Why clones fail (or simply can’t win)
Leaders, followers and how countries like Greece will thrive
The recent news that bring Rocket Internet, a well-known & super aggressive startup launch platform into trouble got me thinking. They have a proven track record (its Founders have also their pre-Rocket successes from the Web 1.0 era), access to huge amounts of funding and experienced professionals.
The Rocket Internet model is simple. They copy (or clone, depending on how harsh you want to be with them) business models of successful US-based companies and they are launching these products in other parts of the world, before the “original” companies arrive in these markets. Much like any other startup and/or scaleup business, their companies remain private. Typically, you can tell when a private company is not doing well. They are laying off staff, they are raising “bridge rounds”, new product releases are delayed, senior management is departing etc. Also, typically, VCs are a bit secretive when it comes to portfolio performance. Even though rumor has it that many European VC firms are not doing so well because their portfolio is not doing so well, you can’t really tell. But Rocket is different from a typical Venture Capital Firm. It’s not a VC fund per se, although they operate a VC-like vehicle under the Rocket umbrella, and it is publicly listed on the Frankfurt Stock Exchange. Bloomberg’s latest chart on Rocket shows that the company has lost half its value since 2014. Rocket lost this value because, obviously, something is not going as planned.
So what’s happening? Is their model broken? Are clones over? Why are we still trying to create “the next Facebook”? What separates leaders from followers in innovation? Original ideas and clones? What is the role of a smaller country like Greece in the global startup economy?
We all know that Google was not the first search engine, Facebook was not the first social network and the list goes on. Both companies, however, significantly improved the user experience/quality-of-product/overall value proposition/you name it in the market they were competing. They didn’t just replicate a model or a service, they went one step beyond their competition.
Creating is different from executing.
A limited frame
The process of creation required more failures, sweat and tears. A common mistake many entrepreneurs make is that they understand the product creation process as a fixed and well-defined framework. “We want to create a platform/service to enable people … we will need these features to start. I have everything on paper. We will be testing the product in the market in just 3 months.”
Followers often limit themselves by executing other people’s plans, strategies and vision. Nonlinear product development requires problem solving, market clarity and the ability to survive. Whatever it takes.
People (people people)
We all have motives. Some people like money, for others its fame. Whatever keeps you up at night, or wakes you up early in the morning, this is your main motivation. Because entrepreneurship is a roller coster situation, with lots of downs and a few ups, it is widely -and wisely- stated that money shouldn’t be your main goal. It is the result when you perform well, not your main motivation. When you start second or third, 6+ months or even years after your original competition, obviously you are in -primarily- for the money. You see an opportunity, because someone else saw this opportunity one year ago and started. This, by design, gives you limited durability when things don’t go as expected.
This is not new. More traditional industries face similar phenomena. Remember this new doner kebab place that opened next to your place? And then, do you remember when your neighborhood was full of these places, just a few months later? Jac de Haan makes on TED-Ed a pretty convincing argument on why this is happening. All these food places serve a similar product, so competition is more aggressive, competitors are lowering their prices to stay in the market, consumers are the ultimate beneficiaries etc etc. The growth of the local doner market is driven by the success of the first doner place, and the money it generated/es. By experience, not data, the last doner place that will close is the original doner place that started in your neighborgood. It’s not just a matter of luck, it’s also durability.
That’s why, I guess, in tech its so trendy to talk about the defensibility of a product. It is important to stay ahead of your competition long enough, even if you start first and others copy you, until you have a happy ending.
Bring something new
I live in a small country (Greece) where genuine innovation is limited. I’m not arguing its nonexistent, yet it’s limited by numbers and depth. Trying to replicate successful business models from other, more mature countries and markets, won’t save the day for us. It might prove a good case for some entrepreneurs who will act fast, innovate *somehow* and sell, but it won’t change the status quo of the local entrepreneurial culture dramatically. There are two key reasons for this.
First, local businesses make local successes. Not just in terms of wealth or profit for the team, but also in terms of reputation and branding for the country. Estonia is the country that made Skype. Nobody really cares if the two founders were not Estonians. Skype was an amazing success not just for the Baltic region, it was and still is a major European success & pride. Many early Skype employees became Millionaires. Some of them started other global pioneering businesses after their Skype experience. These people were branded as “ex Skype employee NoX”. That was powerful.
Secondary, clones will stick in the country they are originated. It will be difficult for the Croatian clone of Uber (I assume there is one) to enter the Greek market, or Romania. By the time they will be ready to focus on expansion, Uber will be entering Croatia, Greece and Romania simultaneously. And then, they will have to compete with the local players, and the local clones.
Geography & Relevance
A product or service that works in the US market might not work elsewhere and vice versa. It’s a matter of relevance. In a recent conversation I heard about a Ukranian startup company that uses the accelerometer of your smartphone to monitor the quality of the road for professional truck drivers. It then analyzes the data and suggests routes based on the quality of road and cost of travel, instead of just distance and traffic. This is a life savior if you are in a country where the road system is not as advertised. In Germany, they have the Autobahn. That’s the first page of Google Images when you search “roads in Germany”, and that when you do the same for “roads in Ukraine”. I don’t judge the results, just making a point.
Different countries, cultures, habits, needs and logic. Greece, on the other hand, is a country where global food brands such as McDonald’s and KFC are under performing, as Greeks like souvlaki, not BigMac. Greek food chains and small souvlaki places understand the local dynamics better. They have more limited resources, but they understand the market and they provide products that are more relevant. We were promised to have Burger King soon, let’s see.
What is your Country’s USP?
Instead of trying to replicate other people’s successes or dreams, we need to focus on facts, figures, global trends & local specifics that position a country, city or area in a unique position for the global economy and use technology as the catalyst of real value creation. Greece has a thriving shipping industry, yet really few innovative maritime startups. Same goes for the travel-tech industry. Its more logical to compete against Portugal or South Korea on maritime innovation, and not the United States on social networks.
How about creating businesses that will use a small country, and a smaller market as a launchpad, where all initial business assumptions will be tested and validated, before going global? Close your ears, the next Facebook won’t be anything like Facebook.
Note: The above text is not attempting any generalization or oversimplification of the product creation process. Exceptions are applicable in various markets, businesses & countries.
/ You like this article? Then hit the 💙 and even share it! Cheers :) /
— — —
Dimitris is a Co-Founder & Partner at Found.ation, an Athens-Greece based startup accelerator & corporate innovation platform. He also serves as the Founder and Curator of TEDxAthens, one of the oldest and largest TEDx events worldwide. [more]
