Clash of the concepts: Startup Ventures VS Large Corporations
You can’t force corporate rules on a startup — or vice versa. Size and complexity affect the basic methodologies used to develop ideas and create revenues, and it is dangerous to ignore the differences.
There is a lot of talk these days about identifying the best business practices, but the truth is that even the most acclaimed blueprint can fail badly when applied in a company that’s not well-positioned for that maneuver. Established players in the market typically have ambitious agendas and huge operational expenses, so their main focus must be on flawless execution of relatively safe business plans. On the other side of the spectrum, newcomers in the market have nothing to lose and are far more open to search for unconventional solutions that involve more uncertainty. In short, smaller companies are organized in a way that stimulates experimentation and risk-taking, while large and complex enterprises are incentivized to maintain the status quo by any means necessary.
This profound divergence of management styles is felt on many levels, from top to bottom. Every business decision emanates from the basic strategic outlook and attitudes, with larger systems leaning towards more rational planning and objective measurement of accomplished objectives. Orientation to innovation, urgent action and risk-taking is the primary model utilized by smaller companies — and it gradually becomes a part of their DNA, coloring the internal culture and shaping the relations between individual workers. In the following analysis, I will compare the two concepts head to head and break down major advantages and disadvantages of each.
If you look at the strategic approach of startups, the entire intention is to disrupt the market and introduce a more volatile and unpredictable environment. Under such conditions, new companies stand a chance to wrestle a portion of the profits away from the already dominant providers. In stark contrast to this ultra-aggressive mindset, large corporations are more interested in gradual improvement that never threatens the existing order.
The product range defines the company and directs it towards certain segments of the market. Quite expectedly, leading companies tend to have set portfolios of well-known products that meet stringent standards and enjoy high visibility in the market, adding new items only when there is considerable demand already waiting. By contrast, new products are the best chance any startup has to put a foot in the door and secure continued survival and progress, so launches are far more frequent and speculative.
Customers & Market
Companies that are still searching for a successful business model rarely have the luxury of a well-defined target market. They are hoping to run into a profitable model and thus are readily flirting with any and all target groups if they seem promising. Meanwhile, top providers are likely to have a steady customer base in place, and understand exactly who their customers are, which allows them to optimize their activities according to the preferences of the market.
Rather than dealing with large quakes that can have unforeseen consequences, market leaders prefer a smooth ride with moderate but consistent growth. Innovation is welcome only when it doesn’t carry a large risk of failure and is usually pursued in smaller increments. Startup companies don’t often have the time for gradual development over a long period and would rather achieve a significant breakthrough as soon as possible, hence directing most of their energy to this outcome.
High degree of employee specialization is the trademark of large corporate system. Teams are organized into functional silos, with each one having a limited field of responsibility and a clear chain of command. Lacking the size of their corporate competitors, startup ventures typically gravitate towards multi-disciplinary teams that are flexible enough to perform many different roles, depending on present needs.
Long-term planning in large companies is usually driven by the mission statement that represents the agreement of major stakeholders in regards to company values and objectives. This kind of consistency stabilizes the decision-making process and simplifies employee training, but prevents sudden changes of course to respond to current events. In order to have that kind of flexibility, startups base their strategic thinking on immediate results of practical experiments and perceived patterns of customer behavior.
The operational processes in a corporate environment are generally streamlined, and include clear delineation between the planning phase, building phase and launch phase. The workflow is not so clean-cut for up-and-coming enterprises, which often indulge in hypothetical planning that might or might not be feasible in practice. The innovation is often reached through continuous adaptation of the product design to the realities on the ground, hoping the next iteration would prove to be the right one.
Large systems are prone to strict hierarchy, with the best paid person typically assuming responsibility for all crucial decisions. While that allows the greatest speed of reaction and absolute clarity in high-pressure situations, it also prevents team members from reaching their full potential. Smaller teams have reasons to rely on data-based decisions and take into account the outcomes of experimental activities undertaken in the past.
The described models of business organization may look opposed to each other, but in reality they are far from incompatible. Smart companies can learn valuable lessons from both sides and apply the selected practices in an appropriate context, hence increasing their capacities through more efficient operation. However, it is important to remember that each principle is suitable for a particular purpose and to refrain from overstretching the boundaries for each model.
Enterprise systems will always be oriented on high level of specialization and controlled growth, but they can significantly boost their innovation capacities if they create small teams that would serve as idea incubators and effectively operate as ‘startups within a system’. At the other hand, small companies could benefit from process optimization and precise customer targeting, even if these practices would have to be scaled down to fit their needs.
No matter what the size and structure of your company are, there are steps that can be taken to facilitate innovation and enable more efficient execution.
Originally published on Linkedin Pulse
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About The Author
James Lethem consults on validation, growth and innovation. He is the Lead Mentor for Google’s hyper-accelerator programme — Launchpad Start in London & SF. You can connect with him on email, linkedin or twitter.