Dear Startups, Only Monopolies Win
Quick word of advice on business strategy for your startup.
For any given point problem, at a given point in time/technology, there can only be one optimal way to solve the problem. For some problems, optimal solutions are achieved through relatively easy means, and in other cases, not so. Some examples of easy optimal solutions:
- A good location (for stores/restaurants/delivery businesses)
- Low-cost workers (for manufacturing/BPOs etc.)
- Aggregation of existing information or APIs (Think price comparison sites etc.)
The reality is - these can be replicated relatively easily by a competitor. However, if optimality is achieved through a more complex play, is usually difficult to replicate:
- Complex algorithms or patented technology
- Network effects (or stickiness/resistance to switch on a very large user base)
- Brand Impact
Let me provide some examples -
Algorithms/Tech + Network Effects: Google Search, Uber (Pool), WhatsApp
Stickiness + Network Effects: Facebook
These companies would be worth less (or worthless, in some cases) if their solutions could be replicated easily. Watch Uber closely: Uber's technology advantage is minimal, but network effects have kicked in to fortify the technology.
If you're solving a point problem, and you aren't a monopoly through a 'complex' method, be assured: tens of companies out there will replicate your solution, drag margins down, and devalue your business rapidly.
The idea, as always, is to be brutally honest about your technology and other capabilities, and not fall for the founder delusion (Secret: Data).
P.S 1: Some business leaders believe that Network Effects are what constitute the most defensible monopoly.
P.S 2: "Status quo mentality" in a user base is a big one, in B2B
P.S 3: Part of this thinking is from Peter Thiel. I see proof of it everywhere.