Here’s a bit of contrarian advice: Be nice to your competitors. In fact, befriend them, because you just might make a pile of money as a result.
I’ve always taken this road and it has never backfired. I’m going to describe a bunch of examples here and then generalize the approach for your own situation.
Scripped: Got the competitor to invest in us
You wouldn’t think that two browser-based screenwriting apps would launch within a month of each other from opposite coasts, but that’s what happened. Scripped and Zhura both came onto the market in 2011 to all the glitz and glam that Hollywood could offer. Super Bowl commercials, endorsements from the Oscar stage, digital banners in Times Square.
Just kidding. Nobody noticed, except perhaps a few screenwriting geeks and our respective teams.
I couldn’t believe it, actually. Zhura was a much better product. It worked better, it looked better, and I was intimidated by the team: an MIT-educated engineer and a wealthy entrepreneur teaming up to do the exact same thing we were doing: take box screenwriting software into the Internet age. We were fresh out of grad school, with no funding, and outsourced our software development to some guys in Canada. The Zhura engineer built that product himself.
But what we had was hustle, and my co-founder Sunil was great at pulling all the strings in LA, where he was living, and leveraged that as the one advantage Zhura seemed very unlikely to take away. We had geography on our side.
Why would anyone want to use a screenwriting product from Boston?
So that’s how it went for a while. We each put up competitor matrices, passive-aggressively poking each other in the ribs. We’d compete against each other on Google Ads. And we figured out that Zhura had public URLs for their users, and that the user IDs were sequential, so if we wanted to know how many screenwriters signed up, we just had to find the highest member URL that didn’t give a 404 error. If I recall correctly, we usually had more users than them.
But it was a slog. This was not a great market to be in and every little pivot we made led to another dead end. We hit $15,000/mo in revenue and stalled out. At some point, I convinced Sunil to let me reach out to Zhura. It would be the first of many times I contacted my direct business competitors.
That first email is lost to history, but I remember being very frank. I sent it directly to Eric MacDonald, the wealthy CEO, and complimented him on building a great product. I even acknowledged that the technology was better than ours, and I hinted that I knew we had more users (those public user URLs disappeared shortly afterward). I also asked if maybe there was a way to work together against a common enemy (Final Draft, in our case).
Eric responded with a thoughtfulness that I would come to appreciate and know well. One conversation led to another, and soon we talked about joining forces. In another show of magnanimity, he accepted that the combined entity would use our name, and even offered to invest another $100,000 to give us the resources we’d need to grow.
And that’s how one honest email to a competitor led to a merger and a $100,000 investment.
We hired our first full-time developer and got to work combining the assets.
Scripted: Saw the writing on the wall
Scripped eventually did one final pivot over to what became Scripted. We sold the remnants of Scripped to another competitor, WriterDuet (still the redirect target from Scripped.com), and focused on our new content marketing marketplace.
Things went really, really well for a while. We raised a ton of money, hired a great team, and managed to build a meaningful brand in the content marketing space. We positioned ourselves in between Upwork (Elance/Odesk at the time) and a Madison Avenue marketing agency. The idea was to offer software-powered high-quality writing that paid well, respected the writing process, and could scale up.
We weren’t alone, of course. Just like our screenwriting launch with Zhura, another east coast competitor sprung up at the same time we launched Scripted. Contently was based in New York and focused their writer recruiting on journalists rather than screenwriters. They allowed public writer profiles and ours (at the time) were private. They charged a hefty annual subscription and we just took a percentage of the fees. They were positioned upmarket from us but close enough that it made me nervous.
We coexisted peacefully, though, skirmishing a bit on the Google Ads front as most competitors do. I didn’t reach out to them early on because they didn’t come up on our sales calls. We had very different customers. There were plenty of others to worry about, especially Zerys and WriterAccess.
Conferences make it easy to meet the competition, and I remember the first time I went to Outbound, the big HubSpot user conference in Boston. They were all there and I sheepishly went up to their booths. I remember the Zerys founders were very reserved. They squinted at my badge and when they recognized my company they backed away, offended that I would even approach them. I tried to make small talk. They wouldn’t have any of it. I walked away feeling mad.
WriterAccess was the opposite. Byron, the happy-go-lucky founder, was happy to meet me. He mentioned that he didn’t see our booth. I had to admit that we didn’t have one. He had a million questions for me. I probably shared too much, but he gave me some useful information about their revenue and growth prospects and how hard they’ve tried to get an official endorsement from HubSpot as THE marketplace for writers. Importantly, we shared a distaste for the Zerys guys. Once again, the common enemy strategy worked.
I stayed in touch with Byron over the years, making a point to have a heart-to-heart at each HubSpot conference. He called me after one of our fundraising announcements and said he was exploring a sale. His expectations were far too high and we never looked hard at it. A couple of years later the tables turned and I asked him if he would buy Scripted. His is a cash flow business. He had no VCs backing him, so coming up with millions of dollars was a non-starter. Instead, we explored merging for the sake of selling to a larger entity, making us both more valuable in a 1+1=3 approach. Ultimately, it didn’t pencil out.
What I realized through these and similar conversations is that Scripted, like Scripped, was in a really hard business again with customers that simply don’t want to pay a lot. Switching costs were too low; it was too easy for a customer to bounce around to all the writer marketplaces, leaving behind a trail of churns.
I eventually used my MIT Sloan connections to get the meeting with HubSpot’s CEO and head of M&A. I told them about Scripted and what I thought made us different than the rest. Brian, the CEO, leaned back and reflected on the number of agencies and marketplaces just like us that buzz around HubSpot. Brad Coffey, my Sloan classmate, concurred and asked why no one was winning. It seemed we were all struggling in the low millions of annual revenue.
I didn’t have an answer for him, and that conversation marked the first time I saw the writing on the wall.
How could we have raised all this money, have the backing of great VCs, and still be competing with the likes of WriterAccess, a bootstrapped company without the benefit of fancy MBAs and Silicon Valley engineers? I didn’t have an answer back then. I still don’t.
I did eventually reach out to Contently and tell them that we’re looking to sell. They offered to take a look but very politely declined and wished me the best. We were in different markets, after all, and the lift our revenue would give them wasn’t significant enough.
This ending wasn’t so happy, but the relationships I built with our competitors only helped. It was a useful perspective and I’m glad I got it.
Toofr: Made friends and got offers
Toofr.com was my very first web app. I built it first in CodeIgniter (PHP) and then switched to Rails (Ruby) and there it has stayed ever since. It started as simply a reason to learn how to program for the web. It evolved into a source of passive income and then I basically wrote a book about it. All because I wanted to learn how to code.
Toofr is an email-finding app. Punch in a person’s name and what company they work at and it will try really hard to get the right email address for them. For sales and marketing people it’s gold. Toofr wasn’t the first to do this but it was one of the first. That early start helped drive organic customers and spur the competition. Most similar apps that came online afterward knew about Toofr.
Hunter.io was and still is the best in the business. I was always impressed and intimidated by them. I reached out a few times over the years. I think they ignored me once or twice but we did have a friendly exchange when I finally told them I wanted to sell Toofr and shared my numbers. They concluded it wasn’t worth the hassle.
FindThatLead and Lusha are two others I got to know. I got along particularly well with Gerard at FindThatLead. He was hilarious, happy to joke around, throwing out compliments about how great I am, and Toofr is, and how they could never afford to buy it. I don’t know how serious he was but I enjoyed that relationship. The Lusha guys were more serious. I’m pretty sure they reached out to me, perhaps checking my interest in acquiring them, but Toofr was a cash-flow business and couldn’t buy anything. When I flipped it around and asked if they would buy Toofr, I learned they were in a similar situation.
I eventually sold Toofr to a private equity shop that operated a competing product. Once again, I shared a lot of detail and was entirely vulnerable and it paid off (until it didn’t, but that’s another story). My friends, technically my competition, were happy for me. They asked for advice about how they could get similar exits.
I told them to be friends with everybody.
MightySignal: Talked to everyone until I found a buyer
MightySignal, a B2B company that deals in mobile software data, is the first company I’ve run that I didn’t start. It feels different to come in from the outside. I didn’t have to deal with culture shock because none of the original employees were there. The private equity firm that hired me to run it gave me a company without a team. I knew nothing about mobile data so I had to learn everything. It was a good excuse to make a list of the competitive environment and reach out to people.
The first person I contacted was Scott Milliken at Mixrank. I knew him and his cofounder because, in addition to mobile data, they also have B2B contact information. It crossed into Toofr territory. It turned out that he and the MightySignal founders had a healthy “frenemy” thing going and he thought it was pretty funny that I wound up as MightySignal’s new CEO.
We stayed in touch, sometimes meeting at Samovar Tea in San Francisco. He was coy but helpful. Later on, when I was certain that MightySignal needed to sell, he put a Letter of Intent together and sent it to me. Although my bosses turned it down, it was a really nice gesture. He correctly noted that having an LOI would help me get other offers, and it did help move some conversations along.
Ultimately, to get this deal done at a multiple my board would accept, I need to talk to everyone. I mean everyone. Friends, enemies, and everything in between. I made a list (actually had my virtual assistant do it) and set about the long, arduous process of building relationships with CEOs where I had a specific end in mind. I ultimately wanted to have an M&A conversation but I knew I couldn’t open with that. I needed to have a relationship first and then make that ask.
So that’s what I did. I set about building relationships knowing that I had around a year to become friends and try to get a deal done. I tracked my conversations, noting how long it’s been since my last outreach. I had a bunch of calls, demos, and emails with other CEOs and founders. For the most part, they were great. Very friendly, helpful, and in a few cases it led immediately to partnership opportunities. Our marketing teams connected and we did joint webinars and email campaigns. These activities made it easier to talk M&A later on.
MightySignal eventually sold not to Mixrank but to Airnow, a product that was very complimentary to MightySignal. The relationship began more than a year before when I reached out about a data product we wanted to incorporate into MightySignal. It turned out they wanted our data too, and then it turned out they’d rather buy the whole company than lease the data. And that’s what happened.
How to make useful relationships with competitors
I’ve just shared several specific examples where befriending competitors worked out for me. Now I’m going to generalize the approach so you can try it.
First, though, I want to address what some entrepreneurs might be thinking: This is dumb. It’s way too risky. People will walk all over me if I do that. It looks weak.
That’s the paranoid approach. I could be more generous and call it “safe” or “measured” but at the heart of this argument is paranoia. I think paranoia is a sign of weakness or lack of confidence or both.
Sure, it’s possible that one of the relationships you might form could backfire. They could use that information to spread gossip, solicit your customers, or spread fear to your investors. Those founders are the exception, not the rule. And though it may happen, I believe the cost of not having any relationships with competitors is far greater.
Don’t give in to your fears. Reach out and see what happens. You will be rewarded.
Here’s the approach I recommend.
- Build a good list. Use a VA to do the research.
- Make your approach with authentic curiosity.
- Check in quarterly to maintain the relationship.
- If they want to dance, then dance.
- Wait for the right time to make the direct ask.
Build a good list
Don’t allow yourself to succumb to research paralysis. When I first looked down the barrel of all the work I would have to do to find a buyer for MightySignal, I froze. It was overwhelming, and for a while, I did nothing because I just didn’t want to do another LinkedIn search. My answer was simple: Then don’t. I hired Phani, a virtual assistant I found somewhere on the Internet many years ago, to do it for me.
I set up a Google Spreadsheet with the following headers:
- Company Name
- Company URL
- HQ Location
- Employee Count
- CEO Name
- CEO Email
- CEO LinkedIn
I gave him access to my Crunchbase (company data) account and upgraded his LinkedIn account. I gave him a few examples of companies that I wanted him to add. For MightySignal, it was our direct competitors and also complementary products. Anyone who touched mobile data was a potential acquirer. In all, he probably found 50 companies and CEOs.
Having this list made it much easier to do what I actually kind of liked to do: write cold emails to other CEOs.
Make an authentic approach
Like any good sales pitch, you can’t just copy and paste some boilerplate template. I took time to get familiar with the CEO and the company and crafted a custom but very short email. I mentioned some things we had in common, perhaps a school or place we lived, or the size of our companies and the time of launch. If they were also a hired CEO, I mentioned that. Throw in a tiny bit of flattery and you have an excellent first message.
Here’s an example.
Hey CEO_NAME, I saw your latest funding round. Congrats! I know it's hard to do. I've been watching COMPANY from the sidelines, of course, and was always secretly impressed with what you guys built. We're in a tough industry and I respect teams that do it right. Would you be willing to chat for a few minutes, just to compare notes? I've been meaning to connect. Thanks, Ryan
Even though this is strategic, it’s still completely authentic. You can be both cunning and genuinely curious. I wanted to get to know these guys. I had real questions for them and I think that came through.
My response rate was really high. Close to half of the CEOs engaged with me in some way. A few flat out said no, not interested, but most of them were curious in return. We had good, genuine conversations as a result. They didn’t share all their secrets and desires, but neither did I. It was still fun to connect and chat, leader to leader. Sometimes we identified a common enemy/competitor. That helped. Other times the common enemy was Google and Apple or the market as a whole which made our jobs really hard. We lamented not working in an easier field.
I remember how refreshing it felt to talk to some guys who intimately understood everything, the highs and the lows, of what we were doing. Even though we were fighting for the same customers there was still something like a fraternal bond there. It was real.
Check in quarterly
Staying in touch, once I had broken the ice, felt natural. I’d share some news with them. “Have you seen this?” I’d ask and send a link to an article or a tweet. That’s all it took to rekindle the relationships.
I used Pipedrive to track how long it had been since I reached out to them. I made sure that it was never longer than three months. There’s a really nice view that Pipedrive offers so you can stay on top of these relationships, emails and phone call notes included. I reported it to my board every month.
I don’t know what happens if you do this more or less frequently. I picked quarterly because it felt right. Two quarters is too long. One month is too soon. A quarter is just long enough to sort of forget about the relationship but be able to recollect it really fast. That’s what I wanted. Just long enough to be refreshing but not so often as to be annoying.
Do the dance
Eventually, after enough check-ins and Zooms, the dance begins. The dance can last a moment or it can last months, but it usually starts like this.
- “Hey, did you ever think of selling?”
- “Tell me about your board composition, again?”
- “Remind me what valuation range your company was acquired at (or invested at) last?”
- “If you ever sold your company, would you want to stay on?”
At some point, the conversation turns to M&A. You can prompt it by asking one of those questions yourself, but it’s always best of course to wait until they bring it up. Then you know they’re ready to do the dance and probably have someone important pushing them onto the dance floor.
Look for these queues, and when they’re offered to you, take them. Be open, honest, but don’t give the farm away.
Answer in incomplete truths. For example, to the last question above, I might say, “Well I’d want to be there for my team.” And leave out the fact that I’d be happy leaving after a 30 or 60-day transition period. Since you don’t know what they want to hear, I highly recommend answering honestly while not giving away too much.
Sometimes they’ll drop it after one questions. Other times there will be multiple questions and they’ll say something like, “Maybe next time we should include Ben who runs our business development. He’d like to learn more about what you guys do.” The business development (BD, for short) approach is a shortcode for M&A (mergers & acquisitions). It’s a less presumptuous way of saying it. Keep an ear out for that too.
Make the ask
At some point, you have to make the ask. The ask sounds something like this.
- “So, would you ever buy us?”
- “Is your board looking for a solution like ours?”
- “If the price was right, do see an M&A opp here?”
- “My board actually wanted me to see if you’re interested in partnering with us.”
You choose your ask based on the type and tenor of your relationship. You don’t want to come on too strong but you also want to make sure they understand that the dance is over and you’re asking them about the status of this relationship. It’s the awkward “So… are we girlfriend/boyfriend…?” stage of the relationship. You need to know so you can invest your time and set expectations to your board appropriately.
Making the ask can be jarring but if you’ve invested sincerely in the relationship then it won’t damage anything. They can say no. Plenty have said no to me, and the relationship survives. You fall a bit more out of touch but it’s not damaged. The ones that engage are the ones you’ll focus on next. You start filtering out the flirts, the non-committal ones who maybe just enjoy the conversations but have no interest in getting hitched. That’s fine! That’s going to be most of them.
At some point, though, you need to sell your business and move things along. You can’t do that without making the ask.
This is how I sold Scripted, Toofr, Track Job Changes, EmailFinder, and MightySignal. It’s a good approach and I stand by it. Even if you don’t want to sell, having these relationships will pay off at some point.
I’m sure of it.