02/16/2015 05:01 EST | Updated 04/18/2015 05:59 EDT

Do Startups Still Need Traditional Corporations?

Airbnb. Uber. Google. Facebook. From humble beginnings, these former startups are now multi-billion dollar corporations that dominate their respective fields. In many respects, this domination has been aided by a number of factors including (a) exploiting "gray" areas between regulators and existing market players and (b) creating brand new industries where none existed before.

The tech industry has long viewed itself as independent from ancillary players and issues. Even since its nascent beginnings, the tech industry 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 from traditional industries.

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

In today's hyper-competitive and globalized economy, the traditional economic dynamics are increasingly being upended by startups. Today's startups are striving to maintain the competitive edge that enabled them to move from research lab to multi-billion dollar corporations. This begs the question: do startups still need traditional corporations or are traditional corporations the next target of startups?

Startups have always been very good at exploiting the grey areas of the business environment in order to achieve profitability and create new "Blue Ocean" markets to dominate. However, instead of merely capitalizing and holding onto a single "Blue Ocean" market, today's startups seem adamant on not only building their dominance in a single "Blue Ocean" market, but finding ways to extend and expand that "Blue Ocean" strategy into other related markets.

Google is a prime example of this expansionistic "Blue Ocean" approach. After gaining success and dominance in online search and advertising, Google has gradually expanded into other related and unrelated sectors. Everything from its widely successful Android mobile operating system to its autonomous vehicle test bed to researching practical uses concerning autonomous drones, Google is experimenting and innovating into unexpected sectors and fields. While Google and other startups are having varying rates of success in their endeavors, it is not the success rate of the endeavors that is of interest but rather the need for traditional corporations in sectors being invaded by startups. In other words, are traditional corporations still needed by startups?

In the past, traditional corporations and startups worked symbiotically for mutual benefit. The advantages for startups are numerous and include:

(1) Prebuilt Brand Audience and Market: The main advantage for startups that work with traditional corporations is their ability to quickly access a large pre-existing revenue generating market. Traditional corporations have already put in the time, money and effort to build a loyal customer base that would take a startup significantly longer to achieve. Startups working with traditional corporations that have existing markets short circuit their growth by leaps and bounds thanks to the predefined customer base.

(2) Market and Investor Recognition: In the past, startups which signed up a traditional corporation indicated that they had "made it" both in terms of credibility and market acceptance. Not only does partnering with a traditional corporation directly boost sales, it has the advantage of accelerating the sales process at other potential sales prospects due to the perception that direct or indirect competitors might be losing their competitive edge.

Investors also gain assurance that their current and future investments will pay off due to the signing of a major traditional corporation. In other words, the signing of even one traditional corporation creates a virtuous cycle for a startup in terms of increased revenues and sales.

Today, however, as startups build their own markets and become brand names in their own right, do they really need to partner or even need to acknowledge traditional corporations any longer? The answer is looking increasingly as a no.

When one looks at business trends occurring in the market, one gets a distinct impression that startups are treating traditional corporations and government agencies as obstacles that can be easily overcome. Concrete examples of these trends include:

(1) Startups Working With / Buying Up Other Startups: Whether it is Google buying 510 Systems to continue work on its autonomous vehicle or Facebook purchasing Whatsapp, there seems to be an increasing trend for larger more established startups to purchase other startups, thus leaving traditional corporations out of the loop.

(2) Startups Fighting Each Other Versus Traditional Players: The Uber / Lyft / Sidecar battle seems to be an increasingly prevalent theme where startups are focused more on fighting each other than responding to countermoves from traditional players. With statistics showing that the San Francisco taxi industry is steadily collapsing, it is no wonder that Uber is more focused on retaining market share against other startup competitors than with dying traditional competitors.

(3) Startups Ignoring / Fighting Government: Uber. Airbnb. Google. These startups, along with many others, seem to be in continuous court battles with government regulators and agencies as they grow and expand their business models. This increasingly seems to be the cost of doing business for startups as they exploit grey areas in existing rules and regulations as well as test the willingness of society to support archaic laws in light of new technologies and social norms.

The end results of startups ignoring traditional corporations and governments remains unclear. It has been stated that Silicon Valley is increasingly in its own bubble compared to the rest of the world and perhaps this is where the economy is heading. A self-sustaining startup economy is increasingly divorced from traditional corporations and governments, but is at the same time capable of having significant impact to those traditional players.


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