Once upon a time, a small team of entrepreneurs went looking for startup ideas. They identified an interesting opportunity in a specialty piece of high-tech equipment. The current versions of the equipment were large, heavy, and expensive. However, new advancements in technology made it possible to deliver the same functionality dramatically smaller and lighter, at a tenth the current price.
The entrepreneurs were excited by the opportunity, and executed a traditional startup model. They raised a few hundred thousand dollars of seed capital to build their first prototype, and then a series of venture funding rounds over the next several years to complete the product, market the product, and scale manufacturing. In each funding round they managed aggressively to their available budget, and actively sought to deliver the most valuable results first. Most importantly, they worked very closely with real users, getting detailed feedback on exactly the users’ goals, needs, and desires.
At a trade show the team discovered the worst possible news. Unbeknownst to the little startup, a corporate giant was also taking on the same task, building the next generation of this very piece of high-tech equipment. The corporate giant was also making it dramatically smaller and less expensive. And, compared to the tiny startup, the corporate giant had a fortune to spend. The entrepreneurs were nervous. What chance did they have against someone with the same vision, a gigantic staff, and seemingly unlimited funds?
As they researched the corporate giant’s initiative further it became clear that the corporate Goliath was out-spending the tiny David startup by at least ten to one. Indeed, by the time the two competitive products were released, the corporate giant had spent over 50 million dollars more than the tiny startup.
So who won?
The results in this type of head-to-head competition are not remotely surprising to anyone who has ever been on either side of this type of competition.
The tiny startup won—hands down—over the giant corporate competitor.
Customers preferred the tiny startup’s product and orders poured in almost exclusively to the entrepreneurs.
For a fraction of the investment, the little David team destroyed their Goliath competitor. This is now so common that nobody following high-tech is remotely surprised by the story. In fact, they anticipate the next and almost inevitable step.
The corporate giant simply acquires the successful startup.
Tiny startup Microsoft out innovates giant Goliath IBM and itself become Goliath. Tiny startup Google out innovates giant Goliath Microsoft and itself becomes a Goliath. Tiny startup Facebook out innovates giant Goliath Google, and is well on its way to becoming a Goliath itself. In fact these specific examples are the ones that bring fear and dread to the current Goliaths, because in each of these cases the tiny startup ultimately chose not to be acquired.
Why is this pattern so common? What is the nature of the giant corporation’s disadvantage in this style of competition? Why do the tiny startups themselves rapidly turn in to lumbering Goliaths? Can it be prevented? Can the giant corporation ever regain their startup abilities?
If these questions interest you, then you are in the right place. We teach Goliath how to innovate like David. More importantly, we teach Davids how to not become Goliaths in the first place as they scale. Currently, every successful David simply becomes Goliath. Is it even possible to become something else?
What is the sound of money burning?
If you are Goliath then sit quietly wherever you are currently working, and listen.
TL;DR: Large corporations have a distinct disadvantage innovating against tiny startups. This becomes a serious threat if the tiny startups refuse to be acquired.