From Pieter Welten – Prime Ventures (@pieterwelten)
With barriers to entry various industries at an all-time low, we see tens of thousands of start-ups rapidly emerging all around the world every year. I think technology entrepreneurship is a great global phenomenon and there has never been a better time to become a (tech) entrepreneur. The vast majority of these entrepreneurs intend to challenge incumbents with their ‘disruptive technology’. Their technology (i.e. product or service) will threat incumbents in their existing markets and/or create a completely new industry.
When entrepreneurs pitch their ideas to friends, family or investors, I often hear them being asked the following, obvious questions:
- ‘Can incumbents copy your idea?’
- ‘Why will incumbents not copy your idea?’
- ‘Why do you pursue a business idea whereas there are strong incumbents?’
To all these questions, you can expect obvious answers. First of all, if four engineers can build a product in their garage, trust me incumbents can build it as well. Incumbents will also try to copy the idea if it is good and eats their revenues. Finally, an entrepreneur launches the company, because he or she probably believes the product or service is much better, faster, and more beautiful than that of competitors (and probably he or she is a bit delusional).
In my view these questions are irrelevant. It is like asking the waiter in a restaurant whether the meat is good. Now ask yourself, when was the last time you have heard about Sony BMG, Universal Music Group or Warner Music? I believe it is more likely that you have used Spotify, Deezer or Soundcloud in the last couple of days. And why does it seem that the vast majority of established automotive companies are merely experimenting with electric vehicles, whereas a relatively young company called ‘Tesla’ seems now to be dominating this market? I don’t believe the traditional car manufacturers had a lack of access to capital and/or human resources.
You must get the point, because I can recall plenty of incumbents across various industries that have been disrupted by start-ups despite their efforts. Start-ups have demonstrated that it is not impossible to outperform or out work incumbent competition, despite their unlimited supply of capital, large customer bases and strong and trusted brands. Of course you should ask an entrepreneur who the competitors are and how he or she intends to compete with some of these incumbents. Why can he or she build a sustainable business in such competitive environment and what is the product’s competitive edge? But we should understand that (a) incumbents will try to copy and/or compete with you and (b) that you can successfully compete with them. Moreover, some mature companies barely try to do R&D and are happy to acquire start-ups instead or establish partnerships with start-ups.
So why is it not that simple for an incumbent to copy a start-up’s idea with such great access to capital, human resources and large, tier-1, international customer bases? In my view it has all to do with social momentum and soft factors. These large incumbents can copy a value chain or business model, but they can’t simply copy a similar corporate culture. It happens that humans are involved and today’s top talent and young professionals value responsibility, ideas and creativity. They would rather work for companies in start-up mode than in a large bureaucratic organization, where there work has an impact. The cultural contrasts are significant and difficult to replicate, so for all of you start-ups out there, keep up the good work. With the US elections in the back of my mind, all I want to say is: Yes, you can!
