A startup can certainly succeed in a market where there are existing players. However, you should be very careful about entering markets where there is a single dominant competitor or no competition at all. Monopolies are naturally very hard to compete against and a total lack of competitors can indicate that either no market exists or has proved very hard to establish in the past.
The value of market research and feedback should never be underestimated. For a new product or service, it is vital to evaluate the market into which you are entering, to gain insights and gather significant amounts of data around such things as the potential size of the market, user maturity and other players in your chosen arena.
A saturated market is perhaps an obvious area to avoid and you should think long and hard before entering. While it is possible to succeed in such conditions, the odds are very much stacked against you. We hear of startup founders all the time wishing to “disrupt” established industries. In many cases, this is, without doubt, a noble and worthy goal. There are many industries that are operating in old, established patterns, existing to serve the company but are sub-optimal for the customer in some way - this is especially true of a market that is dominated by one or two large and well-established players. The larger a company gets, the more layers of middle-management and bureaucracy exist, which makes organisational and hence product change increasingly difficult.
Areas such as corporate recruitment, office administration and productivity software, internet search, cloud hosting platforms and banking, for example, are either saturated, monopolised or moving rapidly in that direction. As a result, the barrier to entry into these markets is incredibly high. The dominant companies in such markets are generally resource-rich, and you should bet on them applying their considerable corporate might with an aim to preventing your success. Of course, an exception to this rule may apply if a potential long-term strategy of your company is to exit through acquisition.
Unestablished markets can be a tempting proposition for a potential startup. However, you should always ask yourself why the market is unestablished. The data collected during your market research is invaluable in answering this question. Is the market unestablished because you have identified an area in which no one has operated before? This is unlikely, but if you have a unique idea or are choosing to operate in a cutting-edge area of technology, it is still possible. If there is no competition in a market, there is a strong chance that the market doesn’t actually exist, or at least it is not an environment supportive of your ambition. This lack of competition can be for a number of reasons, such as the maturity of users within the area (often true when introducing high-technology into a more traditional market), or perhaps the market will not support the price point of the product you intend to introduce.
Another reason that a market may seem underdeveloped is that others have tried and failed in the past. Evidence of previous failure does not necessarily mean that it is a bad market to enter, but you should work to establish the reason for previous failures and put plans in place to mitigate the reasons that caused the preceding endeavours to be unsuccessful.
A little competition is doubtless a good thing. The hard work has been done, or at least started, in establishing an idea for a product with customers. It can be very hard, sometimes near impossible, to introduce a genuinely new concept into a market. Convincing a potential customer base that a product is even a good idea at all can require costly, time-consuming marketing effort.
You should aim to identify and promote a differentiating factor when entering such a market. One of the goals of your initial research should be to evaluate the competition and identify potential differentiating factors. Remember that established competitors, no matter how small, have the advantage of the increased exposure, cash flow and feedback of being a market leader.
Your research can be as simple as speaking directly to the users of the competitor’s products and asking for a wish list of additional features. Do not attempt to implement them all initially; collate the responses, find the ones that are most painful for users and the most commonly missing across all competitors and choose the top one or two for the initial launch. Aim to differentiate yourself in the market by offering something which is missing from the competitor’s products that their users really desire.
So, it seems that the best ground in which to plant and establish your startup idea is one that has been established as fertile by others and is neither overrun with weeds or in the shadow of an existing dominant structure.