OnStartups

Why Startups Can Innovate Better Than Microsoft, Apple and IBM

Posted by Dharmesh Shah on January 10, 2007 3 Comments



Don Dodge wrote a couple of great articles recently titled “Why Startups Innovate While Big Companies Incrementally Improve” and  “What do the PC, Mac and Xbox All Have In Common”.  [Note: If you are interested in technology strategy, you should be reading Don Dodge’s blog.  It’s got some of the highest quality content on the topic that I’ve found.]

The premise of the article is that large companies have a difficult time coming up with break-through innovations because they are structured primarily for incremental improvements.  Clayton Christensen described this remarkably well in his best-selling book, The Innovator’s Dilemma (which has a permanent place on my startup reading list)..

Don describes how big businesses can foster innovation by creating a separate group that is 100% focused on new ideas for new markets.  As examples, he cites the success of the IBM PC, the Apple Mac and the Microsoft Xbox – all of which “skunk works” teams that were independent and separated from the larger business.

I agree with Don’s points around how big businesses can innovate by setting up a separate R&D group and a separate sales force with the right incentives to help the new product succeed in the market.  But, I’m not that interested in big businesses.  What I’m enthused about is the underlying message – that startups should be able to innovate much better.

Why Startups Can Innovate Better Than Microsoft, Apple and IBM
 
  1. Nothing To Protect:  One of the reasons big businesses have a hard time innovating is that such innovations often jeopardize existing, successful products.  Startups are not burdened with such success and as such, can make bold leaps much easier. 

  1. Innovating To Survive:  One of the biggest challenges startups face is the credibility gap.  Why should anyone trust a startup if there are other, comparable alternatives available?  The answer is simple – they shouldn’t.  What startups must do to survive is provide a compelling innovation that customers can’t easily find alternatives for.  If the innovation is compelling enough, some number of people will determine that the reward outweighs the risk and become customers.

  1. Closer To Customer Needs:  Startups are blessed with the fact that they often hear the needs of their market first-hand.  In an early-stage startup, everyone is talking to the customer and learning about needs.  This creates a great environment for innovation as creative startup founders surface market needs and come up with brilliant ways to craft an offering that meets those needs.  In larger companies, only a small percentage of people actually talk to customers – and often they’re not the ones that will actually generate the ideas or build a product.

  1. Ability to Iterate and Refine:  Very few innovations are perfectly matched to market needs when they are released.  It is extremely difficult to “get it right” the first time.  Success is often a function of how quickly an organization can refine it’s offerings in response to what it learns about market adoption (or lack thereof).  Startups have a much easier time making changes not just to the product – but to the entire business based on what it learns from contact with customers.  Big businesses simply do not have the nimbleness to do this.  Changing the product at certain stages is extremely difficult.  Changing the business itself is likely near impossible.


So, my advice to startups is this:  Play to your strengths.  Since you have the ability to stay extremely close to the customer and change based on market response – you should focus as much as possible on both.  Innovation is not just important for startups, it is essential.