Startups are Big Business. Can Big Business Please Start Up?

BCG Digital Ventures’ Directors, Vanessa Wolfe-Coote and Craig Boshier, discuss how big businesses can jump-start their operations to become the new disruptors rather than the disrupted.

William Gibson famously said, “The future is already here — it’s just not evenly distributed.”

Well, it is now. We have entered the Fourth Industrial Revolution, an era that is characterised by the mass democratisation of access to products, services, knowledge, data, power and funds. There are unprecedented levels of connectivity between people, devices and machines that span all economies, industries and people. Innovations that once belonged to the realm of science fiction are gaining traction, being commercialized and transforming traditional business.

The challenge for big businesses is learning how they can harness these transformations to become successful technology innovators and keep up with the startup champions of recent years.

A tale of two cities

Consider these stories. One is a tale we know all too well, the fate of Blockbuster following the firm’s rejection of an alliance with Netflix and its inability to see the threat looming from digital media. By the time Blockbuster launched its own online subscription service, Netflix had 4.2 million subscribers. The rest is history.

Contrast the way Blockbuster worked with how two tech giants today work, and it’s clear these firms are creating the future. There was a very public race between Facebook and Google to solve the classic AI challenge of Go. This game is known to require intuition, lateral thinking and has been impossible for a computer to beat until recently. Just hours after Mark Zuckerberg announced Facebook was close to solving the problem, Google’s AI business, DeepMind, announced it had, and in doing so, Google achieved a feat thought to be over a decade away.

Technology giants are an entirely new breed of organisation, changing the way business is done and diversifying into whole new industries.

Re-thinking “success”

A recent Harvard Business Review article spoke about public companies having a one in three chance of being delisted in the next five years. That’s six times the delistings rate of companies 40 years ago (in spite of almost $1.6 trillion being spent on R&D).

Corporations are no longer enduring institutions. Neither scale nor experience guards against an early demise, and most major corporations recognise they need to become innovators in and around technology.

Of course, it’s easier said than done.

Too many corporates value short-term incentives over long-term growth. Telstra’s CEO Andy Penn recently spoke about the pressure he faced from shareholders to “play it safe” rather than invest in new businesses and broader innovation initiatives in Asia. It’s clear that some businesses want to take a longer view, but investors won’t let them, and other businesses don’t want to take a longer view because of internal reward structures and remuneration.

It’s a common problem shared by many CEOs and leads to risk averse, failure intolerant cultures. Add this to long and costly funding cycles, a siloed approach to delivering products and platforms and complex and politically charged governance structures, and it’s obvious how hard it is to sell the message for change.

The problem is that these unfair disadvantages lead to incremental, not game-changing, innovation that happens over multiple years and fails to deliver expected returns.

The corporate disruptor

It’s not all doom and gloom, and some corporates are learning how to leverage their comparative advantages — large and loyal customer bases, established brands and funding — to disrupt themselves and expand into new markets. Welcome to the dawn of the corporate disruptor.

There are four reasons why this will happen:

  1. Corporations are beginning to adopt a venture capitalist mindset, viewing innovation as a portfolio of investable ideas as opposed to a single product or service idea. In doing so, they are viewing their value chains with a completely different lens, exploring how they can unpack and assemble their assets in new and meaningful ways. They are placing bets across their entire portfolio of innovation, building ambidextrous, multidisciplinary teams governed like startups rather than remaining encumbered by operational processes.
  2. Senior management is acutely aware of the threat of external innovation and has started to shift its mindset by embracing failure, accepting it’s part of the process, failing fast to contain costs and failing smartly.
  3. Corporations are starting to explore adjacencies, identifying partnerships to accelerate the speed at which ideas are turned into real, running businesses. They are establishing business models and ecosystems that are hard to copy and compete against, as well as shaping their own markets with a network of partners.
  4. A relentless customer focus is the enabler of innovation. Corporations are embracing research-led approaches, as opposed to personal bias and business casing, that focus on identifying real friction in the market to surface new opportunities for growth. These same companies are developing processes to enable continual customer learning throughout the lifecycle of a product or service, pivoting and testing to ensure their offers meet customer and market needs as they evolve over time.

We’re entering a new epoch in the transformation of big business by technology, and we predict the next horizon of innovation will be driven just as much by big businesses as their startup rivals.

It’s time for big business, so please start up.