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Three common mistakes founders make when analysing other companies

By August 11, 2015 3 Comments

Drawing inspiration from other companies is an important part of every entrepreneurs toolkit. To misquote Isaac Newton, we all stand on the shoulders of giants. It’s easy to get it wrong though, and there are three common mistakes that founders make.

1. Assuming mistakes made by competitors are because they are dumb. This is from Aaron Harris’s Presumption of Stupidity

I’ve noticed a common bias that shows up in some founders: they believe that their competitors are stupid or uncreative. They’ll look at other businesses and identify inefficiencies or bad systems, and decide that those conditions exist because of dumb decisions on the part of founders or employees.

This is a bad belief to hold. In truth, competitors in the market are usually founded and run by intelligent people making smart and logical decisions. That doesn’t mean that all the decisions they make are necessarily the right ones, but they’re rarely a function of outright stupidity.

Where companies do things that diverge from what seems smart from the outside, it’s a much better idea to ask why those companies are doing things from the presumption of intelligence and logic rather than the presumption of stupidity.

2. Assuming everything that successful companies do can be copied. Every successful company makes mistakes, and some successful companies have habits they hold out as drivers of their success which it doesn’t make sense to copy. Apple is the best example here, great as he was, Steve Jobs’ management style and his insistence on relying on his vision and not talking to customers aren’t things that will port well to many other companies.

As Paul Graham wrote in a recent article advising startups that can’t secure the .com domain for their name:

There are of course examples of startups that have succeeded without having the .com of their name. There are startups that have succeeded despite any number of different mistakes.

The most common version of this mistake is to cite a habit of another successful company as justification for bad or lazy behaviour – e.g. Steve Jobs had the courage to rely on his own vision of what’s best for customers and so do I.

Another, more insidious, version of this mistake is to copy startups that have had some early success but haven’t definitively succeeded yet. Often this is European startups copying American startups that have reached the Series B or Series C stage. The problem here is that you might be copying something that fundamentally doesn’t work (as with many of the GroupOn clones) or where the reasons for the success they are enjoying aren’t apparent.

3. Success can come from copying others rather than being different (which takes more courage). In The Possibility for Outrageous Failure Max Wessel wrote:

Warren Buffet has famously stressed for folks to be greedy when others are fearful. Clay Christensen has cautioned that profitable markets face the greatest pressure towards commoditization. Even inside today’s tech landscape, we have Peter Thiel appropriately pointing out that there is only likely to be one Google, one Salesforce, one Facebook, one Uber, and so on. The next conquerors of industry are likely to arise in surprising spaces where there isn’t a clear opportunity.

Summing up, the overall message is that getting to know your competitors and what drives success at other companies is a great thing to do, but use that as the basis for your own critical and ‘from first principles’ thinking. Then don’t rely on your ability to out execute the competition, but be bold and above all seek a source of competitive advantage. Often a piece of information you have or something you believe that others don’t can be that source of competitive advantage.

Hat tip to Mattermark’s daily newsletter today which had links to the three articles I quote here. It’s a great source for content.