Why Copying Tech Giants May Hurt Your Startup
Explained with a Dead Simple Analogy
At my first startup, we eagerly looked to adapt the latest methodologies from tech giants like Google, Netflix, and Amazon. We thought, if it works for them, it should work for us, right? But over time, I became more and more cautious. Don’t get me wrong; their solutions are smart. However, I began to realize that they might be smart solutions for the challenges of a different company.
David vs. Goliath
I’m not talking about differences in geography or market. I’m talking about the difference in age and maturity. I started to feel that perhaps some simpler methods would be more effective at the stage our company was in. Sure, they might not scale in the long run, but is that a good enough reason not to adopt them while they still work?
The thing became most clear to me when I wanted to invite a friend — a product manager at one of the FAANG companies — to give a talk about their methods. She told me she could share their secret in just one sentence:
“We spend an unfathomable sum on R&D”
To put this into perspective, Google’s parent company, Alphabet, spent $45 billion on R&D in 2023. Given a headcount of 180,000 employees that year, they spent around $250,000 per employee. Obviously, only a fraction of those employees work in R&D, so the actual spend per R&D employee is much higher.
Let’s take it one step further: for your startup with just ten people, you’d need to spend $2.5 million annually on only R&D to match that per-employee expenditure. For reference, consider that Healthify recently received $20 million in funding. Given their size, that amount would fund their R&D for just over two weeks with the Alphabet rate.
Of course, this isn’t realistic for a startup. But does this mean we’re all just waiting to join the list of companies killed by Big Tech? Oh, far from it. Quite the opposite. Let me share a helpful analogy and some strategic considerations that helped me understand why this isn’t the case.
Of course, this is not realistic. But is it then that we are all just waiting to join the list of companies killed by Big Tech? Oh, far from that. Quite the opposite; I’m going to present you a helpful analogy and some visual strategy considerations that helped me understand why this is so true.
The $250,000 Per Employee Question
Suppose you and your friend decided to create a startup in your garage and got a $100,000 investment from an angel investor to develop your MVP in 12 months. In that case, you’d roughly spend $50,000 on R&D per employee (assuming no sales, marketing, and other OPEX). That’s one-fifth of what Google spends. So can you compete with Google? Or could they just decide tomorrow to build your product faster and better with their world-class team?
Yes and no.
Yes, because Big Tech companies strive to preserve their agility. For example, after the release of ChatGPT in November 2022, Google was beta-testing Bard with 10,000 users by February 2023. They can move quickly when they need to.
But also no, because Big Tech operates in the commodity space — they are “corporate agile.” Some of you may be surprised to hear this but yes they are innovative companies but yes also their consumers expect a quality-level that is the standard in the commodity space. They have to navigate complex processes and contexts that just don’t exist for you. Releasing a product as a tech giant involves media scrutiny and the risk of affecting stock prices. Their very size slows them down in ways that you, as a startup, are not hindered by.
On the other hand, you and your friend in your fresh startup can take paths that don’t exist in Big Tech anymore.
You can move faster and take risks without worrying about shareholder reaction. It’s just the two of you, so so that’s what it’s going to take to build the MVP.
The crazy thing is that although both you and Big Tech need to move to different terrains to release a product, your motion will be rightward while Big Tech will need to do a leftward move (Fig 2). The natural progression is rightward — toward growth and complexity. So even without $250,000 per employee, you stand a fair chance of being successful with your disruptive product.
This is the essence of the innovator’s dilemma.
It’s partly why ChatGPT wins over Gemini today, and why Google won over Yahoo in the 2000s.
The Charm of MVPs
One downside of commodities is the lack of any level of personalization. Think about how annoying it is to carry a travel adapter every time you visit a different continent. MVPs still offer diversity and specialization.
The first startup I was part of used sensors to measure people’s reactions to ads, helping brands understand which videos resonated with their customers. We had a significant “competitor” in the US: Affectiva. I use the term “competitor” loosely because we quickly realized that while Affectiva operated in many countries (they measured consumer reactions in 90 countries on 53,000 ads), there were other areas where our product could better address local needs.
There, I worked alongside the best salesperson I’ve ever known. Her skills helped us thrive in Central Europe, measuring 12,000 ads for more than 80 customers like Ikea, HBO, Tesco etc. The key was knowing the area we operated in and tailoring our message and approach to that.
The reason I’m telling this is that you should first have a plan to win in your niche before you aspire to build a castle in the platform and commodity space. Understand your market, your customers, and your unique advantages. And when you look for methods, consider searching for successful companies of your size and business stage instead of just copying the wisdom of experts in the commodity space.
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