It’s a paradoxical yet persistant truth in Silicon Valley that innovation is almost exclusively a biproduct of small, scrappy startups, not large public corporations.
It may seem counterintuitive that disruption and headcount would have an opposite relationship. You would think that amassing an army of thousands of employees would give you more leverage in this digital Game of Thrones, but business parks across North America are strewn with the carcasses of megacorporations that have been killed off or irrevocably maimed because they thought the clock would never run out on them (Kodak, Blockbuster, AOL, Motorola, RIM, Sun, Sony).
There are some obvious exceptions (Apple), but as a general rule bureaucratic inertia at large companies gets channeled into a death grip on the status quo, not big bets for the future.
Like the power law of distribution, innovation in the technology space follows a sort of inverted 80-20 rule (also known as the Pareto Principle) where the top 20 percent of startups like Square, Uber and Dropbox generate 80 percent of the innovation and the largest 20 percent of corporations like Samsung, Yahoo and HP mount 80 percent of the obstruction to that innovation through activities masquerading as progress, like patent lawsuits, government lobbying and acqui-hiring youthful competitors.
These are textbook symptoms of The Goliath Syndrome—when big companies become blind to their own vulnerability because they view their size as an asset instead of what is truly is: a liability.
But why is this the case? Why can’t more big companies defy bureaucratic gravity and institutionalize the process of innovation the way startups are naturally able to do? Apple practically stands alone as an exception to this rule—a huge company that behaves like a paranoid startup, pivoting from personal computers to MP3 players to phones to tablets as if they were a few guys in a garage about to run out of money, cannibalizing their own profits in the process.
It doesn’t make logical sense. You have companies with billions on their balance sheet that can’t innovate worth shit while teams with a dozen hackers, designers and engineers and almost zero money are able to turn entire industries on their head. The list is long: Napster → music industry, Uber → taxi industry, Square → payments industry, Dropbox → file storage industry, Makerbot → 3D printing industry, Kickstarter → funding industry, Netflix → movie rental industry, Tesla → auto industry etc. And this list could go on for the rest of the post. You also have “startups” in the financial sector like 500Startups and AngelList that are dismantling the traditional venture capital and fundraising industries, riding an historic tidal wave that is shifting power away from investors towards entrepreneurs.
From what I can gather having worked at both small startups and big organizations, there are three main reasons why The Goliath Syndrome is rampant at big corporations and why bigger usually isn’t better.
There are many other smaller reasons too, but this post is already getting long, so feel free to add them in the comments area.
A company’s most valuable asset is it’s culture. It’s the hardest thing to get right and the hardest thing to scale. Long after products have been shipped, pivots have been made and executives have come and gone, the culture is the thing that lasts. Conversely, when a company’s culture dies, it’s financial death isn’t far behind.
What’s unique about the culture of a good startup is that it’s built upon ownership, both literally and figuratively. As I mentioned in my last post, this premium on execution over ideas means that titles, experience and hierarchy don’t really matter all that much. You can find the CEO handling board meetings and investor calls by day and emptying trash cans and answering support tickets by night. Because getting traction and growth is such a colossal effort and you need everyone’s oars rowing in the same direction, every employee in the company has the opportunity to be a mini-CEO of his or her own domain. And because each team member’s contribution is transparently obvious to the team at large, a startup functions as a hyper-meritocracy.
In big companies, ownership is a very abstract concept. Because the responsibility for making the product successful is diffused across so many people, it’s easy to become disconnected from the value you are creating. For people who thrive off creativity, this is a very difficult environment to work in for long periods of time because this most sacred connection has been severed, and even high pay and stability are often insufficient compensation for working under these circumstances. These people usually leave to start or join startups.
The ownership culture of a startup is mirrored by a financial structure that incentivizes a level of employee productivity orders of magnitude greater than what you would find in their big company counterparts. That’s not to say that employee stock compensation is always handled correctly; it isn’t. But generally, early-stage employees who stick it out with a company that succeeds can get a disproportionately large financial return on the risk and uncertainy they’ve taken on.
Employees at large companies, to the extent that stock is granted at all, are likely to be dealing with a stock price that is either volatile, flat or trending slightly higher or lower, but most of the financial upside is usually gone.The primary financial advantage of working at big company is usually a higher salary, better benefits and more stability, but these are the exact type of benefits that are going to attract people who are risk averse and unlikely to rock the boat.
The disconnect between employees in big companies and the value they are creating is compounded by a disconnect in the decision-making process. In a startup, hundreds of decision get made every day and everyone from the CEO to the Summer Intern has decision making power of varying magnitudes. If a decision turns out to be a wrong one, the startup can reverse course the next day and go in a different direction. No big deal.
In a big company, it often takes months and many hours of meetings to make just one decision. Worse still, it’s often unclear who the actual decision maker is, so additional effort is spent on trying to figure out who is in charge because responsibility, like ownership, is also fragmented. Part of the reason why these decisions are so hard to make is that executives in big companies are so disconnected from their customers, who have become numbers and statistics. It’s very difficult to make good decisions when you don’t know the people you are working for and aren’t getting the feedback you need to make the right calls. Startups have the advantage of being infinitely closer to the customer.
Decision making gets even harder once factionality arises in a big company. Like any large bureaucracy (the government for example), once a new group or division gets green-lighted, that faction will compete tooth-and-nail for financial and human resources and justify it’s own existence without any perspective on whether or not it’s good for the company. In a startup you only have a one faction—the “get shit done” faction—so these politics are kept to a minimum.
Having a big brand name behind you can result in laziness; you lose that sense of having something to prove, which negatively effects decision making and level of effort. It’s a type of arrogance that is incredibly harmful because it’s practically invisible to those in it’s midst. You can take the most arrogant son-of-a-bitch at a big company, who gets validation from his title, his degree and the org structure, and put him in a startup environment and he will be cut down to size because there is no such validation to be found.
As you can see in these examples, the main symptom of The Goliath Syndrome is a disconnect that arises as the organization gets really big: a disconnect between employees and the value they are creating, a disconnect with the financial upside of winning and a disconnect with decisions that are best for customers and the product. Obviously there is a place for big companies; we need a vehicle for delivering products at massive scale, but the corporation just isn’t a venue for innovation. The bottom line is, if you want to do something really different and really disruptive, you’re going to have to do a startup. As hard as it will be, it will be much easier than trying to remedy your multi-billion dollar employer’s Goliath Syndrome.
P.S. I’m working on a startup project of my own — Hover. We’re looking for beta testers and feedback. Will you help us?