Why Big Brands Want to Be More Like Your Startup
Entrepreneur's New Year’s Guide
As an entrepreneur, you probably think you would have it made if only you were big. You'd have enough customers and cash to make the next payroll and pay the rent. But the most in-demand idea I can think of among big company executives is how they can be more like you.
Big companies grow more slowly than successful startups. Yet they have far more capital, people and technology than their younger rivals. Some big companies have overcome the dysfunction that results from their superior resource endowments and adapted the traits that spur startups' faster growth.
Take for example IBM -- a big company that needs to get its startup approach back. IBM's $105 billion in revenues (2012 figures) are shrinking at a three percent rate while demand for its products and services -- as measured by corporate IT budgets -- are rising at 4.1 percent in 2013 to $3.8 trillion.
What lessons can large companies like IBM -- attempting to grow its revenue -- learn from your startup? And how can those lessons teach you about the most valuable aspects of your business?
1. Exploit and explore.
This approach is used by ambidextrous organizations -- a term coined by Harvard Business School's Michael Tushman -- in which the company's core "exploit" business and its new "explore" business both report to the CEO. Their bonuses depend on the other's success. For example, the manager of the "exploit" business only gets a bonus if the "explore" business also succeeds.
An example is Ciba-Geigy's crop protection division -- a part of Novartis since 1966 when it merged with Sandoz. Ciba-Geigy's managers in Basel, Switzerland, were able to exploit its chemical plant protection business -- its products include plant pesticides -- by cutting costs while simultaneously exploring in its North Carolina R&D lab -- thus yielding a bioengineered plant that was insect-resistant.
Cleverly, both outcomes helped to realize Ciba-Geigy's "aspiration" of keeping plants healthy --whether through chemicals or biotechnology. Thanks to this clearly understandable "overarching aspiration," the head of its agribusiness, Wolfgang Samo, was able to engage people in both activities in a way that they could easily understand and use as the basis for action.
What's interesting for you to think about is what this "exploit and explore" approach tells you about where big companies are vulnerable. They tend to put their worst people in charge of new initiatives and starve them for resources. And they set up those exploratory divisions to defend their biggest sources of profit.
And as an entrepreneur, this should signal to you that you need to be offering big company customers the same or better product features at a fraction of the big company's price.
2. Firefighting by design
Procter & Gamble sends the top executives of a foundering product line to a P&G-run design thinking consultant. Design thinking starts by observing customers performing activities and ends with a new product that meets their needs based on iterative prototyping.
Core business units that are not meeting their financial targets are also invited to learning design thinking, since they are so eager for new ideas that can put out the fire threatening to incinerate their careers.
One example is P&G's Olay brand whose team believed the product needed new packaging because consumers had so many skin care choices that they struggled to decide which one best met their specific needs.
But using the design methodology, the Olay group reframed the solution and ultimately introduced "Olay for You" -- a website that helped consumers choose the specific product that fit their needs before arriving at the retail shelf.
Competing with P&G is hard because it is a big company that -- when run properly -- focuses on delivering superior value to customers. This is a small company feature that P&G has worked hard to preserve, and that may explain why it has survived for so long.
But an ailing P&G division may have a tough time executing the strategy it develops after spending time in P&G's design school -- and that is a start-up's opportunity.
3. Culture of frugal experimentation
Scott Cook, Founder and Chairman of the Executive Committee of Intuit, the personal finance software provider, created mechanisms and a methodology to make innovation part of everyone's job. For example, Intuit created an "idea collaboration portal," that allows employees to come up with new ideas, post them, get feedback from others at Intuit, revise the ideas, and get staffing -- all without intervention from managers.
In this way, Intuit developed a debit card for people without bank accounts. An Intuit finance employee -- not a "product person" -- noticed that the people who need tax refund checks the most are often ones who don't even have bank accounts.
She came up with the idea of giving those people debit cards and having Intuit accept the tax refunds in its accounts and transfer the funds to the debit card. She expected 100 takers but got 1,000. And the surprise was that half the ones that wanted the debit card already had bank accounts.
The culture of frugal experimentation is a powerful idea that is meant to overcome the tendency of big organizations to smother the creativity of their best people. This means that your startup should be on the lookout for good people at places like Intuit who are not able to realize their full potential.
All three of these initiatives by big companies suggest business opportunities for startups if they have the right mindset.