The Startup Copycat Fallacy

What? Another d2c gourmet pet food company? Another full-stack short-termrentals startup? Another affinity-based co-working space?

It seems as though in many categories, especially in consumer internet space, a handful of startups pursuing quite similar or even apparently identical ideas launch within months of each other. What’s going on with these apparent copycat companies? Are the barriers to entry so low and information disseminating so quickly that we’re in a perpetual copycat environment?

Despite the perceived increased perception of this situation, I believe instead that there’s often a Startup Copycat Fallacy. As a seed stage VC, I have a unique privilege of confidentially spending time with a number of entrepreneurs throughout their company formation and initial product development process. And it’s amazed me how many times I’ve seen two or more entirely separate groups of founders — without any knowledge of the other’s activities — independently come to launch very similar products/services.

Yes, information about markets and trends affecting them is near ubiquitous given our media landscape. Smart people with direct authentic knowledge about a space thinking critically tend to be led to the same conclusions about wherein lies the opportunities.

If a large and venture-scale objective market opportunity truly does exists, it would be unusual for it to go entirely missed by everyone with experience in the space. However, not everyone sees it that way — competing entrepreneurs, VCs, and tech journalists others sometimes privately/publicly accuse and dismiss other groups of copycat tactics.

Rather than just a harmless, misplaced attitude, this copycat fallacy can be a detriment to seed stage founders for two reasons. First, this copycat threat leaves entrepreneurs hesitating to share their startup idea and early experiments. Yes, there is certainly risk in this perspective and there is a logical set of reasoning for operating in stealth mode. But I believe the risk of another someone literally copying an entrepreneur’s startup idea is largely overperceived and overweighted.

Generally-speaking, isn’t it better to bang your drum about your idea with better hopes to attract co-founders, employees, advisors, capital, and other important continents to make your company successful? The biggest challenge for most seed stage startups isn’t that the world is going to be paying too much attention to it, it’s that nobody is.

Second, the copycat startup fallacy can simultaneously lead founders to be unfairly dismissive of their competitors. When the competition is merely copying, it’s easy to think that they’re going to be perpetually behind in the race. But in reality what’s launched to date doesn’t truly reveal the startup’s master plan of what’s cooking underneath.

Intelligent people reacting to the same market forces, yet with a different set of previous experiences and perspective, will result in a competitor that might approach go-to-market, the product roadmap, or some other facet of the business differently over time.

Recognizing the startup market fallacy should result in a paradox of being both more open about what your startup is building while simultaneously be even more paranoid of competition.

Of course, there are exceptions to every rule — sometimes a founder has unique perspective given his/her past experiences that allows her to recognize an opportunity in the market which others do not see. And I would highlight a distinction between the essential startup idea and a trade secret or other proprietary information which provides unique competitive differentiation.

However, I typically start with a skeptical stance about first-mover advantage claims as the primary barrier to entry into a competitive set. Sure, network effects provide clear competitive advantages in many markets, but it hardly guarantees success without other differentiation. Defensibility with other aspects of the business model and above all, execution, mean so much more than a few months’ time-to-market.

Entrepreneurs credit where it’s certainly due — very few set out to pursue a true copycat strategy. Almost all are reacting to market dynamics and an authentic (though sometimes incremental) idea.

The question when pursuing a new idea for a business isn’t “has someone else thought of this and how can we prevent that from happening?” but rather “how can we beat someone else who is also thinking of this right now?”