One of the first thing that investors looking at a company is whether it offer a feature, product, or business. Features don’t make a product and can be copied easily. Similarly, a product doesn’t make a business.
Attractive businesses have a slew of products, and a road map for how to get clients. Attractive businesses also have appropriate talent pool including software developers, sales, customer support, designers, finance, operations, and logistics talents etc.
The combination of the firm’s talent pool, the nature of its revenue model, and steps taken to protect its intellectual property is what converts it from something that can be easily copied into something that can be defensible.
What stops others from following and dominating the market you discovered?
Many attractive markets are full of established companies that have substantial resources and the ability to access and serve your firm’s target clients. So, how do you stop a large company that wants to move into your space?
Often you cannot. You are left with two scenarios. Either you have a structural advantage from being the first mover. Or you simply have the best execution, which can involve a decent amount of luck at the right time.
To establish that you have a defensible business, you need to have good answers to the following questions:
- What is your unique intellectual property and how do you protect it? Do you have patents?
- Can your service be easily reproduced by a competitor?
- What defensible advantages do you really have? Algorithms? Data? Customer experience? Security?
- What is the strength of your talent pool and key advisors?
- What is your underlying asset? What happens if it becomes commoditized?