On Product Differentiation and edgeyo

It is a cliche to quote some famous dead person to begin one’s post, but I am going to do it anyway. To quote the infinitely quotable Charles Darwin, “…Owing to this struggle for life, any variation, however slight and from whatever cause proceeding, if it be in any degree profitable to an individual of any species, in its infinitely complex relationship to other organic beings and to external nature, will tend to the preservation of that individual…” ^[1]. Interestingly, it’s the same with startups (and firms) in general.

In 1933, the concept of product differentiation was first introduced by Edward Chamberlin in his seminal work, The Theory of Monopolistic Competition ^[2]. The idea was that firms would differentiate themselves slightly from one another and gain a temporary monopoly. In today’s world this is ever more true than before. It is the lifeblood of startups, especially now, when information is disseminated instantly.

This morning, Rand asked me over Twitter – “there is a whole raft of similar platforms launching in the next few weeks, what’s your differentiator?” Coincidentally, I had started work late last night on this blog post on differentiation, so I thought, why not combine them? I ended up pivoting this article towards a more edgeyo-centric post though. I will probably write a more in depth analysis about product differentiation some day.

“What’s your differentiator” is perhaps one of the best questions to ask when founding a startup. And it is one that must often be thought out long and hard. Let’s use edgeyo as an example, shall we?

edgeyo’s Differentiator – And How We Got There

How is edgeyo different? We thought about this long and hard, and this is how we finally chose to identify our differentiator – in a Venn diagram:

With that out of the way, let me walk you through how we decided to differentiate ourselves into a cross between a crowdfunding platform and an incubator.

Unlike what most people would advise – we didn’t start out trying to solve a minor problem. We started off idealistically – we have a major world changing problem to solve – the startup funding market (and indeed so are a lot of markets) is prone to bubbles, and it is actually a fundamental economic question when trying to solve the problem of market bubbles ^[3]. So we built a product first.

The product in hand was a mathematically elegant solution to potentially solve some fundamental problems in the economics of funding startup. Now, we could have positioned this and built two things around this mathematically elegant solution: a crowdfunding platform like Kickstarter (or its Aussie brethren, Pozible, formerly known as FundBreak); or we could put in some elbow grease and build up a network of investors and start Australia’s own Y-Combinator.

And like Ted Mosby, we love pros and cons lists, so we decided to draw one up. The major objection for the crowdfunding platform was that it was too saturated for our liking, and there are not enough micro variations that are left for us to navigate.  The major objection for the incubator was that we’re not angel investors to begin with, and to build up a network of angel investors takes time and skills we don’t have – social skills that is.

Then lightning struck. The idea was there, and the Venn diagram was made. What if, we had the best part of each system, and combined them into one? The product would still work, but now we have a product to go out to the market with, and we can tell people that we’re different enough.

How is edgeyo Different

As mentioned earlier, we took what we perceived to be the best parts of each, and made it into one (hopefully not in a Frankenstein way). We liked the idea of consumer validation in crowdfunding platforms. We also like Kevin Kelly’s idea that you only need a thousand true fans. Also, Fred Wilson‘s enthusiasm for the Boxee can be credited as an inspiration for the support of crowdfunding platforms – afterall, a consumer who uses a product is its best investor. On the other hand, incubators like Y-Combinator or Techstars focus the energy of startup founders into startups. Incubators form a framework for founders to work – it is stability for founders. Oh, also incubators also provide more funds to startups than crowdfunding can – simply because the backers are proper investors commited in making investments.

So if you take the framework of incubators, and put a crowdfunding engine in the background, you get edgeyo. It’s that simple. In the years since we formulated the edgeyo idea (at the end of 2009), a competitor has emerged – Dave McClure’s 500 Startups is actually closer to the edgeyo model (in terms of operation but I believe the business model is different) than we could possibly imagine.  Don’t worry though, Dave, we still love you a lot – 500 Startups is truly a refreshing thing in the startup funding world – I’ll expand on that some day.

We have no backers, just a bunch of brains and computer algorithms. Will it work? We don’t know, but time will tell, but at the very least, it is interesting.

In the mean time, tell me, what about your startup? What is its differentiator, and how did you get there?

1. ^[1] Ch. 3, The Origin of Species. Charles Darwin ↩
2. ^[2] Interesting factoid: he and Joan Robinson were in a competition over this idea, and Mrs. Robinson ultimately lost out because she was a woman and her work was only repopularized starting the late 60s – politics and publishing back then were much different to today ↩
3. ^[3] There are a number of other philosophical questions we asked along the way too, such as: what if bubbles are natural? ↩