This is fairly obvious but easy to overlook advice from Fred.
The concept of flow is often mentioned here on HN and letting competitors destroy flow is an easy trap to fall into. As others have mentioned, the question remains how much time one should allocate toward observing and reacting to competitors. While it is undoubtedly above 0, one has to take into account the opportunity cost involved as well as the energy wasted on switching gears, which can be quite significant and is often overlooked.
Agree with everything said there. The question left unanswered is where to draw the fine line between focusing on a predefined strategy and react to what your competitors are doing. Example: today Facebook announced Deals, should Foursquare just keep doing what it is doing or do something different to counter Facebook's invasion?
(I personally believe Foursquare should just keep doing what they are doing but let's discuss this anyway)
Very true - for both "in business there's no right or wrong answer", and "no plan survives contact with enemy". But on the other hand simplified principles and rules-of-thumb help us make rapid decisions with some good accuracy.
As with most thing balance is required, spend to long looking at competition and you will probably lose cohesion in your app as you struggle to find ways to keep up on the feature curve, don't spend enough time and you risk being late to the game on something big thats changed in your space.
Do you think what he says in the 3rd paragraph is the right balance?
I am not suggesting that you should put your head in the sand. It is critical to know what is going on in your market. But it is equally critical to have a strategy that makes sense in the context of what is going on and execute it with purpose and pace. If you spend too much time looking over your shoulder, you will not execute well. I've seen it again and again.
Right balance is relative to your business and at what state you are in currently. For a t=0 startup, I would rather concentrate on finishing the basic feature set and launching asap rather than spending time looking around. For a business which is entering a growth stage keeping tabs on competitors and what's new makes more sense.
I think I would define it as external events that you need to keep an eye out for. Something like being ready for the ipad launch with an app if thats your area, or moving fast on new API's such as when Facebook radically changed theres if you rely heavily on that.
The only "competitor" you should worry about is the Back Button.*
*http://www.paulgraham.com/startuplessons.html, http://mixergy.com/paul-graham-design/