I have a startup idea that improves upon an existing idea in a uniquel and differentiated way. Let's call my idea "David". However, there exists a very large, well-known competitor, "Goliath".
David vs Goliath
David : new to industry, bootstrapped, uniquely differentiated, & taps into a revenue model not currently being utilized by Goliath
Goliath : Well-known brand, well-rooted in the industry; have lots of money to copy David
So the question is:
What do I say to investors who ask, "Well, what's stopping Goliath from doing the same thing? Couldn't they just copy you?" Edit: I have done market validation and customers are interested in my concept.
It isn't about copying the idea of the features, it is about whether they can actually do it too. Perhaps the big company has positioned its products so it can't do what you are doing. They may have segmented the market and are ignoring the low end because they can't effectively reach them and sell to them (and make a profit). Or their products are expensive and lower priced product would undermine their price list/value story. Perhaps the decision makers they target are not the same decision makers you will target. The reasons are more likely to be sales/marketing decisions and not technology decisions.
The best answer to investors is that you will be targeting the prospects that are not customers of the big company, and a possible exit strategy is being acquired by the big company to get those customers.
Or, depending on your market research, another answer is 'this market is so big they won't notice me for a while'
Edit: Oups, sorry just noticed that the person in front of me already commented with the same idea.
Well I think its all about positioning. You see, if you start up with a unique idea and have a very little market share, you probably wont catch much attention of the big player initially, simply because he wont notice you. He has its own problems to worry about at this point with his established business that is already generating enough revenue. When you grow your idea to a decent size and get noticed by the big competitor, chances are you are probably already well positioned on the market. In my opinion people tend to stick to what they are use to, if you provide good service. That means if you came up with this new or kind of novel - improved idea first, market likes it and get use to it, the crowd would follow you instead.
Now what might happen at this point is it's easier for the big competitor to try and buy you out and integrate your concept into their business rather than inventing it over themselves. Chances are except for offering you a pretty good sum, they might also offer you a senior position to run this idea within their organization ...etc.
Off course you can never rule out the possibility, you will get spotted quite early and get your idea would be so impressive that it will get copied, however in my opinion established business tend to focus on their core business and won't try to "reinvent the wheel" as well as risk loosing their investment into something that hasn't really been market tested. IMO rather they would wait and see how your idea does on the market and later try buy you out.
You tell them exactly what it is you can do that Goliath either can't or is very unlikely to want to do.
For example, if you were competing against google, "excellent customer service" would be one such point. Google's customer service is a black hole of despair; as a small company, it would be quite easy to do better than that, and you don't have to be particularly worried that they're going to go and copy you, either.
Every big competition has weak spots, things they just don't want to bother with, usually because they don't scale well (customer support, creating a personal connection with your customers, having a quirky and unique web presence...)
You say you're "uniquely differentiated". Look at the list of things that make you different, cross out the ones a big company could easily and profitably copy just by throwing some money at the problem, and there you have your answer.
Some ideas just aren't big enough for Goliath. Goliath has huge costs (administration, layers of beuracracy, big advertising and sales budgets, management, etc). Unless they can make several hundred million dollars per year on this idea, it simply might not be economically feasible for them to go after your niche/market/twist.
As well as the other ideas:
"Sure they could do it. But by the time they have worked out that it's worth doing we'll have a real market presence, and they'll be behind the curve. Then we'll sell the company to them."
It seems like the best way you can validate your idea is to get a number of customers signup and pay for your service in some form. If you show traction investors will pay attention.
Yes they can copy you and your dilemma is justified by looking at your position. However think about this
Lastly I feel a veteran investor will not ask such silly question but lets say he still does that counter question him this --
Gmail is the best free email available. Cant a dying Yahoo, Hotmail or AOL copy them. When Gmail came up with a 4 GB limit others copied this with even bigger disk sizes, some went to the extent of unlimited mailboxes. Did the customer jump back to them ?