By Lora Kolodny
When markets heat up, entrepreneurs suffer criticism for launching "me-too" start-ups in a dense crowd of competitors. Bloggers, investors and analysts dismiss some as "dime-a-dozen" apps or services.
People marvel (or roll their eyes, enviously) at the funding that comparable businesses-like these ride sharing and mobile-payment start-ups-raise from venture capitalists.
But imagine if Chris Rock never tried comedy because Richard Pryor did it so well before him, or gave up because Dave Chapelle succeeded so well alongside him? The world would be shy millions of minutes of collective laughter.
The last thing investors want start-ups to do is stop trying to improve upon what's out there already.
The start-up culture's embrace of "it's this for that"-style elevator pitches hints at the acceptance of companies that may look like copycat businesses in their early days. In these pitches, a founder describes her start-up as something like a well-established business or product, but with a twist, typically around an intended market or use of technology. MedStartr, as we recently reported, wants to be a Kickstarter for medical technologies.
Dan Shapiro, a serial entrepreneur and angel investor who also serves as a mentor at Seattle's TechStars, 500 Startups and the Founder Institute, says, "I actually worry if start-up founders can't place themselves in a spectrum of businesses."
During a pitch, if Shapiro doesn't hear founders comparing their company to peers and predecessors, he asks why. Should a CEO make an inaccurate comparison, he adds, that mistake can reveal a lack of domain expertise.
At Y Combinator's Demo Day last week the founder of Instacart, a company that enables users to order groceries online and have them delivered within an hour, called the company an "Amazon for local."
Instacart drew press interest and positive comments on social media from investors who saw that pitch, despite the existence of several "apples-to-apples" offerings in the market.
EBay offers a "get it fast" feature and service, as do start-ups Postmates, which offered "get it now" delivery service six months ago, Exec and TaskRabbit.
Shapiro liked Instacart's presentation, and called them a "reboot of [dotcom predecessors] Kozmo or Webvan." But he doesn't plan to invest in them now.
He's not worried about their chances, though. Apples to apples competition shouldn't scare away the right backers. Among eight companies Shapiro funded in the past year is Bonanza, a "more beautiful eBay for clothes." A fund-worthy company in a crowded space needs to demonstrate a brilliant insight as to how to do something better than others, or have founders with unique expertise and connections that gives it an edge, he suggests.
Here are five reminders why-barring plagiarism-we should root for, not criticize, start-ups brave enough to weather crowded waters and name calling, to innovate their way to the top.
FACEBOOK
Facebook fortified itself in early years with the influential college student demographic, then beat Myspace (and everyone else) at their own social game. Its one-time competitor and predecessor Classmates.com (founded in 1995) hasn't fared so well. Despite Facebook's stock performance, it's hard to dispute the strength of the company's 552 million average daily users.
YAMMER
Following 37 Signals' 2004 launch of Basecamp, an online business collaboration tool, Yammer launched a related "social network for businesses" in 2008, grew massively popular and sold to Microsoft this year for $1.2 billion.
WORDPRESS
In 2005, Matt Mullenweg and Matt Little founded WordPress to compete with content management systems like Vignette (acquired by OpenText in 2009) and Moveable Type. There are now about 55 million WordPress sites in the world. Analysis by BuiltWith.com finds that almost two-thirds of the one million most-trafficked sites in the world were built using WordPress. Its nearest competition in that elite market, Joomla, boasts a humbler 11% distribution.
SPOTIFY
Though music recommendation site Pandora had already gained popularity and became a public company, Spotify (backed by Sean Parker via the Founders Fund) slowly entreated the support of major music labels before entering the U.S. market in July 2011. By the end of 2011, Spotify had about 33 million registered users. That's closing in on Pandora's roughly 55 million active listeners.
DROPBOX
Competing against earlier file-sharing start-ups like YouSendIt and Box, Dropbox made cloud storage very simple and reliable, even on mobile devices. Now Apple, Microsoft and Google are getting into cloud storage, too. Whatever consumers think of the products and hype, it's clear that venture investors believe in Dropbox- the company raised $250 million and has a reported $4 billion valuation.
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