Something that has fascinated me since starting to build companies is how certain companies do extremely well very quickly, while others fail slowly. Particularly fascinating is how some of the most successful companies are not really building anything ground-breakingly new.
We should all strive to succeed with more certainty
There’s definitely a popular belief that running a tech startup is cheap, without too much consequence if you fail. The reality is quite different. Many idolise founders like Mark Zuckerberg and Elon Musk – especially within entrepreneurial circles. Stories of the struggles of entrepreneurs putting themselves in big personal debt and living off “the ramen diet” don’t get much attention, and when they do, are seen as part of the battle scars necessary to be successful. But take a look at the percentage of companies that fail where there’s no rosy end for the majority of people. There are many many examples of people having lost fortunes of different sizes failing at companies – as well as becoming depressed, even suicidal, after putting everything they have into succeeding, but proving their sceptics right.
Contrary to popular belief, tech startups are immensely expensive to grow. Techcrunch reported in 2013 that the average successful US startup has raised $41 million. Take Uber as a recent example – they’ve raised $6.9B so far. My company Whisk.com is at a much earlier stage but has also raised $2M so far.
Making billions by cloning companies
Pablo Picasso famously said “Good artists copy, great artists steal”. There is a new breed of founders rising to fame who simply copy (clone) existing businesses, often launching clones in markets where the successful original hasn’t launched yet. The most famous cloning outfit is Rocket Internet, founded by three German brothers Marc, Oliver and Alexander Samwer. Over just seven years they’ve copied Ebay, Facebook, Zappos, Amazon and Groupon, selling some of them back to the people they copied to help the originals grow market share in new markets. In 2014, their company was valued at between $4 and $5 billion.
Rocket Internet are not the only ones – there are loads of cloners out there now and their results can be highly impressive. At 26 years of age in 2005 Wang Xing started cloning Facebook, quickly becoming the most trafficked website in China. Since then he’s gone on to very successfully copy Twitter and Groupon, creating billions of dollars in value. But people took note quickly. Whilst cloning Groupon, Wang had to “defeat an armada of fellow clones – an estimated 3,000 Chinese group-discounting businesses that sprung up in just one year in cities all over the country.”
Copying businesses has many advantages; a proven market and reproducible processes and products. These all exponentially increase the speed at which a company can take flight. There’s generally a lot of testing, learning and interacting involved to achieve something brand new that works and that process can easily take 100x that of copying something that exists. You also have a relatively low likelihood of success when trying to create something entirely new – you don’t know whether your service is wanted, at what price, or what it will cost you to deliver.
Importance of innovation
Journalists often ask “What drives you?” and “What do you consider as success?” For me I think success and drive comes from building something that changes lives – building something amazing – something that pushes boundaries – something innovative. As Steve Jobs said, making “a ding in the universe”. Passion and belief in a company’s vision and mission is crucial – simply copying people doesn’t inspire me.
But, I think the two can be combined.
Copy so you can innovate
Most businesses are improvements on existing businesses or processes. Designing every part of a new tech business from scratch (which many startups do) takes a lot of work, primarily because you quickly learn that one part doesn’t work and you need to re-work it. Reworking this first 20% over and over results in the product vision seeming further and further away. Instead, I would hazard a guess that copying 80% of your business from what others have done in a similar space, so that it takes 20% of your time, might be a wise strategy. The business might then be able to dedicate a much larger chunk of time to the 20% that really makes your business special – your competitive advantage. One could of course argue that Rocket Internet do just that-by eliminating the 80% share on innovation, they are able to focus their energy on growth. Founders can choose how that time is allocated though. I think there’s a serious lesson to be learnt from this and many are taking advantage of this already.
Copy 80% so that it takes 20% of your time, and spend 80% of your time to innovate.