Is it possible for a startup to neutralize the incumbent competition? 

I absolutely say yes, depending on the market. 

To describe this scenario, I’ve started using this phrase a “check-mate move” in the last 6-9 months and I really like it.

Tundra Angels aims to invest in startups that represent check-mate moves in their markets. I wanted to break it down into language and into anecdotes about how this looks in practice. 

✅ A checkmate move is where a startup strategically positions itself so uniquely that incumbent companies find it nearly impossible to compete or replicate it. ✅

It becomes a situation where its not that the incumbent can’t compete, it’s that they won’t, for few specific reasons. 

A check-mate move ties into defensibility. But most of us tend to think of defensibility as something that the startup does to prevent incumbents from encroaching on their turf - to defend. 

But I think about a check-mate move but I see it more of an offensive position. 

✅ A checkmate move exploits the inherent inertia of established and incumbent companies. ✅

For any company to be successful and to grow to become an incumbent, they must employ repeatable processes - business models, brand, and establish predictable processes. Collectively, there are processes that carry a high amount of inertia that make radical change extremely difficult.

Inertia across: 

• Business model

• Brand

• Team

• Go-To-Market strategy 

• And many more

A check-mate move can exploit the embedded inertia and rigidity of incumbents by creating a solution that fundamentally challenges the incumbent's core approach.

A check-mate move makes it a low likelihood that a competitive response will amount to anything. 

When I evaluate a startup relative to the incumbents and competitive set, I think about the inertia that the incumbents possess across their business strategy and execution. 

Here is what this looks like in practice. I’m going to give two examples from the Tundra Angels portfolio. But I could use more than these examples, as I will say that a high majority of the companies that we have invested represent check-mate moves in their markets.

Example of EVEN

Take the example of EVEN, a MusicTech startup and a Tundra Angels portfolio company. 

Through our initial conversations with Founder and CEO Mag Rodriguez, we observed several things

• Streaming platforms, such as Spotify and Apple Music rely on advertising and monthly subscriptions from consumers. 

• EVEN allows artists to sell their music to fans directly before going onto streaming platforms. 

• Artists traditionally have never known who their fans are - down to their email addresses and phone numbers. Spotify and Apple Music do not provide that information. EVEN provides the email addresses and phone numbers of each fan that purchases content from that artist. 

• EVEN is positioning itself as artist-friendly, whereas Spotify and Apple Music are viewed with dissonance in the music industry, paying artists and labels fractions of a penny per stream while these tech companies own the lion's share of the profits. 

In discussing this with Mag, a check-mate move was starting to emerge. 

If EVEN held the convictions that it did, for Spotify or Apple Music to adequately compete, to allow artists to monetize direct-to-fan, they would need to:

• Completely overhaul their freemium and sponsorship business model, which would totally sever the relationships with the advertisers and the sponsors, torpedoing advertising revenue streams. 

• Turn off the consumers monthly subscription for an all you can eat buffet of music. Consumers would be completely turned off by now having to pay a la carte, torpedoing subscriber revenue. 

But importantly, it’s beyond just the business model. It also an affront to brand, the company’s core identity.

The brand of streaming platforms is known for the democratization of music. It’s what Spotify and Apple Music and the like are known for. They have built their brand around it. The streaming platforms over the last number of years have been at odds with the music industry because the artists and labels don’t win very much. Their compensation is a fraction of a penny per stream. The music industry views streaming platforms as a necessary evil. But largely, not in artists or labels best interests. 

Thus, adopting an artist-friendly posture would be directly oppositional to the brand identity of streaming platforms and how the music industry views these companies. 

It’s almost as if you knew someone who was known to be deceitful and not acting in your best interests. Then, they suddenly tell you, “I’m different, I’m coming clean.” You’re like, “Too late. You’ve shown your cards already. I don’t trust you.”

Moving to a model like EVEN is not only untenable from a business model perspective. It’s also inconceivable just by the very nature of who the streaming platforms are and what they stand for. 

Not going to happen. It’s actually so untenable that you can’t even imagine it happening. 

It’s a “There is no way that they would do that.” It defies all logic. That’s the point. 

That’s the power of a check-mate move. It moves the startup into an offensive position that other incumbents would never go to. 

Another fact about a check-mate move is that it happens across not just one dimension, but several dimensions.

Example of Flamingo Marine

Another Tundra Angels portfolio company is Flamingo Marine (founders Brian Davis, Eric Davis, Trent Warnke). They developed an approach so innovative that traditional boat manufacturers couldn't imagine replicating it without betraying their brand identity.

In our due diligence process with Flamingo Marine, we had one conversation that tipped the scales of our decision to invest. It was a conversation that revealed Flamingo’s check-mate move. 

In our process, we were able to talk with a strategic individual that had a unique vantage point to see the innovation in the marine industry. 

We asked the question, “What prevents an existing boat company from stepping into this space and replicating Flamingo Marine’s success?” 

The strategic individual replied, 

“Even if other pontoon boat manufacturers wanted to push the boundaries of what their products could be, they wouldn’t go here because it's too far from that brand.

These companies have existing brands and expected experiences. If you push it too far, you break that trust with the consumer.

I don't know that pontoon boat manufacturers could try the things [Flamingo] is trying, nor, frankly, whether they would push their teams that hard. They're just not built that way.”

I clarified, “So it's too outside the box for them?” 

Individual: “Exactly”

Flamingo’s check-mate move has many dimensions which is why we love the opportunity so much. But I bring their example up because these exchanges gets at a check-mate move in different dimensions that EVEN’s example. 

Brand - What Flamingo is doing is too off-brand for existing pontoon boat manufacturers. Pushing it to what Flamingo is doing will break that trust with the consumer. 

Manufacturing Process - Flamingo’s manufacturing process is outside of the realm of existing capabilities of pontoon boat manufacturers. It’s too outside of the box. 

Team - The manufacturing team is “not built that way,” to deliver the same value of what Flamingo is achieving with their product

Recall that I named earlier that a check-mate move is exploiting inertia. 

You can see the inertia embedded in the incumbents’ brand, their manufacturing processes, and the teams. 

Doing something oppositional to that completely defies logic. 

Again, one can easily conclude, “There is no way that they would do that” conclusion. 

A Side Reflection

I find something interesting. I’m just going to say it. 

Investors always ask founders, “Who are your competitors? How will you react if a larger company decides to replicate your success and do the same thing?” 

Now, I likely may not know who the competitors are in a market, so I do ask that. 

But we can typically answer that second question in stark clarity ourselves, without the founder. But it requires getting to the core insight level of the startup's strategy relative to the competitors or incumbent’s strategy. 

It’s understanding where the incumbents inertia is across brand, business model, team, data, manufacturing process, etc. And, understanding the delta of that relative to the startup’s strategy.

Now, if the startup’s strategy can be easily thwarted, it is not a check-mate move. 

In a check-mate move, the incumbent is rendered incapacitated. Existing inertia is too great to overcome so that a competitive response will amount to anything. The incumbent is faced with two options - either do nothing, which often is the initial response while the incumbent determines its response. Or, acquire, which is why we are all here ;) 

Do you Need a Check-Mate Move?

I want to be clear here - this post is not saying “be different from your competitors because that is how you will win.” That’s totally not what I am saying. For an early stage startup, the north star is the customer demand and where the market needs to go. 

I do not believe that each successful startup needs to have a check-mate move to win their market. 

I also think some check-mate moves are more achievable in some markets than in others. I think that in some markets, it is less likely to have a check-mate move and it really becomes defensible by speed and scale. Speed is always important, but a check-mate move is about way more than merely speed. It’s about strategic positioning. 

Closing Thoughts

A checkmate move is where a startup strategically positions itself so uniquely that incumbent companies find it nearly impossible to compete or replicate their model.

A checkmate move exploits the inherent inertia of established and incumbent companies. 

It has several dimensions. This could be exploiting inertia across areas such as 

Inertia across: 

• Business model

• Brand

• Team

• Go-To-Market strategy 

• Manufacturing process

• I’d encourage you to discover other categories of inertia

Let me as a question 

Is it possible for a startup to neutralize the incumbent competition? 

I absolutely say yes, depending on the market. 

On this point, Peter Thiel is someone that has greatly influenced how I think about venture investing through his book Zero to One. One of Thiel’s main points is that we have this view in business that competition is a healthy thing. But Thiel advocates, you shouldn’t want to compete. You want to build a monopoly. 

So let me ask you - "Why are you here? Are you here to compete… or to neutralize? 

Sometimes I feel that startup founders don’t really know either. 

To that end, “Where is the existing inertia of the incumbents? Where does it exist across brand, business model, process, etc.? 

Is there a potential checkmate move on the game board of your market?

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