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Effects of Startup Replication

It is a common belief that Indian startups are born out of mere replication of startups that have witnessed good demand or raised huge funds in developed countries. Rightly said, a lot of our unicorns are replicated from foreign startups. Ola is India’s Uber, Paytm is India’s Paypal, CarDekho is India’s TrueCar and so on. Here's a snippet of the number of years it took for some Indian Startups to replicate their foreign counterparts. We're calling it the REPLICATION GAP.

So, we ask, why do entrepreneurs replicate and when they do so, can it be said that they lack innovation?

 
Why do Entrepreneurs replicate?

1. Lack of Infrastructure in the early 2000s

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Lets accept it that countries like US and China are 10 years ahead of India, to say the least, in terms of availability of infrastructure and resources necessary to flourish a startup ecosystem. Let’s look at the 2000-2010 period – internet penetration in India was 0.5% in 2000 and 7.5% in 2010, whereas smartphone penetration was a meagre 2.75% in 2010. For reference, 2.75% of India’s current population is only 36 Million, and Paytm alone has over 450 Million registered users today. So, this essentially means that if it is the early 2000s and you’re an Indian entrepreneur having a brilliant and innovative idea, you should either forget about it OR start your business only to fail OR go to the US to give life to your idea OR at least don’t expect to blitz scale in the short-run.

  • In 2005, Deepinder Goyal, co-founder of now listed food delivery unicorn Zomato, founded foodlet.com, which provided online food delivery. However, Goyal shut it down within a year as the startup failed to garner much demand, only to re-enter the same segment 10 years later. Whereas UK based Just Eat, which is today the world’s biggest online food delivery platform (outside of China), was found in 2001.

So now you know, why a lot of ideas, which are relevant even for India, originated outside India much before it was finally ‘replicated’ in India. But its 2022 now, we’ve come a long way. Why do we still see replication?

 

2. Easy access to capital

When an entrepreneur pursues an idea that is already proven in another country, it makes it far easier for him/her to convince investors and raise funds to blitz-scale, rather than spend months to establish proof of concept. At the same time, investors find it much safer to invest in proven business models, rather than test waters and burn cash.

  • Take for example MensaBrands that received HUGE investor confidence and turned unicorn within only 6 months of incorporation. The whole business model is outspokenly based on the ‘ok-tested’ Thrasio model, that has lately caught steam in the US more on this here.

 

3. Regulatory hurdles create an obvious gap

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Despite all liberalization policies of the Indian Government introduced in the past to open the Indian economy to the outside world, some industries are still highly regulated, creating an obvious gap and thereby leaving it up for grabs by Indian entrepreneurs.

  • Take for example the financial sector, which is subject to a plethora of regulations implemented by SEBI (capital markets), RBI (banking and payments) and IRDA (insurance). Result? pioneers in wallet, online insurance and payments businesses like US based Paypal founded in 1998, and China based Alipay founded in 2004, could never enter India, even though they’re both available in over 100 countries. Vijay Shekhar Sharma recognized the gap and found Paytm in 2009, which is in the exact same business. Fun fact: Ant Financial and Alibaba (parent company of Alipay) together own about 30% of Paytm today.

  • Fast forward to 2021 – Elon Musk’s Starlink, the satellite-based internet service was asked to stop offering subscription to Indians, as it did not have the necessary license to operate in India. Result? Spacenet is a product launched by an Indian space-tech startup Astrome, which aspires to provide the exact same service of satellite-based internet connection and is already in testing stage.

 
Okay, so now you know that replication is inevitable. But is it indicative of lack of innovation?

Entrepreneurship is not about who did it first. It’s about filling up the need gap, even when solutions exist in a parallel economy. Moreover, it’s the execution that matters much more than the idea. Apple did not make the first personal computer, neither did it invent the handheld music device – Ipod. Steve Jobs once famously said,

To me, ideas are worth nothing, unless executed. They are just a multiplier. Execution is worth millions.

Plus, some problems are almost omnipresent. Like the problem of having to wait for long to hail a cab is experienced across the world. Therefore, its almost a no brainer that when the concept of hailing cabs online is introduced in one part of the globe, other parts will soon follow suit. However, Factors like, the consumers’ propensity to consume, their tastes and preferences and their behavioral pattern, vary across geographies. So, a foreign player may not be able to understand the Indian preferences as much as a fellow Indian does. This makes it all the more possible for a home-grown entrepreneur to do a better job than their foreign counterpart, hence giving rise to ‘replication’, but with local customization.

  • A classic example of masterful execution by adapting to local circumstances is OYO Rooms (found in 2013). When Ritesh Agarwal, co-founder of the hospitality chain startup OYO started off, he was trying to build India’s AirBnb (found in 2008). However, very soon he realized that the problem in India was not discovery, but the variation in the experience of Indian consumers at budget hotels. So, he instead standardized the quality of service at local hotels and built a Unicorn out of it and later also took it to the world.

  • Another example is the food delivery business, pioneered by Swiggy (2014) and Zomato (2015) in India. There being no regulatory hurdle, US based UberEats also set up shop in India in 2017. However, owing to its failure to understand the Indian palette, it soon had to discontinue its Indian operations, finally selling its business to Zomato.

 
So replication is not bad as long as at the heart of it, it strives to solve a problem. But does this mean that we keep on replicating?
Nothing succeeds like success

What India needed in the first 2 decades of the 21st century was inspiration.

  • Indian tech moguls sitting at the helm of the biggest tech companies of the world like Google, Microsoft, Mastercard and Adobe inspired Indians to lead their own tech companies.

  • Successful startups founded by Indians in foreign countries like US based zero brokerage platform Robinhood (co-founded by Baiju Bhatt) and US based grocery delivery platform Instacart (cofounded by Apoorva Mehta) inspired Indians to build their own startups.

  • Successful Indian tech companies, a lot of them replication of foreign startups, that have turned unicorns and now even listed on the Indian bourses inspire Indians everyday to build and lead for India.

Result? Our entrepreneurs are now building in India, by India and for Indians and rest of the world. We are solving our own problems without relying on foreign players. Original ideas in the Education, EV, Agritech and Quick Commerce space are being more aggressively built in India than any other part of the world. We have emerged as the 3rd biggest tech ecosystem in the world. We now house the biggest edtech company in the world, that’s building an online school for students in foreign countries. Our Unified Payments Interface (UPI) has revolutionized the payments industry and is being implemented in developed countries now. Our defense and space sectors, which have for long been very selective of who they work with, have opened doors to tech companies. From building micro-greenhouses to digitizing supply chain, our agritech startups are solving the long-standing problems of Indian farmers. So many years of ‘replication’ has shown the vigor of our entrepreneurs and capabilities of our people to our own people and the rest of the world.

 

This article is a part of the March'22 edition of our Startup Newsletter. Here's the complete publication:


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