But that comes in later.

Any planning, plotting, or strategizing will only help once you know these industry developments. How can you be aware of these developments?

Track the newly launched startups in your domain. There are chances that they could disrupt your entire industry, and taking action would be too little, too late if you’re not tracking their activities.

Why should you track the startups in your industry?

Let me give you an instance.

In the early 2000s, CDs and tapes were still dominant. Music companies made handsome profits selling music in this form, and downloading MP3 files from the internet was not very common yet. With the advent of smartphones and their increasing popularity came apps replacing some everyday gadgets. Among the hundred of those apps, one was launched that tried targeting music lovers and achieved huge success.

Launched in October 2008, Spotify had its own unique business model. Having tied up major labels, Spotify, instead of providing paid songs that can be kept for a lifetime, gave away millions of songs for free and kept a subscription fee of $10 if anyone wanted to open their playlist for ad-free access.

Spotify achieved instant success and went on to grow multifold. From 12.8 million euros in 2009 to an annual revenue of 2.9 billion euros seven years later, the projected growth and success of the model were quite apparent.

If only other companies in the domain had tracked that, they could have gotten on this wave comparatively earlier, and not only would they have made huge profits, but they could also have been a strong competitor to the music streaming giant.

Checking what new startups are doing keeps you updated. It shows what’s trending in the market and what your consumers need next. Small firms offering disruptive solutions to problems troubling your end clients might be breathing out there. Are you keeping a check?

Since many startups are springing up at once, it could be difficult to track all of them. However, you need to pay special attention to two particular categories of startups, the former having the potential to impact your organization and its market share severely.

Let’s have a look at both these categories.

Startups founded/cofounded by one of your ex-employees

Anthony Levandowski, the co-founder and technical lead on the well-known project Waymo, founded Otto (a startup working on driverless trucks) in 2016. Levandowski later sold the startup to Uber for $680 million and became head of Uber’s self-driving car research team. The company enjoyed a lot of media attention, being the first self-driving truck to complete a commercial delivery – of a trailer full of Budweiser.

Nine months later, the company faced a lawsuit filed by Waymo –  the self-driving project that Google started – alleging Levandowski of stealing and using Waymo’s secretive LIDAR development tech. According to the complaint, Levandowski downloaded more than 14,000 confidential files before filing a resignation in Waymo. The company accused Levandowski of using Waymo’s trade secrets to start Otto, selling it, and heading Uber’s self-driving project later.

A former employee knows the system inside out and can easily cause a breach of laws protecting confidential information. Checking startups entering your niche updates you regarding any such felony. Yes, Uber later fired Levandowski and halted the manufacturing of its self-driving trucks.

But is fighting for your own property worth the pain?

Startups found by an Industry Leader Could Skyrocket 

An industry influencer knows the system thoroughly. S/he has surpassed the challenges that others might have trouble noticing. If s/he has an idea, chances are it must solve a huge industry-specific problem with the team assembled at a startup. You can easily identify the problem and valuable solution with proper analysis. 

If found unworthy, you might learn what new has entered the niche, or else this investment will become worth all your efforts. Figuring out that an influencer has opened a new firm in your industry must raise a red flag. Chances triple if these influencers are in a leadership position in a huge enterprise in your market. Such startups have great potential to introduce a big disruptor in the market. Think Pinterest. Think LinkedIn. Think Otto.

Conclusion

It’s always great to be ahead of the competition. It is even better when you have a track of companies that might be strong competition or industry disruptors in the future. While competitive analysis keeps you in sync with the latest developments by competitors and top companies working in your domain, keeping track of startups in your domain could give you an idea of developments that could blow up(in a good way) in the future.

Once you know these developments, you can always formulate a strategy to beat them to market and earn the lion’s share.  If the former doesn’t sound like a great option, you could also invest in these companies and ride the wave of projected profits, along with owning a piece of that company or make it difficult for them to work on that piece of innovation by accruing patents that are likely infringed by their innovation. The choice is yours.

Need some advice?

Authored by: Neha Tanwer, Research Analyst, Market Research and Shikhar Sahni, AVP, Operations.