An internally competitive environment is said to bring out the best in teams of people. It forces them to work hard and think fast on the individual level, build alliances, and perform many other actions which move the collective team forward. Although this is true in most contexts, I don’t think it’s true for startup teams.
This is because the benefits of competition between team members come at the cost of personal productivity. Rather than focusing exclusively on doing what they’re doing to the best of their abilities, team members start thinking about what they could do to make their work look better than that of their teammates, or what they could do to make their teammates’ work look worse. It doesn’t matter whether such behavior is ethical or not, only that it occurs in practice. It’s part of human nature.
When this internal competition takes place in a large company, it creates an inefficiency. However, in the short run, the large company’s success simply requires its employees to maintain an existing good product. The large company may be unseated in the long run, but there is no immediate threat.
Startups, on the other hand, need to create and deliver a great product to overtake a large company’s existing good product. This is much more difficult than maintaining a good product. So any personal productivity which is lost due to internal rivalries represents an existential threat to the startup.
For this reason, the best startup teams consist of individuals who have the self-motivation to compete with their own selves to be the best in their field of work, but don’t compete with their teammates. Engineering is responsible for engineering, marketing is responsible for marketing, and operations is responsible for operations.
Each function seeks to perform their duties to perfection, and fully trusts the other functions to do the same. Each function is internally competitive, but there’s a strict division of labor across functions such that one function’s performance doesn’t pose a threat to that of another. Functions bring complementary skills to the table and they therefore have nothing to gain from making another function’s output look better or worse.
This lack of internal competition lets the startup focus on what matters, that is outperforming its external competition.