I went to the NYU Poly Innovention Demo Day last night to support my friend Derrick who runs a great event, and to see a bunch of interesting startups present their semester’s work. The judges were all very intelligent and had impressive backgrounds ranging from law to venture capital. The one problem I had with a few of them was this question that came up multiple times:
What’s to stop (bigger company/competitor X) from replicating this?
I hate this question. To be fair, none of the experienced venture capitalists asked this question. Although I understand it is one that should be asked from time to time in very specific circumstances, not every business must be proprietary. One entrepreneur went straight at it and said “nothing” and admitted her product wasn’t proprietary. Another re-iterated that his idea appealed to a larger user base (this was obvious and frankly the question shouldn’t have been asked to this startup).
Years ago I was pitching to an investor who made money by owning restaurants and bars in New York City. He asked me this exact question during the Q&A of part of the pitch. I had an answer prepared, but all I wanted to ask him was “If somebody else can open another restaurant in NYC, then you should have never opened up yours, right?” It was an ironic question coming from someone in arguably the most commoditized industry (food) in the most fragmented market for that industry in the country (NYC).
The problem I have with this question is the person asking it usually comes off as somebody trying to shoot ideas down. I’m an incredibly skeptical investor, and always look for holes in ideas, but not in the sense that “somebody else can do this, so i hate your idea”, and that is what this question boils down to. Everybody has to worry about competitors. Some of the most recent successful startups haven’t had much proprietary about the overarching concept (think: Facebook, Square, Vimeo, etc.) but it was the execution that separated it from their competitors.
There are a lot of variables when investing in companies, and there’s a difference between knowing your competitors, and worrying about somebody trying to do exactly what you do. If anything, the big guy in the space trying to replicate your startup validates your idea (SnapChat). As an investor or entrepreneur, its more important to worry about the quality of the idea and the ability of the team to execute that idea. You can’t control the rest of your market, you can only control your product. So next time somebody tells you there are no stupid questions, think again, because while being proprietary can be important, execution is king.