Your internet startup: Why it’s OK to clone a business

“Creativity is just connecting things,” said Steve Jobs in 1996 Wired interview. According to Mark Twain, all ideas are second-hand.

Maria Popova, editor of Brain Pickings, and MIT Futures of Entertainment Fellow, writes that creativity is a “combinatorial force”, referring to the belief that ideas are products of collaboration. Her thoughts are echoed in Twain’s writings, which dismisses the existence of the solitary creative genius: “the kernel, the soul — let us go further and say the substance, the bulk, the actual and valuable material of all human utterances — is plagiarism”.

Like LEGO creations, ideas are made up of pre-existing building blocks — insights, knowledge, inspiration, and so on. “The more of these building blocks we have, and the more diverse their shapes and colors, the more interesting our creations will become,” writes Popova.

The true originators of these blocks might be an interesting study — who or what first came up with an idea, or even more granular, who had the fundamental sensory experiences that lead to what Twain describes as “valuable material.” The consensus is clear however, the solitary creative genius is a myth. We draw on the work of others, consciously or subconsciously to create something which cannot be labeled “prior art.”

Our present-day patent system isn’t perfect, but its ideals remain noble and salient. One of its primary purposes is to serve as a gavel. Some see patent holders as idea originators, but of course that isn’t really true. Patent holders are merely first to put a new idea on record. The patent system establishes order.

The belief that creativity is collaborative and that it deserves to be fostered is another important tenet of the patent system. In exchange for the patent holder’s agreement to share details of their invention — an incredible new LEGO creation for our purposes — with the public, the government would reward the inventor’s creativity with a limited property right. When a patent expires it becomes public domain, injecting new, well-documented, freely available knowledge into the world, that continues the cycle of encouraging new innovative products.

So what about copying an invention? Well, patent law is clear about that. A patent provides the right to exclude others from making, using, selling, offering for sale, or importing the patented invention for the term of the patent. Yet, it’s difficult to think of a business that hasn’t been copied. Why is that?

“You can’t patent an idea,” says Jennifer Rankin Byrne, spokeswoman for the U.S. Patent and Trademark Office. Using Groupon as a case study, following its launch in 2008, Groupon clones became as innumerable as the stars. Its flash sales idea could not be patented.

You can however, patent a “business method” says Rankin Byrne. For example, a company called ReplyBuy holds a patent for using a PIN method to conducting flash sales over SMS.

Protecting your new online startup from clones, despite a business method patent, is difficult, especially when the idea has global appeal. Registering a patent in many countries is “costly and time-consuming and they may prove hard to enforce” says David Goldstone, an intellectual-property specialist at Goodwin Procter, an American law firm. The best attack is to out-innovate, and to capitalise on exclusive networks and relationships says Goldstone. Launching with immediate benefit to consumers is also a strong approach. [Read 4 tips for protecting your tech startup idea]

Cloning is OK

It’s OK to clone a business idea. Actually, cloning the germ of a successful tech startup, is probably a good idea — for reasons we’ll explore later. As we noted however, how you go about executing the behind scenes intricacies — what Rankin Byrne calls “business methods” — will require careful thought. Steer clear from infringing patents on your way to building a startup that follows existing ideas closely — by all means, skin a cat, but make sure you have the right to skin it in a certain way.

Brothers Alexander, Oliver and Marc Samwer are the serial-cloning kings of Europe. They are well-known for ruthlessly cloning successful American companies. In a wry twist they usually end up selling the clones back to the companies they were modeled on — for better or worse, Groupon-clone CityDeal was sold to Groupon for a 6.2% stake in Groupon, for example. The Samwer brothers and their startup cloning incubator, Rocket Internet, have a staggering exit record, thirteen at last count.

They’ve successfully cloned businesses like eBay — Alando sold to eBay for US$50 million — and MyVideo, a YouTube copycat that sold for more than US$26 million. With the revenue generated from cloning successful tech startups like Zappos, Airbnb, Pinterest, Etsy, eHarmony, Wrapp, Club Penguin and Square, the Samwer brothers have invested in Facebook, LinkedIn and Zynga.

Even before a rumoured Rocket Internet IPO, the Samwer brothers are on their way to becoming some of the richest people on the planet.

We need clones

Although we naturally gravitate towards celebrating novel ideas, cloning is a legitimate business model and, if mixed with sound business accumen and talent, a lucrative one. It’s also, quite literally, as natural as life on earth. We would go as far as to say that like the process of DNA replication, cloning is essential to our continued evolution. Why? Innovation happens organically when the cogs of a black box — a competitor’s business — are hidden. There are plenty of creative processes required to produce a similar end result.

The pre-1996 Steve Jobs intuitively understood that creativity is combinatorial and that it is important to keep the creative ego in check. In the documentary film Triumph of the Nerds, Jobs as quoted as saying: “We have always been shameless about stealing great ideas.” Fifteen years later in his biography Steve Jobs he is quoted as saying: “I’m going to destroy Android, because it’s a stolen product. I’m willing to go thermonuclear war on this.”

Intuitively we side either with or against Jobs’s dying sentiment, but as we’ve illustrated, Google was well in its rights to clone an idea — a mobile operating system — even one that aesthetically resembled, in some ways, another operating system. Another operating system that drew on ideas — consciously or subconsciously — from systems that came before it. In its pursuit to produce the same end result, Google had to innovate, leading to new ideas that later spilled over into other mobile operating systems, including iOS.

Clones are real businesses

We also have to keep in mind that a business based on an existing idea is still a business and it brings with it new communities, networks, jobs and develops talent for future entrepreneurs.

For entrepreneurs that heed patent issues, basing a new tech venture on an existing idea mitigates risk. In April this year Wired estimated that 30 clones had been conceived at the hand of the Samwer brothers, with only five failures.

Cloning is not however, automatically a low risk activity. Although an idea has been proven to work elsewhere, it does not assume success in all economic milieus.

For all the controversy following the Samwer brothers, they are shrewd and yes, creative entrepreneurs despite having been quoted as saying: “we are builders of companies, we are not innovators. Someone else is the architect and we are the builders” — plenty of creativity and innovation is required to make a venture succeed.

Eric Ries author of the celebrated The Lean Startup defines a startup as “a human institution designed to deliver a new product or service under conditions of extreme uncertainty.” Ries argue that the more innovation is present in a venture, the higher the risk or uncertainty involved. Whether a clone can be considered high risk depends on how much innovation it will deliver, but, as we’ve discussed, clones will likely have to innovate to succeed — especially to avoid patent suits. Ries shares some thoughts on this concept:

Even the most radical new inventions always build upon previous technology. Many startups don’t innovate at all in the product dimension, but use other kinds of innovation: repurposing an existing technology for a new use, devising a new business model that unlocks value that was previously hidden, or even simply bringing a product or service to a new location or set of customers previously underserved. In all of these cases, innovation is at the heart of the company’s success.

Risk aside, cloning an existing idea might be a good place to start, even if the intention is not to clone it completely — who knows where the pursuit of a new venture will lead.

Also, although market research will still be required, some of the homework is likely to have been done already, saving time and requiring less startup capital.

In the end the idea takes a backseat to execution. Zuckerberg succeeded. Facebook won with a borrowed idea. It decimated the Winklevii’s later efforts and eventually, everyone else’s.

Image: Star Wars Episode II — Attack of the Clones



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