The purpose of this post is to list out how startups are bypassing established companies so that incumbents glean the best tactics and apply them to their own corporate innovation.
Tech startups are designed, built, and managed differently than established companies, giving them a competitive edge against incumbent corporations. This post outlines startup advantages, including cultural differences, business models, and business strategies. But, established companies aren’t sitting around idle; they’re adopting these same strategies in order to compete, emulate, or lead in their market. See how corporations are deploying ten types of innovation programs.
In our work at Catalyst Companies, we’ve observed that big, established companies possess advantages in their tremendous resources, trusted brand names, and experience in their field, they are also plagued with gears that are slow to turn.
11 Ways Startups Outrun Established Corporations:
Startups have unique cultural differences:
Herein lies the greatest difference between a startup and and an established corporation: The core ethos of the organization is built differently.
- 1) Smaller, faster. Smaller in size, startups can quickly redirect employees in nearly any direction; there are fewer minds to change and fewer levels of management to get through. Additionally, startups hire innovators who are focused on new ways of doing business, which also enables them to quickly shift in unorthodox directions.
- 2) Embraces failure. Because startups have less at stake, they foster a culture that’s not afraid to fail. You’ll hear mantras that encourage “Fail Fast” or “Fail Forward” risk-taking in exchange for the potential of innovation. Meanwhile, established companies can be hesitant to pivot and disrupt their existing revenue streams.
- 3) Attracts high-risk/reward workers. Unlike stable career positions, entrepreneurial minded professionals are attracted to the startup lifestyle. This encourages wilder career moves in long shot startups, with the equity promise for high financial gain and industry fame.
- 4) Attracts skilled talent. Startups often attract top talent due to their sense of purpose and passion, quality of work life, perks, and promise of making it rich through equity packages rather than a salaried job at an established company.
- 5) They’re younger. As a whole, startup employees and founders, at least in tech, tend to be younger; they can afford to take more career risk, often with fewer family, health and financial commitments. Although controversial, Mark Zuckerberg claims they’re just “smarter” than older cohorts as they may have the latest skills, or can be easier molded.
Startup business models are setup differently:
Startups are set up differently as business entities than established corporations, giving them additional advantages to take down their target markets.
- 6) VC funded. Ample VC funding enables radical innovation and encourages high-risk business models, often designed to disrupt incumbents through the use of networks, technology, and new methods of going to market.
- 7) Privately held. Startups have more freedom to disrupt an existing market, as they’re not exposed to the scrutiny over quarterly earnings like public companies are. As a result, these startups answer only to their executives and board, and they can plan beyond the next quarter.
- 8) Growth over revenue. Startups are not held to the same standards as publicly traded corporations. Startups are often focused on market penetration and adoption rather than just revenue. To avoid upsetting users, Facebook didn’t turn on its “mobile advertising” engines until post-IPO.
Startups have an unorthodox business strategy:
The way startups deploy their day-to-day businesses is different than established companies; they move faster, with greater risk, and are able to quickly ship product.
- 9) Tackle niche, then grow. Startups can attack small markets, then grow them to compete with established companies. Established corporations often don’t have the appetite to defend smaller markets, giving startups the ability to gain footholds as they expand.
- 10) Faster than the law. Startups often challenge existing rules, laws, and regulations. They’re able to move faster than regulators, then reshape the discussion to their benefit, like Airbnb, Uber, and Lyft have.
- 11) Quickly ship product. Startups are known for the practice of “shipping fast” in their product releases: releasing versions daily if not hourly, and are taught that shipping a product when it’s 90% or even 80% finished is acceptable — rather than perfecting it like an established corporation would.
Looking at across these 11 different ways that startups are able to outrun established corporations, you can see that the very core makeup of the culture, business setup, and their strategies are often different than older established companies.
Established companies aren’t standing still, waiting to be disrupted, they are either weighing whether they should build similar features or purchase the startups outright, or emulating the same characteristics of startups. Established companies who don’t move faster, run the risk of being blind sided from a young market competitor.
We’ll build on this in an upcoming report on corporate innovation and explain how established companies are starting to act more like startups and make their corporations more agile.