Copycats in Entrepreneurship: An Oxymoron or A Good Strategy?

by Jeff Buening

Two recent events at HBS have drawn attention to the nature of copycats in entrepreneurship – 1) Fred Wilson’s visit to our Launching Tech Ventures class and 2) Oliver Samwer’s recruiting visit for his largely successful Rocket Internet company. Interestingly enough, each speaker maintained a very different view on the matter. Fred Wilson was quite negative on the model from an investment perspective – maintaining that, while it may be personal quirk, he has trouble investing in companies that aren’t the first in their domain for a new market disruption or category killer – because it’s more competitive and harder to win by nature of being a copycat. Oliver Samwer, on the other hand, makes a living (and quite an impressive one at that) copying successful internet companies and building them out in other parts of the world faster than the originator. While he’s the first to admit that he’s not a visionary like Mark Zuckerburg or Andrew Mason, he does maintain that he’s one of the best builders and ‘scalers’ in the world.

The polar opposite position/perspective from these two very successful venture investors begs the question of who is right and who is wrong? Or is there even a right and wrong at all? Somewhat related, it could raise the oft-debated topic of the secret sauce to successful entrepreneurship: does it lie in the idea or the team? My position is as follows: execution is the underlying requirement for success in entrepreneurship – regardless of being first or not. Preferring to focus on copycats or first movers is simply that – a preference; either can be successful, and there are many factors of consideration when choosing to be the first mover or a fast follower.

I must start by stating that, in general, there is a real strategic benefit to being a first mover (as noted in strategy 101)… You may be able to lock in exclusive partnerships, build proprietary platforms, and raise sufficient capital that, in turn, deters other players from entering a market. However, this advantage is highly dependent on the nature of the industry and the accommodating barriers to entries inherent therein. Moreover, being the first certainly brings with it more klout and bragging rights as a visionary, and someone who could take a new concept from ideation, to incubation, to scaling, to growing & maintaining deserves to be called an extraordinary entrepreneur. But those feats also tend to present many more challenges than does someone simply replicating an already proven business model. Moreover, there are many examples where fast followers ended up dominating the market and becoming winner-take-all over the visionary.

Perhaps there some distinctions to be made here that color whether and when one strategy may be more effective than the other:

  • Geography:  I’d argue that being a fast follower IN THE US to a company that already exists in the US is often very difficult… Not as difficult is being a fast follower to that company in other parts of the world – effectively being a fast follower to a company in a different geographic location (this is Oliver Samwer’s main strategic tenant)

  • Exit values / investment strategies: Without doing any comprehensive data research, I’d argue that fast followers typically have smaller exits than first-mover disruptors and category killers; But, in aggregate, fast follower exits may be equal to or greater than these first movers (though I’m sure that this argument could be hotly debated)

  • Industry segments: I’d argue that some industries offer fast followers a better chance of success than others. But even in industries with fairly low barriers to entry (as many segments of the internet arguably face), there’s no guarantee that fast followers will succeed… This can raise the oft-debated topic of ‘What would Google do?’ and ‘Could Google squash your idea tomorrow?”. BUT many times they aren’t successful.

The above takes me back to my position above: there is no true-and-fast right or wrong when it comes being a first mover or fast follower… There’s no guarantee to being successful in either case. There are several factors that may make one more appealing than the other – as noted above, but the reality is that ultimate success depends almost entirely on execution. And many times, it simply comes down to personal preference.

Comments

Popular posts from this blog

Quiz Time 129

TCS IT Wiz 2013 Bhubaneswar Prelims

The 5 hour start-up: BrownBagBrain