When You Can’t Innovate, Copy

May 26, 2012 Editor 0

He explained that Nigeria should not be pushing for innovative startups, but should instead be looking for ways to incubate copycat companies. He called it the Chinese method and said that Africa should follow it because it works.

From HBR

Nothing breeds copycats like a successful business venture. When a new business idea is incubated and executed successfully, cloners naturally emerge and imitate. To mitigate the investing risks associated with eroding market opportunities due to copycats, investors always look for companies with strong competitive resilience or those that are operating in markets with a high barrier to entry. In traditional investing philosophy, the most innovative firms are potentially the most profitable. So, from business books to business schools and corporate boards, everyone is talking about innovation. But, copying others is a reality of doing business. In African open markets, women will switch from selling bananas to selling yams once they notice that their neighbors are making more profits from yams. Even in developed markets like Western Europe and the U.S., companies copy — though with enough sophistication to avoid legal problems. Despite all the branding differences, Apple iCloud, Microsoft SkyDrive, Google Cloud Storage, and Dropbox are imitating one another. And who can argue that smartphone manufacturers aren’t copying each other?

Yet, the focus on entrepreneurship training and startup intervention programs has centered on innovation. Few people ask entrepreneurs to go out there and copy others. While innovation funds are common, it’s rare to read of imitation funds. Innovation has become a buzzword that connotes respect and profitability. It is seen as the fulcrum that will propel a business to success. So, firms are encouraged to invest in R&D to outflank competitors with potentially better products that could win markets and generate better margins. The push to the top of the innovation index means that some companies will try to avoid what others have done — even when others are yielding better results.

Personally, that has always been my way of looking at business — innovate or perish. And I have also supported the notion that innovation is central to economic prosperity. But I experienced a different perspective in Abuja, Nigeria, two months ago when I visited to keynote a tech conference.

A venture capitalist there was essentially running an imitation fund. He invited me to help evaluate potential ideas for investment. Naturally, I was looking for something new, not just in the African context, but globally. I made my recommendations, but the investor rejected all of them. He ranked my selections low and explained that he was out to make money and was therefore looking for companies that could copy successful global companies and tailor them for West African markets. It was immaterial whether the ideas were copied or not, provided that the process was lawful.

He explained that Nigeria should not be pushing for innovative startups, but should instead be looking for ways to incubate copycat companies. He called it the Chinese method and said that Africa should follow it because it works.

I can understand companies copying ideas and adapting them for specific markets. But the story of these three German bothers, Marc, Alexander and Oliver Samwer, who’ve made their fortune building copycat companies, challenges that thinking. These brothers are among Europe’s most consistently-successful internet entrepreneurs. They are rich and the company is estimated to be worth at least a billion dollars. They have copied top web companies from Pinterest to Groupon and eBay to Airbnb, and have invested in Facebook, LinkedIn and Zynga. Rocket Internet, their incubator, is a dominant force in Europe. They believe that, if you cannot create new ideas, you can legally copy them, as Oliver said in a recent interview: “Just as we might have a very good gift of execution, others have a unique gift for the purest form of innovation.” But, most times, the only difference they bring to the table is the name of the product — the color, the text, the photos — and everything else remains the same.

Imitating others may not offer the best path to becoming an industry leader. And it’s not without risk. For instance, pioneers can command strong market loyalty that could be difficult for copycats to overcome. Still, startups need to understand that even big companies copy. Would Apple have created the iPhone if there was no BlackBerry? Entrepreneurs need to think about whether they need to innovate when there are business models that can be copied lawfully. The Samwer brothers have certainly shown that in the absence of innovation, copying and funding already-tested business models can work.

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Categories: Innovation