I have encountered a similar situation and here are my thoughts, just for your reference:
1. Is competition really bad? Not necessary. Some times competitions are good. As I was working on a product of a relatively new area. One of the problem was that people were not aware of the importance of the product. Our competitor had done a good marketing job, widely promoting the concept and got reported by several media. After that, we found it much easier for us to convince people of our product.
2. It's good to have a mirror. If you have got a competitor, watch closely what they are doing and try to learn from their experience. The two products might look similar at first but you might be able to differentiate from them after several iterations. If launching a startup is like trying out new clothes, it is much better to have a mirror.
3. You have to share the market anyway. You cannot be the monopoly, or even oligopoly. Sharing the market with your competitors is inevitable. Even if you were the first to launch, there might be strong late-comers. So do not panic when you see competitors coming.
4. Learn to differentiate. Tell the difference between your product and your competitors'. Trust me, there are no identical products in the world. Highlight the (even the smallest) difference and tell people why they should choose your product.
5. Focus on what your competitor might ignore. You should try out your competitor's product and record your experience in details. Then check the flaws you have found to see whether the same can be seen your product. This is an effective way to differentiate your product, especially your competitor is large and strong. If you cannot have more functions, then optimize your user experience.
6. Do not pivot so early. I wouldn't recommend to pivot right away. Even if you plan to pivot, please at least wait for a few months - after you have made sure that you have no chance. After all your team have spent a lot of time on your product. If you give up so easily, it is hard to cheer up your team for your new product. Do not simply give up, face competition and you will never regret your decision.
7. Any chance to cooperate? If you can cooperate with your "competitor", things would be easier. But this might not be a good choice since your competitor is well funded and two teams might not get along with each other. Also you might lose your control of your product.
1. Is competition really bad? Not necessary. Some times competitions are good. As I was working on a product of a relatively new area. One of the problem was that people were not aware of the importance of the product. Our competitor had done a good marketing job, widely promoting the concept and got reported by several media. After that, we found it much easier for us to convince people of our product.
2. It's good to have a mirror. If you have got a competitor, watch closely what they are doing and try to learn from their experience. The two products might look similar at first but you might be able to differentiate from them after several iterations. If launching a startup is like trying out new clothes, it is much better to have a mirror.
3. You have to share the market anyway. You cannot be the monopoly, or even oligopoly. Sharing the market with your competitors is inevitable. Even if you were the first to launch, there might be strong late-comers. So do not panic when you see competitors coming.
4. Learn to differentiate. Tell the difference between your product and your competitors'. Trust me, there are no identical products in the world. Highlight the (even the smallest) difference and tell people why they should choose your product.
5. Focus on what your competitor might ignore. You should try out your competitor's product and record your experience in details. Then check the flaws you have found to see whether the same can be seen your product. This is an effective way to differentiate your product, especially your competitor is large and strong. If you cannot have more functions, then optimize your user experience.
6. Do not pivot so early. I wouldn't recommend to pivot right away. Even if you plan to pivot, please at least wait for a few months - after you have made sure that you have no chance. After all your team have spent a lot of time on your product. If you give up so easily, it is hard to cheer up your team for your new product. Do not simply give up, face competition and you will never regret your decision.
7. Any chance to cooperate? If you can cooperate with your "competitor", things would be easier. But this might not be a good choice since your competitor is well funded and two teams might not get along with each other. Also you might lose your control of your product.