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How Big Startups Are Trying to Maintain Their Competitive Edge

11/27/2014 01:13 EST | Updated 01/27/2015 05:59 EST
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From humble beginnings, these former startups are now multi-billion dollar corporations that dominate their respective fields. As these startups grow and mature, their general dynamic changes. They become less nimble and, due to their growing size, are increasingly required to deal with ancillary players and issues such as regulators and established players. A natural presumption is that as these startups become behemoths, they will eventually adopt traditional corporate behaviours and processes to either maintain their dominant roles or manage these ancillary players or issues. However, the tech industry seems not to have read the playbook since tech players are taking a different tactic.

The tech industry has long viewed itself as independent from ancillary players and issues. Even since its nascent beginnings it has always followed its own path. Whether it is the borderless and global Internet or the laid back workplace culture of most startups, the tech industry has always done things differently.

Traditional industries and players have generally looked on with a range of mixed perspectives. Some have looked on in amusement as they considered tech a passing fad, while others looked on with fear and loathing since these startups have taken market share and disrupted established patterns and norms. In the end, traditional industries and players still rely on conservative economic forces to reinforce and continue their dominance.

In the past, traditional industries and players have relied on upstarts to acquire a number of "corporate" habits in order to slow down their innovation and drive, enabling a more level playing field. These "corporate" habits include:

(1) Building Fiefdoms: As startups grow in size, particularly in relation to personnel, managing every single detail becomes problematic. Whereas it is easy to manage a small team of close knit founders, managing and maintaining a cohesive culture in a large organization proves extremely difficult. Indeed, due to the lack of attention that can be dedicated to a large growing startup, there is an increasing probability that personal fiefdoms start developing whether intentionally or unintentionally. These fiefdoms, if not corrected, distract a startup from focusing on further growth and cause founders having to fight fires both internally and externally thus slowing growth and impeding progress.

(2) Increasing Risk Adversity: Startups, particularly ones that create their markets, eventually become cautious as they want to retain their dominant position. This slows innovation and eventually turns the startup into a large corporate entity, thus continuing the cycle of creative destruction.

(3) Increasingly Divergent Priorities: Startups are notoriously good at staying focused. The requirement to bootstrap a startup from nothing hones the strategic direction and operations down to its core elements. As a startup gains traction, size, funding and publicity, other non-core elements start coming into play, particularly if one becomes a household name such as Google. Proper management of non-core issues such as diversity, international trade and public perception become critical factors for high growth and high profile startups. If not managed properly, these can distract the startups from their path to success.

While many of the larger startups have adopted some of these negative corporate habits as they have grown, the current generation of startups is attempting to break out of the mode of corporate ossification and adopt a pattern of continuous startup innovation and growth.

Behemoth startups such as Google are attempting to bring innovation in-house through a number of different paths, including:

(1) Retaining Founding Staff: One of the biggest problems that startups have is the inability to retain founding staff as they grow. Due to a combination of successful IPO exit and perhaps a psychological feeling of being stifled by the increasingly large and bureaucratic nature of the growing startup, founding staff usually find themselves looking for greener pastures, whether it is starting up a new startup or pursuing other professional or personal interests.

To lose such talent and knowledge is difficult for a company of any size. As such, startups like Google have attempted to retain that talent by offering opportunities for the founding members to explore their interests while still either directly or indirectly remaining with the company.

(2) Building New Ventures: Besides retaining founding staff, startups are attempting to maintain their competitive edge by fostering ventures that not only maintain their competitive innovative edge but also expands the possibilities for future revenue and market growth opportunities. One only has to look at Google and see the numerous avenues that could potentially prove profitable in the future. From the Android mobile operating system to the Google autonomous test bed vehicle, Google is attempting to maintain its competitive edge by investing in new ventures that could not only grow its existing business but also provide additional revenue streams that were not convinced when it first started.

(3) Bringing Venture Capital In-House: One could argue that bringing venture capital in-house has already been attempted by large organizations as an attempt to reinvigorate a moribund corporate culture, but the startup attempt is a little different from the norm. Startups, while co-opting the traditional in-house venture capital model, have also integrated into a cohesive ecosystem to encourage and maintain innovation within the organization. By funding both external and internal ideas (new ventures) and personnel (founding staff), in-house venture capital builds on the other initiatives that startups are utilizing to keep innovation alive in-house while preventing corporate ossification from setting in.

The rules are changing in today's globalized, hyper-competitive economy and startups are attempting to keep up by maintaining their innovative edge. No longer can any established or traditional company afford to enter a period of ossification. Indeed, ossification in today's economy means death rather than stability. As such, startups are attempting to solve the age old ossification issue by adopting new techniques to maintain their competitive nimbleness in the face of constant innovation and competition.