When founders ask about positioning vs competitors, I think of Glengarry Glen Ross— 1st prize is a Cadillac Eldorado. 2nd prize is a set of steak knives. 3rd prize is you’re fired. Better to find a niche where you win first prize than to be one of an undifferentiated many.
On the other hand, few startups are killed by competitors. In this particular case, if you get the steak knives instead of the Eldorado, it's usually because you executed badly, not because you did a great job but someone else did a better one.
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So in this case I'd give the opposite advice. Crowded market? That's a good sign, because it means there's no solution yet. So jump in. But don't pick a niche market in order to avoid competition. If you want to avoid competition, what you want is a job, not a startup.
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If you start out in a niche market naturally, like Facebook only working for Harvard at first, or Microsoft only running on the Altair, that's great. But don't choose a niche market except by accident.
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