November 27, 2012 5:33 pm

A copycat is not second best in business

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It is the execution that matters, not the idea

True entrepreneurs are supposed to shun imitation and try to be authentic and original. I’m not convinced this strategy generally makes commercial sense. Indeed, the merits of being a copycat are underrated.

After all, every business idea is derived from something that preceded it – what lawyers call prior art. The level of replication in any so-called new product or service is simply a matter of degree. Unless you specifically infringe a patent, design, trademark or copyright, or are very blatantly passing off your goods as if they were a rival’s, you can profitably rip off an idea.

As ever, it is execution that matters, not the idea. At PizzaExpress, a competitor called Pizzaland opened a branch with a similar appearance and menu to ours. We sued and lost the legal action – but won the war. Pizzaland was a poor experience, and in due course the brand disappeared – while PizzaExpress has doubled in size since.

It can be much quicker, cheaper and lower-risk to mimic than to start something from scratch. Unfortunately, many founders suffer from an acute case of “not invented here” syndrome, and fall in love with their particular concept. You need an ego to be an entrepreneur, but also be humble enough to know when a legal version of someone else’s model is better than anything you can devise.

Arguably, the entire own-label phenomenon is a huge example of copycat behaviour. Food companies produce new groceries, and supermarkets copy them and market them at lower prices. Perhaps this undermines research and development spending – but it also obliges suppliers to invest in making their offerings as distinctive and good value as possible. And ultimately it is right that in a free enterprise system, you cannot allow anyone who comes up with an obvious idea to enjoy a legally protected monopoly.

The digital marketplace is swamped by clones. Among the most successful in the field are Alexander, Oliver and Marc Samwer, three brothers in Germany who have built copies of eBay, Zappos, Groupon and Airbnb across various European countries before the Americans arrived. Their form of ruthless innovation has been exceedingly effective: they are reckoned to be billionaires. The brothers run a clone “factory” called Rocket which incubates dozens of internet start-ups – many of which take their business plans from Silicon Valley. They have learnt to scale rapidly, and tailor online companies to European tastes and cultures – which is why they have done so well.

I would generally prefer to back a replica of a highly profitable and thoroughly tested business – but in a new territory – than invest in a genuinely pioneering idea. The latter sounds much more exciting, but it probably won’t work: the former has a much better chance of making it.

Creativity is often exaggerated as a vital skill that every entrepreneur should possess. In fact, a sense of opportunism and an ability to carry out tasks effectively are at least as important. Advances progress incrementally, not by giant leaps. And both types of venture help create jobs and wealth.

Oded Shenkar, a professor at the Fisher College of Business at the Ohio State University, is the intellectual of the phenomenon, and author of Copycats: How Smart Companies Use Imitation to Gain a Competitive Edge. He argues that just copying a market leader in every respect isn’t clever: instead, do what they do only better, cheaper and with a different spin. And get a move on – the originator is unlikely to simply sit back and watch you steal their market.

It can make sense to let a pioneer go first and then follow as a fast second before they have established a monopoly.

Quite often the imitator’s technology can be more refined and entirely legal. A first mover advantage is all very well, but copycats can learn from a first mover’s mistakes and capitalise on the fact that consumers like choice. They benefit from the fact that a market is known to exist for their product – although they clearly face entrenched competition.

In every city I visit, I look for novel restaurant formats. I would never bring them to Britain by signing a licence, franchise or joint venture. I would simply copy the best elements and do it my way. That’s capitalism, I guess.

lukej@riskcapitalpartners.co.uk

The writer runs Risk Capital Partners, a private equity firm, and is chairman of StartUp Britain

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