I'm not sure if many of these self-analyses are more true than an athletes commentary after a big game. "We worked hard, are a good team, looked somewhat bad at halftime, but we made it". Sometimes I wish someone would just skip the lessons and do a Fiona Apple speech instead[0]. I guess the closest one was by Morten Lund after he went bankrupt[1].
I heartily agree with the statement that competitors provide proof that demand exists, but I disagree that you should have a product "10 times better than any competitor" to have a hope of succeeding.
If there are competitors, then you know that 1) there is a market for a service that does exactly what they do, 2) that not all customers even know those competitors exist, 3) that there are some customers that are unhappy with those competitors/not well served by them, and 4) that there are probably related similar markets that are not being fully tapped by those competitors.
Certainly if you can make a product 10x better, go for it, but I wouldn't delay in order to super-optimize it. You are already running behind, so why delay more? Look for other ways to differentiate yourself, such as different marketing, different customers, or serving a narrower or wider niche.
I think Mark didn't go into those schools with competing product with the goal of going head on with the competition, but to test the riskiest assumption that he is "building something people want". Going into the school with existing product is the riskiest move, so it should be tested first.
According to his talk, Facebook went into schools with existing social networks in order to demonstrate to themselves that what they were making was the better option. "If we can win in (these schools), then we can win everywhere" to paraphrase horribly.
[0] http://www.youtube.com/watch?feature=player_embedded&v=G... [1] http://www.youtube.com/watch?v=RcfiSlaSLnc