Design as a Differentiator is Dead

Long Live the Business Model!!!

Originally posted February 2016

When Eric Ries published The Lean Startup in 2011 to broad acclaim in the startup and venture industry, it brought with it higher expectations for all startups around customer and business model development. But even as appreciation of the importance of a sustainable business model increases, a shocking number of startups rely on outdated notions of sustainable differentiation, like design, to win. Beautiful design in the app space is no longer unique, but in fact has become table stakes for all apps, and is no substitute for a sustainable business model. No startup better embodies this tension than Path.

When Path launched back in 2010, it was the elegant anti-Facebook. Designed to be a “More Personal Social Network”, founder Dave Morin (who had helped build Facebook Connect and Facebook Platform) limited users on Path to 50 friends (later 150).

But for those of us that used Path, it wasn’t about the friend limit. It was… GORGEOUS. Unlike Facebook at the time, Path was meant to be mobile-first and it was so beautifully designed compared to Facebook that it almost didn’t matter if you had the same 50 friends on both Facebook and Path, because Path was mesmerizing. The most addictive element was the menu button that when clicked would cascade 5 animated options out. At the time, this was revolutionary, beyond sticky and almost single-handedly helped Path climb the app store charts:

Clickable crack from the Path menu. Revolutionary then — table stakes now.

For its first few years, Path and its beautiful design was winning (it raised a $2.5M seed round in November 2010, another $8.5M in Feb 2011 and $30M at a $250M valuation in April 2012), but it’s core competitive advantage (design) was not sustainable. Soon, Facebook began to catch up and implement similar design features. Furthermore, other apps in different spaces mimicked Path’s menu and other features hoping to capture the same success.

Path learned the hard way that design as a competitive advantage is dead. While design can be quickly emulated, emulating a sustainable business model is far more difficult.

By pinning its hopes on elegant design (Path did not allow ads on the platform to maintain that experience), instead of a viable business model (it ultimately tried to emulate Asian messaging apps by selling stickers), Path ended up sinking its own ship. After trying to raise multiple rounds of funding (and completing a $25M series C, rumored to be a down round) Path was sold to Daum Kakao (Kakao, for what it’s worth, is a messenger with an incredibly dynamic business model) for what was rumored to be less than $50M.

Path was not alone in trying to differentiate through design: look at each niche and you’ll find a design leader that was quickly emulated by competitors. Are there many news apps anymore that don’t take elements from Flipboard’s design? When Twitter launched its cards platform (not the first, but one of the first), was there a single messaging or social app that didn’t follow suit immediately?

But Path fell into the trap that too many new startups fall into by believing that differentiated design would be a sustainable competitive advantage that precluded the need for a sustainable business model.

Although the approaches to developing a sustainable business model learned in Steve Blank’s Lean Launchpad class and Eric Ries’ The Lean Startup are now Silicon Valley gospel, how many founders still think they can out-design their way to sustainable success? Judging by the daily Product Hunt listings, it seems like too many startups are still taking the elegantly designed path to startup failure.

Gary Coover is a tech and startup business model junkie who honed his snark through years of strategy/BD work, co-founding a startup, and a few years in Korea and the Bay Area working for Samsung. Gary currently runs Global Operations for the Samsung Accelerator, helping architect, launch and scale the Accelerator and its startups in New York, San Francisco and Tel Aviv. His opinions are his own, as are his tweets, which are occasionally above average.

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