What can Corporates Learn from Startups?
At H2 Ventures, we often talk about how startups have a big advantage compared to large established corporates, that is that on ‘day one’ a startup has precisely zero customers. This means that startups are, by necessity, incredibly customer focused. If they weren’t, they would never attract their first customer, let alone their hundredth or thousandth. This leads startups to have a different view on corporate governance compared to larger established companies (let’s call them ‘corporates’) that is worth exploring.
For corporates, governance understandably has a strong emphasis on compliance within an ever more complex regulatory environment, in order to protect their long-established brand reputation from any adverse publicity (often referred to as ‘headline risk’).
For startups, the ‘north star’ for governance is the question: “how do we deliver a better customer experience?”
This remains the key question for startups even if it means testing the boundaries of government regulation. An example is Uber — who have built a global business that has transformed personal transportation, a service that many users consider to be a vast improvement on incumbent transportation options. Clearly, if this was not the case Uber would not have grown the way it has. To achieve this vision of a better customer experience, Uber had to go against regulations in most of the markets in which it operated. It even went so far as to pay the fines of it’s drivers. Uber was betting that if enough customers were exposed to the superior experience of ride-sharing, governments would have to adjust regulatory settings, and in most markets, they were right. This was all possible because of a simple 5-star rating system, where every trip is rated by the customer and the driver. These scores are made visible to users (customers and drivers) so that they are empowered to control their own experiences. In addition, drivers with a rating below 4.5 stars are removed from the system. In this case, a decentralised, user-empowered approach has proved more effective for customers than the traditional centralised rules-based approach to regulation.
While corporates may claim that they adhere to the same north star, numerous recent examples suggest otherwise. In the face of this wrongdoing, government policy makers often respond by adding additional regulation. Corporates react, as they must, with further internal regulatory process. In a highly competitive landscape, this can lead to a mindset that focuses on ‘black letter’ adherence to a regulatory regime, even if such behaviours or business practices are counter to the best interest of the customer.
So what can corporates learn from startups?
This is obviously an over-simplified look at the multifaceted role of governance for large corporates and ignores many of the stakeholders, in addition to the customer, that a large corporate must manage. However, if corporates simply asked: “is it the right thing for our customers”, they are immediately acting as a startup would.
Policy setters should also take note. Each time there is a corporate scandal, we inevitably get additional regulation (which corporates absorb as a cost of doing business), which is often counter-productive. Furthermore, this complex regulatory environment makes it harder for new startups to enter and compete with incumbents. I would argue that a simpler regulatory regime, based on clear principles, will lead to more competition and by leveraging the speed of digital technologies, more empowered consumers.
This is the way a startup would tackle the problem.
