Doing something different is different from being something different. Competitors can usually mimic the former, not the latter.
Investors will spend a lot of time drilling into a company’s defensibility. The words “moat”, “differentiation”, and “defensibility” are often used. Basically, what will stop someone copying you?
Incidentally, this is why few people sign NDAs any more. If the only protection your product has is that no-one knows about it, then you don’t have much of a chance once you launch, unless you expect your few B2B customers will be signing NDAs.
The first thing to do is explain the waves that first throwing the rock into the water will cause. Which competitors will react by doing what? And you need to plan for your competition hearing about you from the moment you receive funding, not from the point of product launch a year or so later.
Reverse Engineering
A useful detail to share with an investor here is how long it would take to copy you in person-months. If something took your two coders a year to build, or 24 person-months, then a large company could in theory reverse engineer your product within a month of seeing it. A need for clinical trials or other regulatory hurdles can work well in your favour as they equalise the speed of larger competitors.
Present the same data as a cost. In hard cash, how much would another company that thought you were doing really well need to throw at a team to create your product? This fact gives an idea of what you might cost to buy for a competitor, and can be used to sanity check your own future valuation forecasts.
Unique Resources
Work backwards. Your value will come from revenues and they come from customers. Customers interact with your product, which is an output, not with your internal processes. So your product needs to be differentiated somehow for customers to keep buying it even when the competition try to copy you. If everyone else makes blue jumpers and you sell green, you are differentiated, but not defensibly so.
Your differentiated output will only be sustainably differentiated if it is produced by a differentiated input into your processes, an input that cannot be copied. This takes us back to core resources, and we can join the two ends of the story: your value will depend on your sustainably differentiated core resource. What is it and why can’t it be copied or acquired?
Knowledge can be hired in or learnt. Relationships can be bought or forced. Prestige and brand can be acquired. Price can be cut. Laziness can be energised, after a while. Sloth is slightly harder to make nimble, for larger companies. You really need something special, and that will often be a blend of some of the above inputs, combined with sector expertise and first mover advantage.
Patents
Patents are not meaningful sources of defensibility unless you work in pharma or precision engineering, or a few other niche areas. Code and tech are notoriously difficult to patent. And have a look in the news: large companies will just ignore a patent and dare you to sue them. Some companies exist solely to look at patent applications and sue the owners, usually with almost no merit, so that they agree a settlement just to stop the court case.
The average cost in the US of a small company patent suit (where the patent value is less than $20m) is $2.8m for each party. It’s lower in the UK but nevertheless, no investor will back you for an extra million alongside your £1m raise to be embroiled in expensive, emotionally draining, risky court proceedings for the next few years. Until the patent suit goes away you are almost unsellable and won’t get Series A funding either. Having a patent is not, unfortunately, enough defensibility for an investor.