You could think your business comes under pressure when one of your competitors receives several millions of funding from investors. You know you will have to going to battle with a much more powerful competitor, having more resources and possibilities.
However the contrary can happen too:
Pricing and margin
The millions are calculated on their current and near future expenses:
They need to money to keep the company going. Or their pricing is way too low (not enough margin) or their overhead is too high. If your company is running break even and thus self supporting your company is in much better shape.
They will boost their marketing spending:
In order to have a return on the investment as fast as possible, they will need to grow the company fast. Hence they will have a significant increase of marketing expenses.
Your company can only benefit from this as the efforts of the well-funded competitor will draw attention to your market. All of a sudden your market becomes interesting.
The more noise – the more awareness of the market – the more interest – the more potential customers for your company too.
Before people in companies make a purchase they will or have to get comparable offerings.
In order to grow the company, a large number of employees will be hired. The company needs to deal with all these new employees, train them and keep the culture of the company. Training costs money and time.
More employees brings more management tasks and thus overhead, making the operations of the company more costly. Not sure the margin will increase.
The increase of management and social problems
More employees mean people will get promoted or surpassed.
Those that get promoted can get the Peter Principle – not performing well for the company.
Those that get surpassed by not getting the promotion as an external person is selected will not be happy as they get a new boss in a position they would have liked to have. No doubt they will under perform as they are demotivated.
The pressure from investors
The new investors will put pressure on your competitor to get leads and sales.
The sales people will need to score as fast as possible thus they will engage into sales and ventures that just bring sales, not specifically more net income.
Dumb decisions can be made. Investing in the wrong changes of their products or solutions which might turn out very costly in the long run.
- The awareness for your products or solutions will increase in the market.
- You will have a hard time to compete with the well funded competitor.
- Internally the competitor has many new problems to deal with management and employees.
- Investor pressure to deliver Return On Investment.
Before you know your competitor is running out of steam or funding and will need to go into a next round of funding.
Whereas your company will grow too at a slower pace hopefully without external life support.
Maybe think twice before your company accepts big funding.
Did you or one of your competitors got big funding ?