Sunday, May 1

Play it safe; copy, don't innovate

Based on both personal experience and casual observation, it seems that launching a start-up based on a new idea is a good recipe for disaster and heart break. Here's my logic:

1. You dump a butt-load of VC money into R&D to make your idea a reality.

2. You dump a butt-load of VC money into PR to make the world aware of your hot new idea.

3. You launch your pride and joy, charging an insane amount of money in a desperate attempt to compensate for steps 1 and 2.

4. Somebody else comes along, sees your idea, sees all the feedback about where it's lacking in consumer appeasement, and builds their own copy. They save a bundle on R&D because you've already done the hard/long/expensive stuff. They put minimal investment into offering it with a cleaner interface, sell it for a lot less money, and steal your thunder along with your customer base, leaving you with a mountain of debt and the fruitless options of filing for bankruptcy or pursuing litigation.

My last company managed to cover both sides of this coin. They performed steps 1 through 3 with their own product, then executed step 4 on another company's product. Unfortunately the latter product they decided to copy and improve upon wasn't quite mature enough and they ended up repeating steps 2 and 3.

It seems that being an innovative DIY'er can provide you with pride and sometimes a book deal, but in the end you need to sell your work off to a bigger fish to cash out your stock, or watch in vein as the late-to-markets pick away at your profits while you struggle to get out of the red. Sure, there are a few rare exceptions to this, like the obligatory Amazon, eBay, Google, etc. But they are just a percentage of a percentage of the plethora of companies coming and going like the wind.

It seems to me to be a safer and saner bet that if you want to start a product or service based software company (as opposed to consulting or contracting) you're better off copying and improving another successful product or service rather than inventing and entirely new one. Yeah, a lot less exciting, and arguably less challenging, I'll admit. But if you're in the game for the money, that's where I would hedge my bets.

But then again, I'm just a lowly technology executive. What do I know? I don't have an MBA. I don't have to report to the Board of Directors. I don't have to "make the sale" to prospective clients. Perhaps someday I'll get the chance to do that. I do love a challenge, especially in unfamiliar territory.

1 comment:

Larry Klug said...

I used to work for a big three telecom, the one often considered the next runner up to the clear leader. Our stance was to follow as closely behind the number one as possible. After our competitor released a hot new product, we would mobilize and attempt to deliver a similar offering in a better, faster and cheaper fashion. We didn't have to worry about performing background R & D, customer product research, surveys and the like, as our competitor had already taken care of that. With the technology advancements that occured while our competitor was toiling away with the new product, it was easy for us to match the functionality and get to market without being far enough behind to really matter significantly. Even if the hot new product fell on it's ear, we were always comforted in the knowlege that the failure really cost our competitor much more than it cost us.