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8 Oct 2007
Union Square Ventures' Charlie O'Donnell was having trouble explaining how some of his investments had defensible businesses. It occurred to him that perhaps defensibility is a flawed concept.
What is a defensible business anyway? Last time I checked, we lived in a free country with a government that promotes competition and curbs monopolistic behavior. Any customer of a company can choose to stop being a customer at anytime, right? Now, perhaps switching costs are high, but I would argue that they are capped to the degree that customers would be unwilling to sign up for a product whose switching costs were so high that, in the event of poor performance, they could not afford to leave.
And even if you think you have a good defense, are you defending the business, or the technology?
We saw a lot of late stage VC deals whose "barrier to entry" was that they were the only ones who had a certain technology. However, we started to realize .. that pure technology advantage was a fleeting notion. Maybe you were, in fact, the only ones with a technology, but that doesn’t mean you were the only ones with the solution. In other words, there are always many ways to skin a cat.
A while back I talked to a patent attorney who pointed out that a great many ideas are patentable, but those patents are likely to be useless in a business. You patent the technology, and then someone comes along and solves the same problem in a different way.
This discussion has been closed.
Andrew Parker
October 9, 2007 8:09 AM
Charlie wrote that post early in his tenure at Union Square Ventures. After that conversation, this is our new stance on defensibility: http://www.unionsquareventures.com/2006/08/defensibility.html Hope you find that interesting.