Don’t Innovate, Imitate

What’s the quickest way to startup success? One is to think of a great innovation. Another is to copy someone else’s great innovation. That's a lot easier than coming up with your own. And it’s often a shorter, surer path to your first million - or billion.

Just ask the Samwer brothers, Oliver, 39, Marc, 41 and Alexander, 37. The founders of Berlin-based imitator incubator Rocket Internet, they’ve cloned dozens of successful internet companies, from eBay to Facebook. And all three of them are billionaires.

Until recently, the Samwers kept a low profile. The press usually referred to them as secretive. But lately they’ve been getting more attention. After all, it’s hard not to draw attention when you’re raking in billions by copying almost every successful Internet company that comes along.

But could the growing acceptance of the Samwer brothers also be due to the fact that people in the tech industry are finally admitting in public that imitation is good business?

We decided to find out. We couldn’t get the Samwers on the phone, so we called up Oded Shenkar, the man who wrote the book on the business of clones: Copycats: How Smart Companies Use Imitation to Gain a Strategic Edge.

“In the tech startup world, people tend to equate entrepreneurial activity with innovation, and that’s the wrong assumption,” said Shenkar, a professor of management and human resources at Ohio State University. “There’s a long history of successful startups that are built on imitation, not innovation.”

Facebook is one. Apple is another. We should recognize Mark Zuckerberg and Steve Jobs as great imitators, Shenkar said. Zuckerberg didn't invent social networking. Friendster launched in 2002, MySpace and LinkedIn in 2003. Facebook didn't come along until 2004. Similarly, Jobs cobbled together the Macintosh user interface circa 1984 out of ideas and technology he first encountered at Xerox PARC in 1979. Shankar doesn't count these imitations against the two men. Rather, he celebrates their seminal work in duplication.

“We have this reverence for innovation, but imitation is often the key to success," Shenkar explained. "Imitation was critical to human evolution, and today imitation is more critical than ever - because it’s much cheaper and more feasible than previously. Business is the only discipline that’s 50 years behind, in that it looks at imitation as a dumb thing that’s done by people who can’t innovate. In all other academic fields there is a belief that imitation is an intelligent capability. But in business we’re still stuck on this religion of innovation.”

Partly that’s because innovation is hard, and the business world exalts high achievers. But imitation isn’t easy, Shenkar said. You have to know how to do it, which is why some imitators fail and others, like the Samwers, succeed so well. Their hit rate is around 50 percent. Their neatest trick: copying successful companies, then selling the knockoffs to the originals. They sold their Groupon clone to Groupon. Recently they sold their version of Care.com to Care.com.

And imitation does not work only in the internet world, Shenkar pointed out. It’s easier there, yes, but copycatting has long been common in all sorts of industries. RC introduced the original diet cola, Diet Rite, in 1958, but it was flattened by imitations from Coke and Pepsi. European discount airline Ryanair was in a downward spiral until management flew off to Texas to learn from Southwest how to properly run a cut-rate carrier. Now Ryanair is profitable. Hertz and Enterprise are currently in the process of ripping off Zipcar.

When imitators execute well, they usually succeed better than the first movers, because they study the errors of the innovators and learn from them, as Facebook learned from the mistakes of MySpace.

“Every study that has looked at this issue has found support for the imitators,” Shenkar said. “And even those that found a modest advantage for the pioneers invariably found that the effect is getting smaller over time. So even if there is an advantage for innovators, it’s getting smaller not larger, despite our worship of innovators. On balance, the research supports the imitators and we’re moving more and more into an imitator age.”