The startup world is infamously littered with “Deadpool” branded ventures that failed to find proper footing. Yet nearly every day incumbents are sidelined by entrepreneurs — eventually becoming relics of the past. In all cases, these same incumbents were originally startups themselves. Today, technology is accelerating, innovation is iterating more quickly, and tech startups are disrupting industries everywhere. Can today’s incumbents ward off their own deadpool by leveraging their strength of scale and absorbing the war stories of innovation to create asymmetric value — a category generally reserved for entrepreneurs daring to be great?
This week I’ll be discussing these topics and more for a panel that I’m producing with a handful of founders and entreprenures at a leadership offsite with one of my clients. Be on the look out for a review and followup later in the week.
In the mean time, I’ll reflect on a dinner conversation I had with some friends the other night. Is it possible for large corporates to innovate beyond their core revenue streams? Often times, well meaning corporations try to drive towards innovation but fail repeatedly. Can they realize exceptional aysymetric value on their own? What about Corporates that tend to be more heavily regulated than others — e.g. vs. the latest app craze rolling deep out of Silicon Valley? Do heavily scrutinized and regulated companies suffer more than most?
The obvious things people will say is “Well, it’s a DNA problem” for the large corporate or that “The Culture” is the issue. If we want to innovate more effectivly, we have to append, change, correct, or evolve our culture. In most cases, these are all obviously true statements. Wouldn’t it be great if we could constantly edit our culture to always be on the cusp of innovation? Even in startups, it’s a very difficult thing to manage. These statements and a quarter will get you a cup of coffee as far as I’m concerned. What is it that we really need to do? Are you wearing 15 pieces of flair today?
Sometimes you’ll hear that M&A is the answer. Apparantly we spend over $2 Trillion dollars a year on it — so it must be working, right? Yet, according to the Harvard Business Review, “Study after study puts the failure rate of mergers and acquisitions somewhere between 70% and 90%.” Well, in some cases it seems to work — and in others it doesn’t. The article previously mentioned tries to narrow in on what’s missing by targeting the why factor in why one would acquire a company. At the end of the day, M&A value creation will come from understanding ones business well enough, and determining whether or not the company you’re acquiring is for its new state of the art disruptive business model or for a business model improvement. It seems most of the mistakes made are inherantly understanding where the value is coming from in the target acqusition, and whether or not you’re acquiring it for the right reason.
So why is it that disruptive companies created by hungry entreprenurs frequently disrupt incumbants — relegating them to the status of deadpool? What is it that we should be looking for?
One time I was at Greylock Capital, presenting some stuff to Reid Hoffman — the infamous founder of Linkedin. He said to me — “Tom, explain to me why I’m getting a discount on the future value of your company — how am I going to be rewarded for buying in early?”. I was probably 28ish at the time. But I distinctly remember that being an awesome question. Here I am, a college drop out — getting my real life MBA lesson. It was kind of a nice big boy question.
He was basically saying, Unicorns, ranbows, and sunshine surrounding a beautiful story of uptopian success wasn’t going to work here bubba. I want to know why you’re giving me one heck of a good deal to be apart of your ridiculous value creation in the future. He gave me the Linkedin’s pitch deck that he used, and sent me on my way. Needless to say, I’d be better prepared next time.
What I’m talking about here is value creation. Something I became more initimately aware of as I grew as an Entreprenur. When I firsted started my company — it was purely about mission. As I grew, I had to learn how to transform mission into value creation. It’s not necessarily about how much money you spend or raise — it’s about whether or not you’re spending your capital in such a way that your efforts result in generating new value by a factor of 10 (yep, stretch goal!). In different words, how do we achieve growth that our investors weren’t prepared for? How can I give Ried an exceptionally awesome deal for buying into a whacky idea that will produce 10x rewards? That’s the deal investors get — they take on the risk of buying in early because you’ve concoted a crazy idea whereby opportunity transforms into significant value creation in the future.
Eric Ries once told me in an interview, “There are Entreprenurs everywhere” — and I think he’s right. Whether you’re building a startup or an employee at a large firm hunting for aysemetric opporunities — what you’re really looking for is those disruptive concepts, internally or externaly, that have the potential of giving your investors, internally or externally, a significant discount on the future value created. That also means, that yes — obviously culture needs to change — but let’s be more specific, we need leaders. We need leaders and investors who are willing to give entreprenurs the space and time to succeed. What I mean by that is, sometimes even the most disruptive and innovative tech companies companies rolling out of Silicon Valley can take time to be discovered. Most of the over night successes we hear of…took years to achieve that title. Finally, in some cases, it might also mean revisiting your organizational incentive structures — how are your incentive design to properly reward those who drive towards discovering aysemetric value creation.
Last but not least, for our regulated friends out there — what if, by a factor of 10, you simply became the most awesome company in the world…at being regulated? Chew on that one for a bit.