Innovative tech business is about taking risks and responsibilities, giving up personal for the good of enterprise and seeing opportunities that others don’t see. In the fast paced world of disruptive tech innovations, bringing new and fresh ideas to life has never been harder for large players. This is one of the reasons why big companies prefer to outsource innovation process to startups. According to WSJ, 3 out of 4 startups fail. Not all of them fail completely: out of 10 new firms, 3-4 startups are destined to lose everything, another 3-4 will be able to return investment, but one or two new businesses can bring substantial profits to investors and develop outstanding products. At the end of the cycle, founders will be able to learn important lessons to start from scratch, and a lot of them will dare to open another business against all odds. Why startups are more effective in managing innovation than industry elephants? Here are some reasons to think about.
In a small group of like-minded people who have started a company together, perhaps, in somebody’s dorm room, it is easier to create a first prototype of a product to start iterations. Founders often multitask and play interchangeable roles within a team. Famous startup thinker, founder and business coach Eric Ries in his book “The Lean Startup” points to the fact that what makes startups so powerful is an ability to create a “minimum viable product” which helps activate build-measure-learn loop. This means startups turn ideas into products, measure how customers respond, and then learn how to improve or transform the product. The given approach makes startups flexible enough to win customers and shape business strategies during early development stages. In startups, ideas and solutions grow as quickly as they can get discarded. Big companies, on the contrary, are too sluggish to make decisions quickly.
Startups see opportunities big firms don’t see or avoid to admit. Oftentimes new opportunities for disruptive businesses lay within existing business models of established companies. Clayton Christensen’s theory of disruptive innovation suggests a model where innovation comes from the bottom market; big firms tend to add sophisticated features to existing products, which their customers do not need. Startups can shoot the bottom low-end market, disrupting business models of big players. According to Christensen’s books “Innovator’s Dilemma ” and “The Innovator’s Solution”, great firms fail because they are unable to change business models by simplifying product for low-end customer. On the other end, startups can see opportunities big businesses don’t see. For example, in 2000, no one thought that search advertising can become profitable business. Companies like Yahoo! and AOL preferred to outsource it to Google.
Another secret sauce of a startup is devotion of all team members to get the work done and progress with the project. Without great motivation, creating innovative products wouldn’t be possible. Founder of Pinterest Ben Silbermann had about 50 versions of grid before he launched website. He personally wrote to first 7000 users. Buffer’s founder Joel Gascoigne launched one-feature app in 7 weeks. Instagram founders Kevin Systrom and Mike Krieger nailed photo sharing market: they looked at every single photo app available back in 2010. Startups are not scared by accelerating changes in business world; they continuously improve products and look for new options.