Being a resilient entrepreneur is crucial, but it’s not easy for investors to know if your startup is going to make it and how long it's going to survive when it’s time to face the competition. Competitors will appear and attack sooner or later, which puts your startup in question. How defensible is it?
What is defensibility?
Many entrepreneurs often mistake defensibility for competitive advantage or market edge. Defensibility is not about being different; it is about if your startup will handle the competition when your competitors are more supported than you with investments or resources. Will you still win the biggest market share?
Types of defensibility:
Defensibility is what keeps Facebook irreplaceable, no matter how many platforms try to compete, see what happened to Google plus. Defensibility is what makes you use Pepsi brand name as a synonym to the product, although the drink could be another brand. Facebook and Pepsi are not the same, yet they have high defensibility; different types of defensibility.
Your patent is known for the public, so anyone can copy it. The law protects you, but you don’t want to spend your life suing everyone infringing your patent. You even need to do extra work to create IP portfolio strategies and register your patent in every country you are operating in. That’s why patent might not be the strongest defensibility.
Any confidential business information such as formula, practice, process or design that provides an enterprise a competitive advantage is considered a trade secret. Unlike patents, trade secrets are protected without registration or any procedural formalities and consequently, protected for an unlimited time.
Strong distribution network:
Strong distribution networks can be considered a trade secret. Sometimes the enterprise develops a process that allows it to produce its goods more cost-effectively. This process of manufacturing provides the enterprise with a competitive edge. Therefore, the enterprise values its know-how as a trade secret. The most famous case in our ecosystem is the exclusive partnership from Bey2ollak with Vodafone that made the distribution easier. Vodafone’s job was just to tell their users about how an application could help them avoid traffic. People started to use it and report the traffic. Hence the network effect was created.
The network effect:
The network effect happens while resolving the chicken-egg problem. For example, Careem, one of the Endure Capital portfolio companies succeeded in creating a shared economy platform. Careem’s network effect depends on drivers. If there are no drivers, there are no riders (see? Chicken-egg problem). Hence, when the network effect is applied, users get a higher return value. Same goes for Facebook, which Google plus failed to compete with, as you’ll never find real value joining if your friends don't.
Surprisingly, Apple, the most valuable company in the world, has defensibility that relies on the brand itself. When it comes to branding, Apple is the teacher. Regardless of what you think of their products, a marketing campaign can make you buy one of them or at least wish for. On the other hand, it's the branding that ensures customer retention. An effective brand strategy gives you a significant edge in increasingly competitive markets. However, branding for B2B businesses is different from branding for B2C businesses. The emotional connection that branding creates for B2C businesses is always driven by positive feelings, love, fame and making good money. While the most successful B2B business is always driven by fear and optimization.
So, how do you make your startup defensible?
Work on your go-to-market
Some main business functions depend on the network effect. Define your Chicken-egg problem and find a point where you can start from. Work on a go-to-market strategy. Find people who will advocate your startup and start influencing people to use it. If it’s good enough, if it’s adding real value and solving a real problem, it will go viral like what happened when Careem launched in Egypt.
Build a powerful brand
I always advise startups to invest in the brand and create that emotional connection between their product and users. Because if something is about to fail, your brand could save you.
Sometimes you build a castle around your business to protect it from the competition. But it’s important to keep your eyes open in the market because once you become outdated, people won’t be interested in your castle or the years you spent building it like what happened with Nokia.
How do investors know that your early-stage startup is going to be defensible?
If people do love your app
If there’s a lot of word of mouth about it. I remember when I was in my last year of college, a friend who got a scholarship in Stanford came back and told me that there’s a great platform called Google that can help us in researching. All you have to do is to make a product that people tell each other about like Google!
If you don’t burn money on marketing
If you burn a dedicated budget on marketing at the beginning that means your startup is not that lovable by people.
If you show metrics that matter!
Don’t measure by monthly active users. For example, If it’s a messaging application and you’re talking about the number of users per month, that doesn’t mean anything. If you really want to measure success, you have to look at daily active users because we don’t want a messaging application that is used by a user twice a month.
What do you say when you’re asked what makes your business defensible?
Don’t confuse it with a competitive advantage
We’re not asking about why you're different. We know you’re unique and solving a real problem. We’re asking if someone tried to copy your uniqueness, what would make you have the biggest market share?
Unique features are not an answer
Don’t load your app with lots of features, even if they are all unique. Many features in your product could make it complex and have low usability. Usually, people who make this mistake are first-time entrepreneurs, and they’re coming from a corporate background.
It’s not a network effect unless you have a go-to-market
It’s not unless you figure out how you're going to penetrate the market and say I’m here.
And definitely, your answer will not include the brand
Never has it happened that an early business came to light with a brand. It takes a hell lot of time and effort to create a loyal customer base.