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Innovation&: The advantages of start-ups


Innovation is crucial for the success of a company. One significant advantage that established companies have over startups is that they already possess existing assets like customers, financing, know-how, and other resources. These resources are essential for any business, but they represent a major advantage for established companies trying to develop innovative ideas. However, why do established companies find it challenging to effectively utilize and experiment with these assets?


Possible explanations:

One possible explanation is that established companies may take their assets for granted and fail to recognize the advantage they have over startups when it comes to innovation.


Another reason could be that they are less driven by the need to gain traction. They may feel that they have already achieved so much that they no longer need to exert effort to accomplish new things. In contrast, a startup project is constantly in survival mode from the beginning and has a singular goal: its birth and early steps.


The complexity of established companies can also make innovation difficult. They often function as intricate systems with many different departments, teams, and processes. This siloed thinking restricts the company's ability to consolidate resources and respond quickly to changes. In contrast, startups are typically simpler organizations, enabling them to experiment more rapidly and cost-effectively.


There are two things children should get from their parents: roots and wings."
Johann Wolfgang von Goethe

Another problem is that established companies may be limited by old business models and ways of thinking. Startups focus on new problem-solving approaches and can develop novel business models. Established companies might find it unfamiliar to develop new ideas in new markets, as they tend to rely on existing value propositions in established markets. Thus, they might be engaged in a struggle within the confines of their current market with incremental next-generation innovations aimed at preserving and expanding market share. Two classic innovation strategies for this scenario are serving existing customers with more affordable products (downselling) or presenting existing customers with new premium solutions (upselling).


Established companies should strive to leverage the benefits of their assets to drive innovation forward. Simultaneously, they should capitalize on the advantages of small, agile intrapreneur teams that promote innovation like entrepreneurial teams within their own startups. Ideally, these team members should have a profit/loss responsibility similar to running their own business (skin in the game) and should also benefit from their success (shares, options, etc.).


Intrapreneurship:

These teams should be minimalistic organizations dedicated solely to experimenting and validating new business models. It is crucial that team members voluntarily step forward to work on these opportunities with an entrepreneurial mindset, rather than being forced into the project. They must be able to fully concentrate on the new idea, utilize their existing internal resources and know-how, acquire any missing (external) resources through collaborative methods, and adapt creatively and agilely to changes. Because, undoubtedly, no idea survives its first contact with the market. They need to establish a culture and leadership within the team that promotes and prioritizes experimentation and collaboration. Most importantly, they must ensure that they understand and address the relevant problems and needs of their future customers.


Relevance:

Of course, an overarching innovation strategy is necessary to ensure that the resources provided for innovation are efficiently used. This involves not only sponsorship, active participation, and stakeholder management from the executive management but also making decisions about what not to pursue despite general industry trends and initiating initial experiments quickly. The focus should be on the relevance and connectivity of the innovation, whether it is in the form of knowledge transfer or, ideally, a profit contribution from a subsidiary. Integrating innovations with the existing company has often proven to be the beginning of the end, and it is wiser to let the children leave home rather than trying to integrate them into the parent company. Intrapreneurship initiatives should not be stifled by the existing company, as it will inevitably destroy the culture and harm the project. Only then can established companies make the most of their assets to assert themselves in the long run.


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