9 September 2006 - 16:26Copying business models in Romania

The problem of copy cats in SE. How to avoid it, why it happens, what it does to the economy.

In Romania copying a successful business idea is the norm. It happens across all business types: from the dozens of sites for dating, job-hunting, etc… to the huge number of music groups of all types, to the huge number of second-hand taxi drivers that are rounding their monthly income by driving a taxi after work. The result is that everybody is poorer than before. The huge supply which results from merciless copying drives prices to levels so low that the business stops being profitable. For example, the taxi drivers used to have a decent standard of living in early 90’s, today they are driving cars due for scrap decades ago 18 hours a day in order to make a living. I remember getting into a taxi and telling the driver my destination. The driver turned around with a thousand yard stare that I still see… The urge to copy a successful business model is understandable in a country with the lowest standard of living in Europe. Everybody wants a better life so they jump on whatever initiative without realizing that that particular line of business can support only so much.
At the first sight the huge supply generated by copying would appear to work in the consumer’s best interest, after all they are getting a service for less. The fact is that the service is of a very poor quality due to the poverty of the people sustaining it. For example, taxis in Bucharest are horrible to ride: sweaty in the summer, cold in the winter, cramped, smelling of gasoline and motor-oil, etc… Another example: an employee looking for a job on a job-hunting site is not sure if the job offers it sees are the best job offers on the market because the job offers are spread across 5-10 sites. A job-hunter has to look on multiple sites in order to find what it looks for. An employer looking to advertise a job has to advertise it on more job-sites because the job-referral business is so fragmented.
One way to avoid being swamped in a sea of copy-cats is to propose a service with a high entry barrier (financial, technological, social, human, etc…). Your competition should not be allowed to enter your market for free. How would you turn a service into a high-entry barrier service is pretty much particular to the nature of the business, but you should realize that a service that is easy to implement will be copied mercilessly and in the end turned unprofitable. In my previous post in this category I suggested outsourcing the IT operations of a regular business as a business initiative. The entry barriers of this business model would be salaries (salaries are growing right now in Romania), social (connections with various business leaders in the process of outsourcing their IT operations) and technological (good knowledge of various systems which will be phased out).

P.S. Didn’t catch a good sleep for a few nights. Sorry if it reflects in this posting…