Last week I was talking to an ambitious young professional that wants to get into the startup world. We were discussing ways to evaluate the potential of a startup — how big and successful it might be. In terms of evaluating startups, he offered up a serious concern of his saying that it’s easy for a big company to just knock off the software once a startup proves the need. With a background in real estate, he had seen ideas and strategies knocked off repeatedly.
Building a product that offers similar functionality to another product is straightforward. Building a successful startup or product line based on another successful startup is incredibly difficult. Here are a few reasons why software can’t just be knocked off to have a successful business:
- Switching costs and the network effects of using a product are significantly more important than one can appreciate without being in the industry and seeing it play out (think of salesforce.com as an example with high switching costs and Snapchat as an example that benefits from massive network effects)
- For each visible feature there are hundreds of behind-the-scenes features that can’t be seen or accounted for unless you have hundreds or thousands of customers (think of the iceberg example where only a small amount of the iceberg is above water and the majority of the iceberg is below water — unseen functionality)
- The Mythical Man Month still holds true whereby adding new software engineers to a project to speed it up actually slows it down (e.g. if a big company threw a bunch of engineers at a new product to get it done quickly, it would be worse off than a smaller team working in conjunction with customers over a much longer period of time, which is what a startup does)
So, it’s very difficult to copy a product and make it as successful as an already successful product with the same market and buyer.
What else? What are some other reasons why it’s so difficult to just knock off a successful software product?
David Cummings on Startups 
Thank you for sharing these thoughts. All too often, you come across investors that require a patent a position. This is so short sighted, especially given that software patents can be circumvented or patent infringement can be obfuscated. I’ve always believed that creating high switching costs is a more effective and efficient means to keeping competitors at bay.
Also, the big software companies are really too focused on what they are already doing to be monitoring small startups for ideas.
Great post. I get this question all the time too. A few other points that i’ve noticed:
1) if your company is really just a feature, then it’s possible that someone will just add it and crush you. There used to be apps that allowed you to designate who your family was on Facebook. Now FB just does that.
2) Large companies have ego. If you’re succeeding, they often think their strategy is still better than yours, even if it isn’t. I’ve almost never seen a big company pivot to take out an up-and-comer. More likely is that they buy them.
It took Apple 7 years to launch a Pandora competitor and even then it was under-featured. You shouldn’t worry about big companies, you should only worry about your own product adoption – that is the only thing that matters.
First, I like what Halvor says above, and I also like the word “obfuscated” Van Beke used — I know what my Word of the Week is going to be.
In general, I think this is similar to when hopeful entrepreneurs are so secretive with their ideas — don’t want to share for fear someone steals them. Most companies/ people are too busy with what they’re doing that they don’t have the time to build what you’re thinking. Even if they did put some engineers to it, I believe a lot of big companies end up cluttering the product trying to build a product for their large customer base. Because of that, they will struggle, and you get to ride on the wave that a big company is trying to compete with “little ole you” — it’s great marketing.
Some examples: (At least, in these cases, startup could have been WAY long ago, but you still have that David vs. Goliath challenge.) Snapchat vs. Facebook, Facebook vs. Google Plus, Apple (iPhone, years ago) vs. Microsoft (Kin),
I also believe that one of the more sustainable advantages of a startup is its culture and purpose. As a startup, I believe you should be pretty in tune with existing customers (especially) and prospectives. By following your mission and purpose as a company and having your customers bought into this, you can create powerful advocates. I believe most sales are through relationships anyways so it’s important to really maintain those relationships and have a strong culture that will sustain the company against competition (big or small).
Some examples: (At least, in these cases, startup could have been WAY long ago, but you still have that David vs. Goliath challenge.) Chick-Fil-A vs. McDonald’s, Apple vs. Microsoft, Toyota vs. GM, Pebble vs. Samsung, Tesla vs. Others,
David,
Couldn’t Amazon or Google do just what dropbox is doing? The company is selling Stock now at a $10 billion market Cap and it seems to me a big player could just squash them?
Craig
Craig Allen CM Allen Capital Inc. 3060 Peachtree Rd. Suite 225 Atlanta, Ga. 30305 ________________________________________
Dropbox is a great example of both network effect and inability of other major companies to execute. The best recent example is Microsoft trying to compete with Google on the search front with Bing and losing billions in the battle:
http://www.businessinsider.com/microsoft-throwing-money-down-a-rat-hole-2012-10
Microsoft has all the money in the world and can’t get people to switch from Google to Bing.
Google has already come up with Drive to compete with Dropbox. I think it is a question of trust. Same with search, people trust Google to give the right result too much to switch.
Who is the young ambitious professional with a real estate background looking to get into the startup world? He/she sounds like a great fit for the REscour team and we’re hiring.
It is also a function of addressable market size. Even though a company might be doing exactly what you plant to do, they might have tapped a small portion of the addressable market. “Can you make a value proposition for the rest?” Is the real question
Great post.
Specifically, to your second point about the “unseen functionality”, I often like to say that it isn’t the 1.0 version of a product that wins but the successive versions accrete more value. You build upon the functionality and the learnings from the previous versions. Successive versions also have the time to fill in the little crevices of functionality where things “weren’t completely right” in the earlier versions.
Finally, thanks for bringing up the Mythical Man-Month. It’s well worth a read and I can’t believe how many times it has come up when I’ve seen a troubled project talk about it…..And then go ahead with adding more resources…
Good article & comments everyone. Here’s a couple more points for what it’s worth:
Firstly, competitors large or small can try to duplicate the result, using their own method. The more attractive the end result and the more confident the competitor is that they can produce that result cost-effectively (perception, not necessarily reality), the quicker they’ll try. You should expect this. But not be deterred from meeting a real market need just because of competition per se.
Secondly, as a start-up, capturing customer loyalty (early adopters, then other adopters?) and keeping it, means not aiming for the whole market, just profitability for the segment you aim to serve. Having worked hard to capture a base of customers, look after them as much as trying to grow that base further. Encourage your competitors to grow a different base without taking from yours (make taking yours unattractive to them, compared to growing their own).
Thirdly, never stop innovating. Stay ahead of the game and keep competitors playing catch up and it will all have a happy ending for you. Design, delivery & customer service form a formidable package (be innovative in all 3). Do all 3 well and competitors will have a harder job matching your overall value to them.. Some companies innovate then drop prices on the new product rapidly, as sales volumes build. If they time it well ,competitors find it hard to duplicate that offering and make a profit.
Good luck.