Startup Competitive Advantages that Work
Real Unfair Advantages
This is Part 2 of the series: 5 lessons from 150 startup pitches.
What if someone copies your awesome business idea?
About twenty people on Answers OnStartups have asked this question in one form or another:
When I meet an angel investor, he may ask: “What if a big company copies your idea and develops the same website as yours after your website goes public?”
How can I answer this question?
No, the question is: What are you doing now knowing that a big company will copy your idea?
No, wait, the real question is: What are you going to do when another smart, scrappy startup copies it, and gets $10m in funding, and is thrice featured on TechCrunch?
No, wait, I’m sorry, the real question is: What are you going to do when there are four totally free, open-source competitors?
No wait, I forgot, actually the question is: What happens when employee #2 makes off with your code and roadmap and marketing data and customer list, moves to Bolivia, and starts selling your stuff world-wide at one-tenth the price?
The good news: There are good answers to these questions!
The bad news: Almost no one I talk to has good answers, but they think they do. And that’s fatal, because it means they’re not working towards remedying that situation. Which means when one of the above scenarios happens, it will be too late.
The first step is admitting you have a problem.
Last week I detailed the most common misconceptions about competitive advantages, so go read that if you haven’t already.
To summarize: Anything that can be copied will be copied, including features, marketing copy, and pricing. Anything you read on popular blogs is also read by everyone else. You don’t have an “edge” just because you’re passionate, hard-working, or “lean.”
The only real
competitive advantage is that which cannot be copied and cannot be bought.
They say the only way to consistently make money on Wall Street is to have insider information. Unfortunately it’s not a joke, and although it’s illegal (and people occasionally go to jail for it), those in the know will tell you it’s the norm.
Fortunately, using intimate knowledge of an industry and the specific pain points within an industry is a perfectly legal unfair advantage for a startup.
Here’s a real-world example of how this advantage manifests. Adriana has been a psychiatrist for 10 years; she understands the ins and outs of that business. During a lull in her practice she got a serendipitous opportunity to shift gears completely and ended up leading software product development teams. (Turns out that for big-business project management it’s more valuable to be a sensible thinker and counselor than to be an expert in debugging legacy C++ code.)
Now Adriana has an epiphany: Traditional practice-management software for psychiatrists totally sucks; she knows both the pain points and the existing software first-hand. But now she has the vision and ability to design her own software, capitalizing on modern trends (e. g. a web application instead of cumbersome installed applications) and new interpretations of HIPPA regulation (which allows web-based applications to store medical records like patient histories).
Adriana holds a unique position: Expert in the industry, able to “geek out” with her target customer, yet capable of leading a product team.