How to prove defensibility?

Suppose you just started your own company and you are looking for some funding or venture capital. One of the first questions you will be asked is “What does make your company defensible”?

Guy Kawasaki has an extensive article over his blog covering how to answer that question. Firstly he clarified the three worst possible ways to go about it:

  1. “Patents make our business defensible”
  2. “We’re the only guys who can do this”
  3. “[Big-name potential competitor] won’t compete with us; they’ll simply have to buy us out”

Afterwards he explained how you should approach the question in a smarter and more honest way. The first thing to do is admit that “there are no ‘magic bullets’ that provide defensibility“. According to him “this is a great way to start your answer. It shows that you’ve been around the block and understand how the world works. An experienced investor will breath a sigh of relief; an inexperienced one will want to call his professor”.

I agree particularly with the fact that most people focus too much on patents and on the supposed protection they yield. Several companies managed to revolutionize entire sectors without filling one single patent.

Just think about Dell, they disrupted the likes of HP and IBM creating a much more efficient distribution system. There was no major patent involved, HP and other PC manufacturers were free to copy Dell’s business model. Some of them even tried, but the fine tuned routines and processes that Dell developed offered a stronger protection than simple patents.

You can read Guy’s article here.

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