Wednesday, May 30, 2012

Innovation to an Existing Business Can Limit Risk

If you are an entrepreneur starting a business for the first time, I recommend that you find a product concept that is already accepted and improve on it, rather than tackling that ultimate disruptive technology. Notice that I’m not suggesting that you steal someone else’s idea, but simply limit your risk by adding innovation to a proven entity.

Evidence of success using this approach is all around us. Look how the Japanese entered the auto industry, or how McDonalds imitated White Castle, or how Wal-Mart “perfected” the low-price high-volume approach. Once you have experience in running a successful startup this way, you may decide that the disruptive technology of your dreams was a bad idea in the first place.

It seems to me that in the startup world, imitation gets a bad rap. People tend to look down on “me too” entrants as inferior, or forced to copy because they have nothing original to offer. I can see many advantages to the imitation with innovation approach, beyond just limiting the risk to changing just one variable rather than many:

  • Avoid initial major R&D cost. Statistically, the costs to the first inventor of a new technology are at least a third higher than to follow-on innovators in the same technology. Of course, the first one gets the patent. But patent disclosure requirements often make imitation easier, and smart technologists can work around most patents anyway.
  • Learn from competitors and early adopters. Market research is more meaningful if there is already a market and real customers. Don’t just copy successful formats and strategies, but learn from what has worked and not worked for your competitors. Hopefully, you can skip some of the costly pivots made by them.
  • Easier to find investors. Even banks, as well as equity investors, look more favorably on a proven business model than a new and unproven one. This is probably why banks will often support a franchise purchase for up to 70%, while they rarely if ever support any investment in startups.

  • Imitation drives progress. If a product or process has already proven its value, more people working on it, determined to be more competitive, will find more and quicker ways to improve the base than if one company maintains a monopoly. Good imitators often disrupt the original innovator.
  • Try a new country or market. Good imitators actively look for a new country or market as the innovation, rather than a new technology. Even though the world is getting smaller and smaller, very few startups can yet afford to patent or even sell their product in all the relevant countries at once. If that’s your home country, jump in first.

Of course, you still have to do your homework and market research. Just because something works in Silicon Valley, doesn’t mean it will work in Peoria. Also, imitations done without the normal operational discipline and strategic planning will fail, just like any other poorly run startup. Don’t assume imitation is reserved for children, animals, and dummies.

Just like apes learned the value of imitation to survive in an ancient hostile jungle, entrepreneurs need to learn the same value in the new business jungle. Fifty years ago, Harvard economist Theodore Levitt observed that the same companies that were serious about innovation often approached imitation in a much more casual manner. That mindset is still too prevalent today.

Thus, the place to start for new entrepreneurs is to look for a successful business (not a failing business) in your domain and think about how you could do it better. Your innovation may be simply a better location, better service, or a better price, or it could be a technology innovation. At minimum, it can give you the money and experience to take your dream step later with less risk. In fact, your imitation with innovation may BE the “next big thing.”

Marty Zwilling


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1 comment:

  1. I agree with you that its important to done our research and homework while giving it a go, thanks for this fabulous informative post.

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