Startups Win by Cheating

Many engineers believe that if you build a great product, everything else will take care of itself. Unfortunately startups rarely work this way. Building a great product is a necessary, but not a sufficient condition for success.

Types of Unfair Advantages

Startups usually win because they exploit an unfair advantage — they cheat. A small advantage can give a startup enough momentum to succeed on the quality of its product.

You have to figure out where you have an unfair advantage. This can help filter or eliminate opportunities, and helps you focus on how to acquire the advantages your company will need to win. An incomplete list of advantages:

• Information Advantage – If you worked on Facebook’s feed algorithms and leave to start a business built on Facebook distribution, you have an information advantage.
• Access Advantage – If you were previously VP of Sales at a company and are going to sell a new product to your previous company’s customers, you have an access advantage.[1]
• Technology Advantage – you have patented technology or defensible (non-trivial) technical advantages that is core to your business. This is very rare for startups. Engineers tend to over-estimate the defensibility and true value of their technology.
• Data Advantage – you have access to data no one else has access to yet. For example, a company I consulted with had access to a non-public API from a major retailer that allowed them to advertise to users in a way no one else could.
• Reach Advantage – if you’re already a celebrity, you can reach people for free. Kevin Rose used his reach on television to promote Digg in the early days. Jessica Alba is using her celebrity to promote her diaper company. They “cheated” to jump start their business.

Example

Zynga was kickstarted because Mark Pincus was an angel investor in Facebook (Access Advantage) had early notice that the FB API was going to launch (Information Advantage). Zynga became a launch partner and had a head start on almost everyone in the market.

Every entrepreneur and company has ways to “cheat.” Unfortunately, too few entrepreneurs spend time thinking about what their unique advantages are and what unique advantages a company in their space would need to succeed. If a company can get those two to align, they have a much easier time getting off the ground. And getting off the ground is the hardest part of doing a startup.

Footnotes

1 – I’m not advocating violating any employment contracts/laws or being shady. For example, you could sell a non-competitive product to your former clients that became your friends.