Karl Marx, during his lifetime, sought to unearth the profound contradictions that he suspected to be what accelerated the capitalist system, but would also lead to its demise. In a capitalist market, governed by the forces of demand and supply, sellers are constantly searching for new technologies and business systems to increase productivity, while reducing the cost of production. As globalization and competition get heightened, entrepreneurs have been forced to introduce more efficient technologies, accelerating productivity to the zenith, where the marginal cost of production approaches zero.
Over the past decades, millions of consumers, have become prosumers, producing, distributing and sharing music, video, information, news, knowledge at near-zero marginal cost and nearly free. Internet technology is driving this momentum, liberalizing information and democratizing knowledge, making it accessible to everyone. Think of our lives today, we live in a network of information convergence. We share information in real time and at the end, we all possess almost the same information.
With the role social media plays in today’s interactivity, someone stealing your idea is approximately the most insignificant challenge you should worry yourself about, as you seek to build a viable business. According to Eric Ries, author of The Lean Startup “Only 5 percent of entrepreneurship is the big idea, the business model, the whiteboard strategizing, and the splitting up of the spoils. The other 95 percent is the gritty work that is measured by innovation accounting: product prioritization decisions, deciding which customers to target or listen to, and having the courage to subject a grand vision to constant testing and feedback”
When you have a great business idea, it becomes difficult to share it with others without worrying about someone implementing it for himself. For a business idea, where you need more resources beyond your capacity, to fully implement it, then you must be able to safeguard your ideas, without being disquieted about losing them.
Steve Blank, a Silicon Valley entrepreneur-turned-professor, recounted a horrible experience, when his idea was stolen. Blank, had made a presentation of a marketing automation system to a Vice President of Marketing at a company in Silicon Valley. After 9 months of ignored phone calls from the initially enthusiastic VP, a partner pointed out that Blank’s PowerPoint slides has been stolen by the same person. The VP had become CEO of a competing company and was presenting the idea as his own.
While the awful stories are genuine cause of concern, the crippling fear of sharing your ideas can be far more dangerous. Fear itself is a much bigger danger than the possibility of theft. Don’t treat everyone you meet as a potential idea thief. You just have to be cautious about who you share your ideas with. Some traditional suggestions, you must have heard of, to safeguard your ideas include:
- Creating a confidentiality/ Non-disclosure agreement for people who work on a sensitive part of the project
- Applying for a patent, copyright or trademark, as the case may be.
While these sound good, they can also pose significant threats to your ideas. Signing a Non-disclosure agreement form with someone, before sharing your ideas with them, can create an intermediate barrier to the flow and sharing of knowledge between the two parties. It can result in loss of interest, trust and enthusiasm, from your team players.
On a strategic level, all legal protection in the world isn’t going to be useful, if your idea is easy to reverse engineer. The truth is that, almost anything can be reverse engineered, so the focus is not on ideas that can’t be copied, but the ideas that are difficult to copy. Legal documents have their strengths and weaknesses. They do not offer a complete solution to idea theft, and they won’t help unoriginal ideas to become successful. First mover advantage, only exists, if it takes time for your competitors to catch up.
Good Execution cannot be copied
An idea remains an idea. Even when you have successfully prevented your ideas from being stolen, immediately you launch your products, and you begin to gain few tractions, in no time, competitors will show up, attempting to offer a better value proposition. And if you do not have sufficient resources to withstand the heat coming from competitors, you’ll chicken out in a few months.
In today’s age, being the first may not be an advantage. You must be able to build a product/ service offering that your customers will cherish. Redirecting your energy from drafting NDAs, filing patents, to building, testing and iterating your products, can be far more profitable. If you execute well, your business will not only grow, it will also be hard to copy your success. Loyalty is very difficult to copy. “Loyalty is when your employees or customers are ready to suffer some inconveniences to continue working with you or doing business with you. You have been able to make them believe in a higher cause and have simply inspired loyalty in your customers and employees.”
Branding, and positioning takes time, but once it’s built, it becomes difficult to copy. For instance, while still building and iterating your product, you can also spend some time publishing blog posts, and creating initial demand for the product you are building. When you get people excited about your product, competitors find it difficult to snatch them. Not just your customers, get your employees excited. Offer them a profit-share or some kinds of benefits that will make them resist poaching from competitors.
Employ Network Effects
The quick growth of internet evolution has been driven partly by the powerful influence of network effect. The benefit of a network effect is that the value of a network grows with each new participant. It creates disproportionate benefits for leaders who consolidate what become a winner-take-all market. Metcalfe’s Law states that the value of a network is proportional to the square of the number of connected users on the system (n^2). Although some have argued that Metcalfe’s law should be re-defined, to show that the value of network follows a n x log (n) curve, where n is the number of users. In both cases, one thing is certain, there is a quick deviation from a linear regression model.
For instance, as the density of drivers and riders increases, Uber’s market gains value. And as the value increases, the users benefit more from the platform. Similarly, when a lot of people started connecting on Facebook, it became the most popular way to connect with your entire network, increasing its user base, utility and value
Before the internet age, the power of network effects was limited. Most businesses that exhibit network effects did not have a downward sloping variable cost. Take a restaurant for example, once the restaurant is built, the variable costs of adding extra tables are low. But when the restaurant gets to its maximum capacity, to add a new table requires building a restaurant in a new location. The challenge now is that the new location, might not benefit from the excess demand of the first, as a result of changes in the geographies and demographics.
The internet has altered the basic economics of business, by drastically reducing variable cost. And low variable costs mean that the profit potential of viral growth through network externalities is exponential. Building network effects into your products will increase traction and retention, making it harder for your product to be copied. Once you can attract enough early adopters to raise the value of your product, beyond the critical mass point, (a point where the product value becomes greater than its cost), then you can start leveraging network effects.
The internet age has significantly reduced barriers to knowledge. The idea you are guarding jealously could be what someone else has been developing for several months and about to launch. When you start executing your idea, you will discover that you need far more than the initial brilliant idea to scale through. Break down your ideas into components. Share those worth sharing, and keep the rest to yourself. Run background checks on people, before sharing your ideas with them. Most importantly, take a bold step to execute your idea. If your idea is not stolen, your product (if it gains traction), will be copied, or at best reverse-engineered. Nonetheless, a good execution is difficult to copy and the network effects, you create, is hard to duplicate.