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Aaron Stanton
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« on: May 06, 2009, 09:08:34 am » |
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I'm reading a book right at the moment that is extremely encouraging to startups, or at the very least, should give you an interesting perspective on the role of startups in any given industry. It's called, The Innovator's Dilemma by Clayton M. Christensen. Now, I tend to read business-related books almost at random. I go out and find a bunch of them, and then work my way through the list on the assumption that I'll come across some nuggets of useful information.
I almost stopped reading The Innovator's Dilemma, because it specifically focuses on how to develop disruptive technologies inside of a large corporation. Since we're not a large corporation yet, I was tempted to pass it up. But I didn't, and I'm glad I didn't. We deal with large corporations on a daily basis, and I figured that understanding things from their perspective was well worth the effort.
What I found was actually a few nuggets of wisdom that I think every startup employee or owner should be aware of. When you're small, big companies are scary as crap. You spend your life in the early days worrying that some big company with more resources and more engineers is going to come in and do what you do, but faster, bigger, and better. It's impossible for a startup not to worry about this - the logic is that if you're really working on something cool, someone else will want to do it, too. If they're big, they'll be able to leapfrog you and *poof* your business is now facing off against Microsoft, IBM, or Apple.
But the very premise of The Innovator's Dilemma is that you really don't need to worry about that if you're working on a disruptive technology. It basically lays out a fairly convincing argument that the very practices that are considered good management in an established company - focusing on customer demand, allocating resources to high margin products, etc. - will inadvertently kill off disruptive technology products inside of an established company.
In other words, disruptive technologies almost always focus on an emerging market - which by definition is small to start with - and have lower profit margins. If a company is making a billion dollars a year from Product A, it's extremely hard to convince them that they should reallocate resources to develop Product B, which has a projected market of $1 million a year - IF the new product is significantly different than their existing product (i.e. disruptive).
$1 million dollars isn't enough to motivate an IBM, Microsoft, or Google. Consequently, new development projects are never viewed as the lifeblood of the company, and resources are always scarce. Individuals don't see their work as essential, and failure as an individual employee is more damaging than failure of the product as a whole. Risks are not taken, and smaller opportunities are not pursued. But to a startup, $1 million dollars is worth chasing. So startups exist to discover and build markets and technologies that are ultimately the future, while big companies develop and profit from established technologies.
The reason that there's always a new Microsoft, IBM, Apple, or some up-and-coming company, is because well run, established companies are rarely the successful pioneers of new technologies. Those are small companies, that then grow into large companies, which in turn become "well-managed" and lose their ability to come up with the next disruptive technology. And the cycle continues.
The only time that large companies are really successful at introducing new disruptive technologies are when they either a.) spin off an independent company with no other purpose but to develop that product, or b.) acquire a startup that's already established the culture needed to successfully build that new product. The book uses Hewlett Packard's introduction of inkjet printers, competing against their existing laser printers, as an example of forming a new company to develop out a market of unknown size.
There are many other reasons that it's difficult for large, well managed companies to successfully develop disruptive technologies, but it all boils down to this: If you are a small company working on disruptive technologies, pushing into emerging markets, you are far better prepared to handle the challenges facing you than a large company is, even with their superior resources.
The hardest nuts to crack are the ones best taken on by a small company. I've had several people that know what they're talking about tell me that big companies should not be your biggest fear. In personal interactions, I've seen evidence to support this, and not because the big companies are bad at what they do. Instead, they simply apply different priorities through necessity.
What it also means is that the people that find the creation process of exploring disruptive technologies to be exciting will likely be very frustrated inside of an established, well run organization. Well run big companies are experts at repeating already established successes, with market research and data to back them up in their decision making. When no data exists (such as with a new market or product), or when creating a new success, every good management technique will be aligned against you.
The basic premise is simply this: There are roles for small companies that are distinctively different from those of big companies, and neither will be able to successfully compete with the other on the other's own turf.
I'd encourage anyone interested in startups, or that's involved in a startup, to give The Innovator's Dilemma a read. It'll give you a sense of place in the world.
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