In startups, often, some of the most compelling businesses are created by people who have deep domain knowledge of complex, esoteric areas, from Email Marketing (Example: Act-On) to Environmental Compliance (Example: Enviance) to Online Payments (Example: Plimus).
The notion of unfair advantage helps in competing and creating defensible barriers in crowded markets.
I have personally worked in areas where I did not have as much domain knowledge (Example: Fashion e-commerce), but the amount of insight I have in building 1M/1M because of my 16 years of swimming in the world of entrepreneurship certainly helps tremendously.
There is, however, one point in favor of people coming into a sector without prior experience in it: they can think fresh, ask the stupid questions. My stupid questions in the online fashion industry in 1999-2000 led me, eventually, to publish the Web 3.0 frameworkin 2007. And the deep domain knowledge rich fashion industry still hasn’t achieved anything remotely close to the vision of personalized store that I presented over a decade back.
What do you think? Is domain knowledge essential or a detriment? I haven’t quite made up my mind, to be honest!