The Innovators Dilemma – Startups wielding a crucial role as innovators in the ecosystem
Author: Winona Fischer
Estimated reading time: 5 min
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Rising times of Innovators
Every company in every industry has started off from scratch at some point. This is tough to imagine for many well-known companies, but generally true. For instance, Coca Cola started out in Atlanta way back in 1886, the difficult beginnings of the Dassler brothers back in 1949 paved the way for household brands Adidas and Puma, and even the relatively younger powerhouses by the likes of Uber, Spotify and YouTube, who in comparison are just teenagers. But what did they all have in common? They all brought new products or services into an untapped market where they saw a lot of potential for growth, and didn’t these bets pay handsomely for them. Speaking of new products and services these days, it is more complex than this to define an innovation. Overall one can agree on the fact that it is more often about new products or services that questions the status quo. This article will try to outline some of the most important elements and reasons why startups can better implement innovations than bigger companies, but also in which dilemma big companies are finding themselves in and how startups can take advantage of that.
These days, million-dollar businesses which barely existed a couple of years ago, soared astronomically because smart and ambitious minds saw niches for innovations no one else saw before them. The technological and dynamic advancements of the past 20 years has made this possible, acting as a catalyst whereby innovation is given a whole new importance and dynamic. In times of Industry 4.0, Artificial Intelligence and other technological driven aspects, these can and have acted like a speed-limit free Autobahn, creating a potential path for companies to become quick rising stars in their industries.
Startups are known for quickly pushing innovative ideas forward but what makes them so unique to be able to contribute to innovation processes, which big and traditional companies are not always so capable of?
It is all about the company culture.
From a natural given aspect, startups tend to have a whole different approach to and understanding of “culture”. This phenomenon is usually very much depending on each type of founder or founding team. The manner in which the founders personality is shaping the future startup culture is something which should not be underestimated and therefore also
represents a key success factor. From communication aspects to hierarchies, startups differ from big companies in drastic ways. Startups have a greater sense for open and direct communication, usually with no or limited pyramids of levels which promote themselves and their team as an open creative space to come up with great solutions together, culminating in an environment which encourages more opportunities for innovative ideas to arise. A certain out of the box thinking is probably something crucial which every entrepreneur would like to emphasize on and it certainly is that kind of thinking which grounds the basis of innovative thinking.
Bureaucracy and hands-on mentality
In contrast, larger, more traditional companies sometimes have a hard time to implement ideas and usually it’s this that is their biggest obstacle from being dynamic and rapidly evolving – Bureaucracy. Originating from Max Weber back in the 1920s, it should primarily base the ground for a systematic flow of information for means of effectiveness. This is indisputably a solid concept, but arguably has an unintended negative trade-off in that it inhibits the free-flowing movement of ideas from all levels of staff to continually improve and further grow their businesses. Because of necessary confirmations, paperwork and other internal processes, big companies often experience setbacks when it gets to innovative ideas – not to mention the speed at which they can progress these ideas. Startups usually cannot relate to this extent of bureaucracy in their flatter and wider hierarchies which provides a clear line of communication to the leaders and change makers resulting in a greater path for fast-moving ideas. A hands-on mentality can be performed better given the circumstances in a startup. Seeing less barriers and restrictions when working on new ideas, products and business models can bundle more energy to implement new projects. In addition to that, one also has the impression that startups are much more optimistic and effective at identifying and actioning potential business opportunities.
The Entrepreneurial spirit
People and teams working in startups usually have a greater sense of autonomy and in turn, responsibility. This kind of spirit sets the grounds for working and deciding more consciously and actively towards the desired outcome. Overcoming challenges is much easier if employees believe that as a matter of fact, they are the ones which can work on an idea directly and learn from their own mistakes. Indeed there are some bigger companies which definitely stress the fact that entrepreneurial thinking can have a positive effect on many parts of the business, but sometimes it is something hard to implement or maintain across the multi-faceted layers of an enterprise with thousands of employees. People might feel like a small part of a big wheel, not really having the power to make a difference, whereas founders of innovative ideas want to be the difference to change the wheel.
How to deal with the Innovator’s Dilemma
The trend today tends to be that big companies have also recognized this dilemma, that their innovation performance is often limited. More and more large companies are now cooperating with young startups. These collaborations are also known as Corporate Startup Partnerships (short: CSP). Especially big DAX companies are seeing this as a great opportunity to benefit from the innovations by startups.
According to Clayton Christensen (1997) and the innovator’s dilemma there are two different types of innovations. On the one hand there is sustaining innovation and on the other hand there is disruptive innovation. Sustaining innovation concentrates on improving products performances in order to satisfy the customers needs from today. Whereas disruptive innovations are usually niche areas, but which most importantly have the potential to fulfill the customer’s needs of tomorrow. Lots of big companies fail, because they underestimate the power and potential of these disruptive innovations in the long run. They are not so well placed to give resources and attention to every potential niche innovation. Justifications to shareholders and certain quantitative success indicators are making it difficult to give this attention to small niches.
But what about startups in this context? With a promising innovation within their small original market, they have great potential to grow and to concentrate on their idea. And ideally to tackle the future customers needs first in the long run. They push the innovation process and contribute to a natural adaptation process in every industry.
This is one of the reasons why we, GründerAtelier, have made it our mission to help founders and startups get ready for the market. We provide young entrepreneurs with the right guidance, know-how and funding from investors to give them a kick start. By connecting great business ideas with the right capital we level the path for great and promising future innovation to improve the world we live in.
5: The Innovator’s Dilemma – Clayton Christensen (1997)