Risk of Crushing?

One of the great fears of employees and investors at some startups is that they get crushed by an adjacent giant competitor. Yet I’d observe that, in most cases, founders feel that risk less strongly. Why? And who’s right?

Back in the day (late 80s / early 90s), Microsoft were seen as the “fast follower” masters, copying ideas from startups, absorbing the functionality, and rendering the startup irrelevant. It was said that Microsoft executives would brief venture capital investors on what they (Microsoft) were interested in, so that the investors could avoid putting money into any competing venture. It was also said that Microsoft would confront startups with a “sell out cheaply to us, or we’ll copy what you’ve done” Hobson’s choice. Microsoft certainly ran a lot of their corporate strategy with reference to beating competitors – focussing on outplaying Lotus, IBM, Novell, Netscape, Sun and all the rest. It was a remarkably successful approach for a long time; Bill Gates once said, while looking at the exhibits in the Computer History Museum, that the museum might have dedicated itself to preserving the memory of Microsoft competitors for posterity.

Of course, things have changed since the ’90s. The consumer has taken over from corporate I.T. as the driver of the tech industry. The consumer is more diverse, faster to try something new if it sounds exciting, and less conservative than I.T. departments. Cloud-based services with web APIs are easier to mix-and-match than 1990s-era large-scale software packages. And mobile devices place a premium on simplicity, not breadth of features.

Unable to rely on I.T. conservatism to give them a chance to catch up, even the largest tech companies have been pushed more towards organic innovation, Microsoft’s brilliant Kinnect (controllerless gaming) product being a fine recent example.

Even so, the fast-follower strategy is not dead yet. The primary current example is FaceBook. At FaceBook’s foundation, it borrowed liberally from Friendster and MySpace. Later it “borrowed” from Twitter (short posts), Foursquare (FaceBook Places), Quora (FaceBook Questions) – and so on.

The difference now is that these companies have not been “killed” as a result of being followed. Twitter’s course is set fair for an IPO – though its growth was slowed, and FaceBook’s accelerated, by FaceBook’s adoption of many Twitter ideas. Foursquare are powering ahead. FaceBook Questions has not received a fraction of the attention of Quora.

Yes, it is often possible, at a startup, to become very concerned with “Well, what happens if Microsoft/Google/Apple/FaceBook/IBM… does X”, and to imagine all kinds of horrible scenarios. And running scared can be one way to give everyone in a startup the necessary sense of urgency – including any founder who might believe a little too strongly in their own invincibility. But in reality, chasing an innovation is hard, especially once the innovator has become strongly identified with the innovation in question.

This seems consistent with most startup founders’ intuition – more often than not, it is the startup, not the competition, that determines success of failure. Is the product compelling to ordinary users, is the team right, is the quality there, do users love and bond with the user experience, does the financial plan hang together, is the offer communicated succinctly and compellingly? Those are the things that make the difference.

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2 Comments

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2 responses to “Risk of Crushing?

  1. paulsbridges

    Interesting. Maybe a start-up should be more concerned if the obvious big ‘fast followers’ DON’T pay a lot of attention in ones idea!

    • Good point!
      It’s nice if they’re studiously indifferent to begin with, to give you some breathing space, but it might be concerning if they didn’t get the point eventually.