Copy, Localize Then Innovate for Scaling Startups

A large share of emerging market tech unicorns follow similar business models. For example, ecommerce in emerging markets such as Alibaba and Mercado Libre started 5 years after Amazon was founded. Travel sites in the US such as Booking.com and Priceline were founded in 1996–7 followed by global ones like Despegar, C-trip in 1999. 2000–2006 saw a rise in social media, video entertainment businesses. Ride sharing exploded globally from 2009–2012. Food delivery startups popped up from 2004 to 2015.

Copycat models have proven successful despite negative sentiments around “copying.” Companies like Germany’s Rocket Internet even built their business model off scaling copycats globally. And boy did their bets pay off with IPOs and acquisitions such as Jumia, Delivery Hero, Lazada, EasyTaxi, and Talabat.

This leads us to hypothesize: copycating proven and scalable business models have the highest chance for consumer adoption and investment. Despite the data, many early founders are torn on copycating because it seems unethical, and unoriginal. For example, Tencent’s Pony Ma is often blasted for “stealing” ideas from competitors. Others avoid copying because they fear existing incumbents or think consumers are unwilling to switch. However, some of the most successful companies have copycatted their way to success such as VK, Russia’s version of Facebook and WeChat, China’s Facebook. Why does copycatting work?

1. Consumers understand and trust products they’ve used or heard about from friends
2. Investors assume it’s less risky when it’s been successful in other markets
3. Startups can copy proven best practices, avoid competitor mistakes and leapfrog incumbents.

Copy to capture the market

1. Study failed and successful products: innovative products that are killed may be good to copy as long as you execute better and learn from past failures. But caution, they may also be areas to avoid. Products that are copied by multiple companies or have stood the test of time are generally “must have” products waiting for new development.
2. Start from urgent and important user pain points: when Gmail launched in 2004, it came into a crowded email market with the likes of Hotmail, Yahoo, and AOL. Despite the market being dominated by others, Gmail took off by solving a key consumer pain point; when email inboxes hit capacity users had to manually delete emails. Gmail instead offered 1 GB storage so users would run out of space less often.
3. Stay on top of evolving trends: when Facebook saw SnapChat Stories trending amongst younger users they built Stories into Instagram and Facebook. As users become more privacy aware, products with end to end encryption such as Telegram and Whatsapp will be copied.
4. Serve the underserved: when Whatsapp started in 2009, messaging had been around since the early days of the internet. At 2 billion users today, it won against other players because it served the underserved who are at the mercy of low bandwidth and storage and low digital literacy.
5. Take advantage of competitor’s mistakes: Uber’s reputation for mistreating drivers and being an unethical company gave room for Lyft to take market share from Uber.
6. Learn the operations and find optimizations: search for areas of the supply chain with high costs and inefficiencies. Then do it better. Foodpanda in Pakistan outpaced their competitors by offering restaurant owners digitized training on custom built tablets thus cutting customer service and training costs.

Localize to win the market

When you copy, there’s always a fear that one day a global player decides to enter your market and take over. The global player might be bigger, richer and have more advanced technology. Startups also fear that Tencent, Google or Facebook can easily copy and build a product in 6 months and go for your customers. What does your startup do amidst these threats?

1. Delight users with local preferences: when Uber began delivering special items like ice cream, Grab customized their service to South East Asian preferences and delivered durian, which won the hearts of consumers.
2. Meet local users where they’re at: instead of starting with car sharing like Uber, Gojek began with motorbike sharing. This fit Indonesians’ existing preferences in traffic laden Jakarta. Another intentional design was Gojek prioritizing cash and top up payments because most Indonesians were still unbanked. Same goes for India and why Flipkart is still a cash on delivery business.
3. Build and play off habits: build sticky habits with cues, actions, and reward loops. WeChat’s peer to peer payments gained tremendous growth (16 million hongbaos within 24 hours) by playing off cultural habits of gifting “hongbaos” or red envelopes with money during Chinese New Year. WeChat gamified an age old tradition and habitfied peer to peer payments.
4. Localize maps: many online transactions and ride sharing still require physical addresses. Local startups can fend off global competitors by accessing or building locally reliable maps and location infrastructure. Location inaccuracy is an operational headache. Ride sharing companies like Snap in Iran built their own maps because sanctions meant relying on Google Maps was risky. In Pakistan, motorbike sharing startup Bykea combined location data from a local Pakistani mapping company with Google maps. This helped them increase accuracy and lower dependency on Google Maps in case prices rise.
5. Sustain longer with local resources: local startups can operate cheaper than global competitors. While Uber was preparing for an IPO, it was forced to exit unprofitable markets such as India, giving local companies like Ola back its market share.
6. Make switching costs high: create friction in moving to a competitor’s product. US airlines give loyalty points every time users buy tickets. These loyalty points in your account may make it harder for users to leave. Leverage network effects; people stay where their friends are so create a friends and sharing component. You can also make it hard to transfer stored items such as virtual goods, photos, conversations, documents etc.
7. Compete on quality and local brand, not price: some people are willing to spend more for noticeable reliability and certainty. People can also be brand sticky. When the China-US trade war happened in 2019, Chinese locals favored Huawei products due to nationalistic “ai guo” sentiments.

Innovate to keep the market
Once your startup has built traction by acquiring users and driving engagement, you’ll have assets such as behavioral data, customer relationships, habit stickiness, and brand recognition. Tying these assets with key technologies such as AI and location infra can help you outpace global competitors. The permutations from combining assets, technologies, and business models is what powers innovation. How do you innovate?

1. Extend your business model to service similar verticals: Uber went from ride sharing to food delivery by using its fleet of existing drivers. Go-jek extended their motorbike sharing service to become a super app for cleaning, beauty and massage, food, grocery and parcel delivery, car fixing, pharmaceutical services. Kenya’s mobile payments hit almost 50% penetration rate, opening up new loan offering products such as Fuliza.
2. Build customized offerings: with more user data, you’re able to create custom experiences for segments or individual users. TikTok and Bytedance products are infamously sticky because they use AI to serve customized content. The more content delivered and feedback given, the better the company can service preferences.
3. Explore new technologies: China and other markets where drones are less regulated for commercial to consumer use have a leg up over the US, where regulations play a limiting factor.