(Editor’s note: David Goldenberg is co-founder of PigSpigot.com, a user-generated greeting card site. He submitted this column to VentureBeat.)
It’s often the first question a potential investor asks a startup, but it’s a bad one. Besides being unrealistic and confusing for most companies, attempting to create a protectable advantage stifles creativity, hurts communication and generally diminishes an entrepreneur’s prospects for success.
Here’s what investors mean when they ask for your protectable edge in the market: They want to know if you have any patents or secret algorithms that your competitors can’t touch. It makes sense for them to ask: They want to minimize as much risk as possible, and having an effective monopoly on technology is a great start.
But it’s also stupidly unrealistic. Entrepreneurs can hem and haw about their IP, but the reality for the vast majority of online companies out there is that an elite team of coders can reverse engineer and rebuild their sites in a couple of weeks without too much trouble.
So what does that mean for an entrepreneur with a good – but not patentable – idea? For many of us, the first inclination is to hide it in a refinery deep underground until the entire company has been pieced together and polished. Every interaction with a potential partner comes thick with NDAs and secrecy. And if there’s any worry that someone we’re talking to might spill the beans, we cancel the meeting or hold back information.
The goal, of course, is to stop other people from stealing our million-dollar ideas. But here’s the rub: For most of us, there’s no such thing as a valuable idea until it has been executed. And executing it means exposing it to the world.
It’s not like you’re going to keep your business a secret forever, after all. Almost all Internet businesses rely on exposure to be successful, and with lots of customers come lots of competitors.
Secrecy is not a protectable advantage. A head start is not a protectable advantage. There are a few reasons to think about things on your own at first – there’s a too-many-cooks maxim that sums it up well – but protecting your idea from the harsh light of day isn’t one of them.
So you probably don’t have a protectable advantage – and you can’t manufacture one using a cloak of secrecy. But all is not lost when it comes to your IP. Here are two heartening pieces of information to consider.
There are very few people who want to be in the business of copying you – Even if you’ve got a great idea, it takes tons of time and talent to turn it into something worthwhile. There aren’t many people out there who are both evil enough to swipe your idea and driven enough to turn into something better than you could.
Sure there are some. If you’ve come up with a cool idea that a larger company knows could be beneficial to them, then it may decide that it’s easier to copy the idea than to partner with or buy your company. But you’re going to be on their radar no matter what, so you might as well open the lines of communication with them early on. (Hell, it might even make them feel bad about ripping you off down the road.)
There’s likely plenty of space in your field for competition – It’s not like our company, PigSpigot.com, is the only site in the world where someone can find a greeting card online, personalize it, and have it sent by mail to friends and family. The greeting card business is a $10 billion industry, and lots of players are trying to get in on the next logical step in its evolution. Sure, we’re proud of our specific tech development, but we know we don’t need to be the only company doing what we’re doing in order to be successful.
So what should you tell potential investors who want to know what your company’s protectable edge is? Ask them what Facebook’s protectable edge is. Or Twitter’s. Or any of the myriad other startups that are successful not because they’re the only ones doing something but because they do it better than everyone else does.
Actually, that’s kind of a jerk-y thing to say to people who are thinking about giving you money. Instead, tell them that your protectable advantage is a group of smart, motivated founders willing to work for not much more than equity. Plus, if they invest in you, you’ll have something most startups never have: Cash. And that’s definitely a protectable advantage.