Naval: Ben Horowitz is credited with the line: “The best product doesn’t always win, but the winning product becomes the best product.”
There are exceptions, though. It’s highly specific to the situation.
When you’re winning, you can get capital and talent to retool your product to become the best in the space. But if the space is fast-growing, your team is mediocre and your product is too hard to change—because you put in too many switches, dials and settings for backwards compatibility—then you can get stuck in a local maxima while a fast-moving competitor with a better product wins.
Especially when markets are still small, the early winner doesn’t always make it to the finish line. A product may be winning when the market’s just getting started. Hipstamatic was the iPhone photo app to beat, until Instagram came along. It wasn’t obvious at all that Instagram was going to win—until suddenly they did. Hipstamatic had time to raise money and improve, but they didn’t.
HipChat was the premier chat product and should have been able to raise infinite capital to improve. But they failed to innovate, and Slack came along and ate their lunch.