The Simple Secret to Beating Clones and Copycats

Copycat businesses often draw ire from the companies they clone. Outperforming copycats, rather than complaining, may be the best defense

By Bobbie Johnson

(Corrects Alibaba's relationship to Yahoo.)

In an industry where opinions are sharply divided on all manner of things—PC vs. Mac, Ruby vs. Python, open vs. closed—there’s one topic almost everyone agrees on: clones.

The idea of creating copycat businesses is almost universally derided, whether it’s a small company ripping off a larger one—for example, when design sales site Fab.com this week called out German clone Bamarang—or a big business lifting ideas from smaller rivals, such as when Zynga found itself hauled over the coals for creating its own version of the indie game Tiny Tower.

It’s obvious why clones are so disliked. After all, in an industry that prides itself on novelty and invention, copycats effectively commit two cardinal sins: lack of ambition and lack of imagination.

Despite this apparent consensus, copying the ideas of others remains a very successful business—particularly in Europe, where barely a week goes by without a new company appearing to copy a foreign rival. Berlin’s Rocket Internet, in fact, has made so many millions cloning such Internet heavyweights as eBay, Groupon, and Zappos, that its founders, the three Samwer brothers, have become synonymous with copycatting.

But regardless of how people feel about cloned companies, they continue to exist. What can businesses do to beat them?

Think global, not local

German entrepreneur Lars Hinrichs has experienced life on both sides of the aisle. As the founder of professional social network Xing, he faced accusations of copying LinkedIn, but today his startup accelerator HackFWD focuses on investing in innovative European technology businesses.

Hinrichs thinks copycats are inevitable.

“Yes, all successful products will be copied,” he says. “Since it is so easy to copy the front end, it’s logical to copy. And unfortunately it is a working business model.”

The solution, he thinks, is to dream big. Clones often spring up in international markets where the progenitor company is unwilling or unable to deliver. This leaves one simple answer to the copycat dilemma.

“Immediately think and act global,” says Hinrichs. That can be tough, however, and requires funding that may be hard to come by. “Since the Sarbanes-Oxley Act, many U.S. companies don’t get enough public cash to manage to scale globally in the beginning. They only overcome this burden with massive A and B rounds.”

A more common option is to partner with or acquire clones. This obviously goes against many entrepreneurs’ gut instinct: After all, if cloning is seen as a form of blackmail, then acquisition means a company has effectively paid ransom. But on a practical level, paying to take a clone out of the game can be worthwhile if the strategic cost of competing directly is too high.

Oded Shenkar, a professor at the Fisher College of Business at Ohio State University, says this is important because acting too late or indecisively can sometimes let the copycat gain the upper hand.

The author of Copycats: How Smart Companies Use Imitation to Gain a Strategic Edge says copying isn’t just inevitable, it’s everywhere already, even if we pretend otherwise.

“The stigma about copying is strong in the Western world,” he says. “We talk about innovation all the time; people are bombarded with it. There’s a disbelief when you say, ‘Let’s take a contrarian perspective for a moment.’ … Executives get personally insulted if you suggest they have imitated somebody else.”

According to Shenkar, we are culturally programmed to forget that ideas are rarely unique and radical new business models few and far between.

“It’s especially challenging in the technology industry, because all of it builds on innovation—innovation is even more of a sacred cow than in other businesses. … People are happy to believe that supermarkets will imitate each other, but God forbid if the same happens in our prized high-tech industry.”