How Start-Ups Beat Corporations

How Start-Ups Beat Corporations

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At first the thought seems absurd. Two guys in a garage with a few hundred bucks, an idea, and a dream beat a billion rand corporation. How is it possible that a start up can even think of competing with a major corporation? Corporations have more money, more resources and far more experienced and talented employees; they have massive marketing departments and real business savvy.

Just look at Google’s talent pool, Pick n’ Pay’s vast retail network work and Standard Banks brand awareness. Surely they can’t be beat. For me, an appropriate metaphor would be an U14C rugby side playing the Springboks and hoping to win. This truly is the impossible dream. But time and time again history has shown that start-ups not only compete with leading corporations, but they often beat them into bankruptcy.

Start-ups that won

DEC computer the second largest computer company with over 100,000 employees was beaten by Apple Computers a company founded by two kids in their 20s with a student budget. Yahoo, which, at its peak was ranked the number 1 search engine in the world was beaten by a Stanford University PhD project, Google.

Yahoo now holds 6% of the search engine market while Google holds 78%. Harley Davidson and BMW where once undisputed leaders in the motorcycle market, that was until an unknown Japanese Company sent 3 employees to California to sell a new type of small engine motorcycle in the US. The company’s name was Honda.

Professor Clayton Christensen of the Harvard Business School has spent a large part of his career and preformed countless studies to try and answer one question: how do these start-ups do it?

His answer is disruptive technologies.

Disruptive technologies

Disruptive technologies are new technologies that are generally “cheaper, simpler, smaller, and, frequently, more convenient to use”, the problem for leading corporations is they are often sold to small, less-profitable customers, and, why would a billion dollar corporation waste its time on small, less-profitable customers?

Any corporate manager would rather sell to a customer that will make them R50 million than customer that make them R50 thousand.

The dilemma for leading corporations and the opportunity for entrepreneurs, is that low-profit, small-markets eventually become high-profit, big-markets. This happened with when Western Union turned down Alexander Bell’s offer for the telephone patent, or when Microsoft waited until Google was a billion rand company before focusing on search.

The same story seems to repeat itself again and again through business history. Major company ignores disruptive innovation until it becomes a billion rand industry, only then does it enter the market, but often it is too late.

History shows us that beating the finest corporations is not only possible, but the odds are actually stacked in the entrepreneurs favour. Start-ups are happy to target small, less profitable customers and work their way up to the bigger sales, but corporations are not. So, the question is not: Can entrepreneurs launch disruptive innovations? But which entrepreneurs will launch disruptive innovations? And will you be one of them? That of course is a question only you can answer.

How to launch a disruptive innovation

  • Become a technology entrepreneur: Disruptive innovations are usually technology innovations; new technology replacing old technology. For example, Cars replaced Horse carts; PCs replaced Typewriters; Cell Phones replaced landlines.
  • Get in early: At one time, the horse cart was better than the car, the typewriter was better than the PC, and landline were better than the cell phone. This changes when the new technology becomes better than the old. So, look for a technology less advanced that the established technology, but one that is improving.
  • The new technology should offer real benefits: The new technology should eventually improve enough to offer real benefits to the customer, such as, a lower-price (internet retail vs. storefront retail), better performance (GPS vs. maps), greater convenience (digital books vs. paper books) and greater reliability (cars vs. horses).
Paul Smith
Paul Smith is a writer and startup scientist. He currently manages an accelerator, Ignitor, which helps entrepreneurs start and grow their businesses. Ignitor has developed a new model that significantly improves early stage start-ups odds of success. His primary research interests include understanding the behaviours of expert entrepreneurs, as well as, how to most effectively support high potential start-ups. Follow him on Twitter and visit his website.
  • allchornr

    Good read. I’d recommend giving it a once over with a spell check or get it proof read though.