Startups vs MNC: What should be the battlefield?

What do startups need to do to compete against large MNCs? Should the startup attack a profitable business on its loss-leaders with a good-enough product at 1/2, 1/4, or possibly even 1/10th the price, and start cleaning up?

As counter-intuitive as it might sound, attacking a profitable business on its loss-leaders is a terrible strategy, because it can use all its powers against you, plus orders of magnitude more dollars, and not care about a direct business model to support those decisions. That is a scary competitor — lots of resources and nothing to lose!

For example, Microsoft decided to make Internet Explorer a loss-leader against Netscape, and destroyed that company. Of course that was after Netscape was a huge, going concern, so that wasn’t a strategic error on Netscape’s part, but rather a clear demonstration of the power of a profitable company who doesn’t care about making money in a certain market. On the flip side, Google built a $1B+ business apps market that competes against Microsoft, because in this case “Office” is the profitable line of business that Microsoft can’t impinge.

So, competing against a large, profitable, growing business might be the smartest thing you can do as a startup! Just make sure you’re hitting them where they’re fat, not where they’re able to beat you at your own game.