How can entrepreneurs and startups use innovation to identify blind spots and opportunities in the spaces of the market the Powerful 4 aren’t able to tap into?
The most successful companies start out from humble beginnings. The corporate giants that run the tech industry of 2016, coined as the “Powerful 4”, have put one thing in the forefront of their business strategy – innovation. Each of these companies (Amazon, Facebook, Google, and Apple) has billions of dollars to spend on R&D and innovation, and each has proven that size does not slow down their abilities to dominate the market.
However, time and again, entrepreneurs and startups in the tech industry have proven that small size is truly an advantage in a rapidly shifting digital age. We’ll take a look at what makes the “Powerful 4” so powerful, and discuss why entrepreneurs and startups may have the upper hand when it comes to innovation that drives the tech industry forward.
The Powerful 4
Scott Galloway, who is a professor of Marketing and Brand Strategy at the NYU Stern School of Business, discusses “The Gang of Four” (Google, Facebook, Apple, and Amazon), their victims, and the strategies that led them onto a path to a trillion dollar market cap.
What They Focus On
The “Powerful 4” have their own methods of gaining control over their markets, each similar in outcome, but unique in approach. Galloway discusses each company’s unique methods to rapidly approach the trillion dollar market cap, from acquisition and extension, to monetization and articulation. While much of the presentation discusses the victims of these tech giants, Galloway hints at the facets of these giants that make them unique and give them incredible advantages in the tech industry. What makes these giants different than their competitors?
The “Non-Traditional” Tech Giants
The tech industry giants spent more on R&D in 2016 than most comparable companies. Their startup beginnings have armed them with the knowledge that innovation comes from research, experimenting, and exploring new technologies and advancements. They use innovation to their advantage to dominate the current market and foresee numerous opportunities for growth, acquisition, and expansion in future markets. Innovation in the tech industry comes fast and at a high cost, but the “Powerful 4” know that innovation is key to achieving and maintaining their spots at the top.
Why Don’t Other Large Corporations Innovate?
We’ve seen that the companies that run the tech industry focus on R&D as a critical part of their business model, and many would argue this is a key factor in their success compared to their competitors. Why doesn’t every company out there put strong emphasis on Research & Development?
Keep Stock Prices High
Traditional structure leads companies to believe they exist only to maximize shareholder value. Consequently, they are held to key performance indicators such as return on net assets (RONA), return on capital deployed, and internal rate of return (IRR) to measure efficiency. Using these KPIs as a measurement of success makes it extremely difficult for large companies to make long term innovation a priority.
Size and Scalability
While size can have its advantages for companies, it can be a burden when it comes to innovation and disruption. An article posted by VentureBeat argues that large corporate structures are very good at “maintaining, defending, and refining existing business models, and they’re pretty good at extending existing models by identifying adjacencies. But corporations are weak, and have become weaker, in identifying new disruption opportunities.” (Full Article Here)
Large scale entities can’t spend the time or resources to generate and test new ideas that may or may not work. Successful innovation can often mean many failed attempts prior to striking gold, which can be costly when executed at the enterprise level.
The Speed of Technological Advancements
Size and scalability aside, most large scale companies simply cannot keep up with the rate of technological advancements happening in our world today. The pinnacle of technology is often here one day and gone the next, shadowed by the next new advancement. Many large players simply cannot keep up with the explosive shifts in technology that have occurred in the last 10 years.
Corporate Blind Spots
While it’s true that large companies and tech giants have a seemingly uncapped budget for industry research and product development, their focus on shareholder ROI and improving current structures leads to inevitable blind spots of missed opportunity. The view from the top is a great place for these giants to keep an eye on the industry as a whole, but their sheer size simply prevents them from identifying all patterns and shifts that lead to innovation and opportunity.
The “Non-Traditional” Entrepreneur/Startup
Much like the 4 most powerful players, startup founders and entrepreneurs are often considered “non-traditional” disrupters in their spaces. What can entrepreneurs and startups glean from the business structure of the “Powerful 4”?
Entrepreneurs and startups have realized that the same factors that make large industry players successful are the factors that also make them vulnerable. Large companies simply cannot innovate in tandem with the speed of technology the way smaller, agile players can. Large players are constantly improving on current business models, existing customer acquisition strategies, and ways to increase return for their stockholders. Startups, however, are able to predict or even create new opportunities and rethink the status quo rather than improve it.
Quick Turns and Accurate Predictions
Due to their small size, entrepreneurial independents and startup companies are able to shift their focus quickly as technology rapidly changes, inevitably leaving some products, services, or innovations by the wayside. Agility to pivot from one technology to another, with no lost time, gives smaller industry players a competitive advantage to look further ahead more quickly than the tech giants.
The ability to actively look ahead also gives startups another advantage. By anticipating technology advancements and accurately predicting where the next opportunity will appear, small players can continue to move forward in industries like IoT, wearable, and mobile technology faster than ever before.
Entrepreneurs and startups operate with the urgency and agility that allows them to make decisions and market predictions as opportunities arise. Because of the size of operation, entrepreneurs and startups can swiftly and easily identify market needs and opportunities, and pivot quicker than their enterprise-level competitors.
Even companies as big and as innovative as Facebook, Google, Apple, and Amazon are bound to overlook industry “blind spots.” This is where entrepreneurs and startups can continue to innovate and disrupt the industry. By using their small size and ability to move into new industries and ways, entrepreneurs and startups can continue to take advantage of the potential that larger companies overlook.
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