If you’re one of the five people that read this blog, you know I’ve become negative on many pure-software/Internet/mobile entrepreneurial projects. Low barriers to entry create a competitive, weedy ecosystem that becomes a lottery for many entrepreneurs. (Investors have a slightly different situation: they can pick break-out winners from a field of options, where entrepreneurs have to start from zero).
So, how do entrepreneurs avoid the lottery? There are a number of ways (this is the first in an ad-hoc series of blog posts).
One way is to have a real asset that’s core to the business, but is hard to copy. Amazon’s product reviews are a great example: competing with them means competing with the fact that many buyers go there first to check reviews. Amazon built their own review database, but I think there are many data & content assets that entrepreneurs could buy or license (exclusively) as the basis for a new business.
Sometimes, IP can be the core asset, when there’s real technology with high-quality, issued, in-force patents, and relevant expertise in the team. Given the time it takes to get patents issued, this means the startup is licensing or acquiring patents to get started — pending applications usually aren’t worth that much.
(Note that software/code is rarely a core asset. There are lots of smart developers, and software is usually pretty easy to copy.)
The next lottery-avoidance topic: deep domain expertise (to be continued).