Having worked as a consultant at the likes of Bank of America, Merrill Lynch and Accenture, Ritam Gandhi, Founder and Director of Studio Graphene (planners, designers and builders of digital products), has seen first-hand how large businesses slow on the uptake of new tech have been overtaken by their competitors who have been willing to look to start-ups for innovation and partnerships.
According to the American Enterprise Institute, only 60 of the Fortune 500 companies listed in 1955 still remain in 2017. Moreover, the level of turnover within the list has increased significantly since the turn of the millennium. Today in GBI Magazine, Gandhi offers his advice on what corporates can do to take full advantage of collaborative opportunities with start-ups.
Probably the most significant business story of the last decade concerns the rise of the tech giants – companies like Facebook, Amazon and Netflix who have risen from humble beginnings to become the dominant player in their respective markets. Mirroring the rise of these companies has been the decline of many of the huge corporations who dominated business landscape in the 20th century. Famous names like Kodak, The New York Times and Compaq have long since dropped out of the Fortune 500 due to technological change and disruptive challengers.
As someone who made the leap from the corporate world of management consultancy to become an entrepreneur and start-up founder, I know how difficult it is for large companies to retain their relevance and commercial position in a market that is rapidly evolving, particularly when they lack flexibility due to their rigid, bureaucratic structures. However, by embracing innovation and investing their resources into potential start-up challengers, I believe that large corporates can insulate themselves against future waves of disruption.
Why are start-ups so much more innovative?
Naturally, start-ups are envious of the resources and networks available to large corporates but with scale comes hesitancy and risk aversion. These traits generally suppress innovation and can mean that companies with established business models are ill-prepared to adapt to disruptive changes.
Start-ups need to realise that they, not corporates, are ideally placed to engage in the process of finding innovative solutions to complex problems. For one thing they’re usually led by one or two founders who internally have complete license to fulfil their vision for the company’s progression. Moreover, not having the necessary resources to compete with bigger companies generally forces start-ups to innovate in order to find a receptive market.
Should partnerships be the default response to disruption?
In the most extreme cases, start-up challengers pose an existential threat to established companies, forcing them to rethink their business models if they want to remain influential and profitable in the decades to come. Consequently, many successful corporates are increasingly looking to partnerships with innovative start-ups as an economical and flexible means of incubating innovation.
The beauty of this arrangement lies in the distance between the two companies. Corporates are insulated from the risks associated with genuinely groundbreaking projects and start-ups are given the breathing space they need to tailor their product to the market’s needs, without being forced down blind alleys in the search for private investment.
However, corporate / start-up partnerships aren’t always the no-brainer that they appear at first glance. In reality, big businesses and small companies have different incentives and this can lead to friction. A partnership built on a misunderstanding is doomed to failure but where there is unity of purpose, partnerships can allow corporates to innovate and start-ups to scale up without forcing either to abandon their long-term objectives.
Are corporate-start-up partnerships the way forward?
If large corporates want to remain at the cutting-edge of their industries well into the next decade, then it’s not enough to simply press ahead with their current offerings. They need to ward against the conservative mentality that grips many large companies and start fostering innovation, even if it means outsourcing this function to other companies. After all, there’s nothing to say that corporates and start-ups need to be natural competitors, so why shouldn’t we be promoting partnerships instead?
As we head towards the fourth industrial revolution, a new frontier where technologies like AI, internet of things and big data threaten to disrupt every major industry, it’s incumbent on the new generation of corporate titans not to neglect the importance of innovation. It doesn’t matter how big a company is today, if they stop looking to the future then they’re guaranteed to be left in the past.