Why Shitty Products Survive (and Thrive!)

You're a startup founder who has recently decided to jump into crowded waters. And few would doubt your capabilities: this is not your first dance, and you have had some measurable early stage successes in your past. You've built a second-to-none product and engineering team (you know this to be a non-negotiable, absolutely essential ingredient to any glimmer of a chance you may have at success). You've scoped out the competitive landscape, and determined that there is really one, possibly two players that you need to combat in the market. Put another way, the customers you want are currently using the products/services of one of these two players.

But you're an experienced founder, and you would not have jumped into this space unless you had a near-irrational belief in your ability to differentiate yourself from your competitors in a way that resonates with potential customers. If you want to take customers away from your competitors, you have to give them something that they want but are not getting.

And here's the rub: this differentiated 'thing' (or set of things) has to be treasured enough by your prospective customers to make them want to even consider switching, to even consider taking your call. And this is where I usually see startups, even those run by battle-hardened dudes and gals, trip up. While near-irrational belief in their ability to differentiate typically yields an actually differentiated product, that irrational belief should not extend to how badly customers want it. Believe you can be meaningfully different, but don't fool yourself into assuming customers want 'different' enough to make the switch. And here enters the antagonist (or protaganist, depending on where you're sitting from) of our little story: institutional knowledge.

Put most simply, institutional knowledge is the network effect of an entire community of users developing near-subconscious muscle memory for the products essential to their profession, regardless of the user's overall satisfication with the product. Over time, comprehensive proficiency of this product becomes a requirement of the profession.

A perfect example of this would be OpenTable, the most prolific restaurant reservations platform in the United States. OpenTable's core offering to restaurant owners is their Electronic Reservation Book (or "ERB"), the system that helps hosts and hostesses manage table reservations, walk-ins, and seating guests. While I am happy to share data with those that request it, I will summarize by saying that most restaurant customers that use OpenTable abhor it (for a few different reasons). And yet they have a clear monopoly in this space. Why? Most would assume it is the network effects of owning both the demand-side (consumer-facing apps that help diners find reservations), while also controlling the supply-side (the "seatable inventory" they can see via the ERB implentations). But that would assume that restaurants need OpenTable to send them those footfalls; that those footfalls are net new to the customer, and would otherwise be lost to competition. Most restaurants using OpenTable will tell you that is the farthest from the truth: customers making reservations via OpenTable are, in fact, existing customers, using it simply for last-mile convenience. So let's discard "network effects" as the chalice of immortality for a shitty product like OpenTable ERB.

Once a product like OpenTable reaches the level of ubiquity that it has with its customer base, institutional knowledge becomes its core competitive asset. Simply put, for hosts and hostesses, the core userbase of OpenTable, their employment opportunities are greatly impacted by their proficiency in OpenTable. Think about how powerful and unshakable that is. Restaurants want to keep OpenTable, not because they love using the software; in fact, most hate it. They need to keep OpenTable because hosts and hostesses are extremely familiar with it. They need to use it because they can't risk the perceived opportunity cost of adopting a new system, i.e. training, teething issues, etc. That is institutional knowledge.

A handful of my peers are running SaaS startups, in arguably crowded spaces, but where either a perceived monopoly or an oligopoly rises above the fray (Anand and Sunil @ CleverTap, Avlesh and Ankit @ WebEngage, Nischal @ CrowdFire, Manik @ LinkMySport, Sunil @ SignEasy, the list goes on. And I believe in each of these cases, it won't be the new bell or whistle that convinces customers to divorce their existing products. It will be in their ability to diminish the value of insitutional knowledge. It is a shitty product's greatest advantage (MS Office, anyone?), one that you don't have. So figure out how to tear it down. But be aware of it. And certainly respect it.