In regard to competitors and the market, I'd add that competitors not only create a market, but are indicative of one. If your product or service is something that's valuable to more than a handful of people, you're going to have competitors. If you don't have competitors, you'd either be a) *really* novel–a completely new product category, like the first car–or b) worried about your long-term prospects.

Also, to build on what Jon says below, competitors can be a great source of ideas. You only have so many resources for improving your business, so it pays to put your competitors' mental energy to work for you by seeing what they do, what works and what doesn't, and then using that for your own purposes. (One might argue that Microsoft has basically just used this approach to create and improve its best-known products–along with intelligent decisions that the others miss.)

I do have a couple of concerns about “talking the smack” about one's competitors internally, at least on any sort of regular basis. First, if employees see that it's an okay thing to do and get in the habit of it, it's a lot more likely that they'll slip up and do it in front of a customer, which reflects really badly on the company. Also, I've seen a lot of people, teams, and companies lose focus on and/or minimize the need for improvement because they think the competition sucks. “What do we have to worry about?” Even if none of the existing competitors pose a significant threat, that doesn't mean that someone else couldn't come along, or that it's not worthwhile to continue to try to improve, to grow the market and one's market share, etc. As in life, so in business: in the long run, there's no standing still–you either progress or you stagnate and regress.

Thanks for the posts, Jason!

Good point also about needing to directly address your competitive advantage with customers. When I said “externally”, I was thinking more in interviews and other PR. I tend to think about things from the standpoint of consumer software, where you don't exactly have sales meetings. In a B2B context I think you do need to take the competition head-on.

Re how benevolent you are–I suppose that's a matter of personal style. More important is to be totally honest with yourself about acknowledging their strengths, while still maintaining complete confidence in your ability to compete on your own merits.

I don't care about being sportsmanlike or overtly benevolent — in fact I find it energizing to be vociferously passionate and intense about them internally — talk the smack. You may be able to maintain a reserved benevolence and still beat the crap out of them, but most of your employees won't.

Externally, if you can get away with not addressing competitive offerings directly with customers, you're not actually in all that competitive a market. Be complimentary of them as individuals and as clearly and dispassionately critical — on substantive issues — of their products — as rationally and thoroughly as possible. Have a great story of why you're better. Price isn't nearly enough in most start-up situations.