A tale of two businesses
The question is “Why start-up model proves to be the vanguard in technology world while corporate firms mostly struggle to innovate internally and tend to build innovative capabilities via acquisition?”. For me, the answer is not about the human capital or access to resources. In fact, corporate firms can afford to hire their employees from the top universities. They also have better access to technological and financial resources necessary to conduct a technology project.
As a management consultant who worked with giant corporate firms in the last two years and as a VC working with entrepreneurs currently, my main answer to the question above is to have the right incentive scheme: a small team with clear responsibilities and huge skin in the game. So, it’s not about whatever resources you might have — it’s about how you put these resources into use.
Consider the following incentive scheme: X-Y-Z comes together as a team, X is responsible for creating the product technology, Y is responsible for designing the product and Z is responsible for selling the product. And if they prove to be successful, they’ll become “the innovators”, they’ll sell their startup for at least hundreds of million dollars and their lives will change forever.
On the other hand, consider the following incentive scheme: the entire alphabet start a project in their company, if the project proves to be successful, a couple of these letters (say A, D, and G) might earn their boss’s affection and a promotion.
Just like the upsides, downsides also differ. In a startup, if you fail, you entirely lose many years of effort and it is obvious whose fault it is due to responsibilities being clearer. In a corporate firm, everyone will blame others in case of a failure and the scapegoat will get his promotion one year delayed. So, incentives differ, and incentives matter.
My second answer to the question above is prioritization. People and also corporate firms are proactive and farsighted in good times, they are rather reactionary and shortsighted once things start to get complicated. Every single one of us has ambitious resolutions and plans, which are made when we have plenty of time and resources. Once the vacation ends or the exam period strikes, we go back to our normal and perform the minimum requirements. It is exactly the same for the companies, once the main business need more effort and investment — and it certainly will at some point — they’ll escape shaky projects which might give them benefits at some point in the future and they’ll focus on today. For the startup founder, there’s no other place to go or any other shortsighted plans to focus on: today is all about tomorrow.
All in all, it’s not about the amount of resources you provide or about the top down orchestration. It’s all about the right incentives from bottom up.