The art – and science – of copying other startups

By Justin Hall April 10, 2015

Shamelessly, unapologetically, audaciously copy … but do it right
Remember: Some business models will work here, some won’t

The art – and science – of copying other startups COPYING – or as practitioners might call it, ‘flattering emulation’ – get a bad rap. In many instances, that disapproval is glaringly deserved; I’ve come across more than a handful of companies that went well beyond casual adoption of best practices to outright mimicry, down to the copy and colour scheme.

But those are stories best left over a couple of beers and not a respectable publication like Digital News Asia.

However, what about copying validated business models in other markets and importing them into South-East Asia?

To those entrepreneurs looking to copy Urban Compass, FreshDirect, and Amazon, I can only say: Shamelessly, unapologetically, audaciously copy … but do it right.

Note the emphasis on ‘right.’ Copy, but do it right. By that, I don’t mean simply avoiding the kind of egregious aping that brings all sorts of embarrassing claims to light (really now, there are literally millions of different colour schemes to choose from; don’t be lazy).

By copying, I mean: Make sure you understand what you’re copying, and more importantly, whether it will work here.

Because chances are it won’t.

Some business models will work here, some business models won’t. This might seem obvious, but as is often the case in venture capital, people tend not see the forest for the trees and often mistake large funding rounds and mainstream media hype as indications of success.

The art – and science – of copying other startups There’s real danger in emulating those fast-growth, sexy startups. On paper, it seems to make sense: Validated business model, numerous funding rounds, clear execution strategy and revenue streams.

If it could work in mature markets like the United States, surely it could work in wealthy Singapore? If it could work in a fragmented region like Europe, surely scaling across South-East Asia would be similar?

What this mode of thinking fails to account for is that either the value simply doesn’t make as much sense here, and its enabling factors are not as mature – or, more likely, simply do not yet exist in South-East Asia.

When you consider that, then the vast majority of startups that work reasonably well – even wildly successful ones – are doomed to failure in the region.

Copy, but do it right. And by right, I mean smart. Before you jump headfirst into that subscription-box company or that iBeacon technology, take the time to critically review whether or not that might be the best idea here.

Does the idea fit a fundamental need or pain? And is that need or pain unique or universal? If you can answer yes, by all means, go ahead. If you can’t, then there’s most likely a reason why other founders haven’t gone that route, or why funding doesn’t seem to be chasing that industry.

There are some prominent examples of what you shouldn’t blindly copy. The biggest offenders are companies that are hyperlocal from the start; think content sites and local service providers.

Sure, Yelp and Foursquare are gigantic companies, but the United States’ massive, homogenous market doesn’t exist here; it’s far more fragmented, and as a consequence, the results of one country are not going to be relevant for users in another.

Entrepreneurs will need to scale rapidly across the region to be as large as those two examples, and that invites its own set of significant problems and obstacles.

Payroll and accounting can be great SaaS (Software-as-a-Service) businesses, but the uniform labour market in the States means that one set of rules can account for its byzantine laws and regulations. In South-East Asia, payroll and accounting in Indonesia, for example, simply doesn’t translate to Malaysia or Vietnam.

Companies that depend on the widespread adoption of enabling technology are also difficult propositions. Mobile phones none withstanding, startups dependent on the exchange of cryptocurrencies, web-based platforms, and expensive (even inexpensive, i.e. iBeacon) hardware are fighting an uphill battle.

Finally, there are startups that simply fail to account for cultural or societal conditions on the ground. Publicly available dating profiles in the United States might seem entirely mainstream now, but in certain South-East Asian countries, it’s still taboo.

And there’s a reason why infidelity website Ashley Madison crashed and burned before it even got off the ground.

By the same token, there are models that can and should be emulated – and we’re already starting to see activity in these spaces all across South-East Asia.

Payments are a tremendous problem: Collecting money, sending it to other businesses or individuals, and doing it a fast, reliable and safe way simply doesn’t quite exist here in the same way as in the States.

Marketplaces are technically simply and yet provide incredible value and benefits to all its participants. Look at OLX, Carousell, and Tokopedia: Huge, successful, and barely scratching the surface of the potential of this particular model, especially in industries with entrenched incumbents.

End-to-end e-ommerce is one particularly interesting model that is likely going to see significant traction in the region.

With the success of companies like Zappos and Warby Parker, the unique characteristics of South-East Asia – read: awful infrastructure and logistics – are likely to foster the creation of companies that not only manufacture and sell their own products, but control the warehousing and delivery process as well.

There’s something to be said for this kind of emulation. Some of the most successful companies in South-East Asia, some of its most successful entrepreneurs, first started by copying Groupon and eventually getting acquired by that parent company when they expanded into the region.

I expect there will be many more benign copycats in the future, and if and when they start coming out of the woodwork, keep an eye on them: Most of them will likely fail, but a small, very select number will go on to great, big companies and exits.

Justin Hall is a principal at Golden Gate Ventures, an early-stage fund based in Singapore. A former Rakuten Network manager and scholar at NUS, he sources investable early-stage technology companies from South-East Asia. You can reach him via Twitter at @JVinnyHall.