What To Do When Someone Copies Your Startup

By pandodailyguest , written on July 5, 2012

From The News Desk

It was inevitable. We always joked it would happen: Someone finally submitted a project that is a direct competitor to GroupTalent.

Yes, another marketplace for software projects. After the bets were settled, and the gawkers in the office moved on, I was stuck with the nagging question: What do you do when someone wants to copy your startup idea and asks you for help?

You should help, of course. Clearly, there are risks: Giving a competitor a running start and potentially enabling them to crush you is a sobering scenario that would give anyone pause. But the reasons for not giving your competitor a running start are the same reasons to dive in and give them a hand: market validation, shared marketing, and schlep underestimation.

Any good company needs competitors. As the former and beloved Coca-Cola Company CEO Roberto Goizueta was fond of saying: “If Pepsi did not exist Coke would have invented it.”

Competitors validate your startup’s efforts. Their existence are a clear indication that rents in your market are large and worth fighting for. That is why VCs always ask “Who is your competitor?” to filter prospective funding recipients. If you have no competitors, smart people will question whether the business you are pursuing is substantial enough — and you should too.

Another player competing in the market means another set of above-average folks building a product, marketing it, gaining publicity and reaching out to customers (hopefully even yours) to generate buzz around their product. They expand the market and pitch the product to users you have not thought of yet, and by extension help identify new potential customers. Competitors energize the market as a whole and boost awareness of the problem you are trying to solve, acting as a rising tide that lifts all boats. By doing so, your competitor becomes an extension of your marketing efforts — for free!

I recently wrote that startups new to a market tend to underestimate the amount of schlep in their business. Your competitors are no different. They will have to wade through the schlep, just like you, to understand users, potential partners and the marketing channels to reach them.

Just like nine women cannot gestate a baby in one month, there are elements of building a business that cannot be accelerated, no matter how much VC money you throw at it. Competitors will need to form their opinions for their go-to market, branding and user acquisition strategies, sign their own business deals and do their own customer development. The schlep you put in building your company becomes your most important, protective moat.

In the course of building GroupTalent, I interacted with many smart entrepreneurs who are deathly scared of other people just catching wind of their idea. "What if they go faster than me? What if they copy me and can just out-execute?" Daniel Kahneman, et al. justified these fears, when he explained succinctly (in his "Prospect Theory") that losses hurt more than gains feel good, and people tend to overreact to small probability events.

Accordingly, nervous entrepreneurs, responding to their instinct to delever risk, tend to view scenarios of a competitor damaging their business as very real with very large resulting damages. Thus it is common for entrepreneurs inflate the minute probability of losses wile underestimating the potential gains from market validation and an extended marketing department. You should however look for this behavior and avoid it, especially when it comes to competition.

By helping a competitor it is most likely you are helping yourself. Competitors give you new ideas, challenge your assumptions, and point to shortcomings of your own product. They bring insight into customers, partners and other potential competitors. Helping a competitor far outweighs whatever probability of them crushing you. Embrace them, because they don’t hurt your business — they help it grow and thrive.

[Illustration by Hallie Bateman]