The famous software blogger Joel Spolsky has a post up Does Slow Growth Equal Slow Death? where he talks about their challenges in the market and the concern that the market they compete in is a winner take all type market. In that type of market, if they aren’t number one, they’ll be marginalize. I’m of the same belief as the 37signals guys in their response to his post Bug Tracking Isn’t a Network Effect Business where they argue there’s room for many successful bug tracking software companies that appeal to different segments of the market, and solve unique problems.
For entrepreneurs, my advice is to think critically about your markets and whether or not they are winner take all type markets (e.g. eBay for auctions) or if there’s room for several winners. Most markets support many successful companies.