How Start-ups Out-innovate Tycoons?

Large enterprises with 7-digit R&D budgets keep getting challenged and disrupted every now and then by one or few start-ups who are behind in terms of resources, know-how and brand equity, yet manage to change the game. This has urged us to research how can a start-up out innovate tycoons despite all their limitations. Having studied studying dozens of cases, we observed that the key limitations young small firms were facing have been actually implicit boosters of innovation which drive them to think different and challenge the rules out of survival more than glory. These operational and financial hurdles, of course, lead to numerous shutdowns with an average of 55-65% start-up shutdown rate; however, these tough constraints strengthen the survivor’s innovation instincts who find themselves obliged to play different in order to stay in the market.

Inexperience and limited know-how drive out of the box solutions
Despite the founder’s expertise, start-ups often start from scratch and operate without the massive accumulated know-how that leading firms have; this causes frequent reinvention of the wheel and learning by trial and error, which is inefficient. On the other side, such inexperience makes them less attached to the previous models and having fresh vantage points over customer needs, which fuels innovative outcome. When Tesla was founded, back in 2003, the workforce’s automotive expertise was a fraction of the Bavarian’s or Japanese’s. However, this has significantly helped them to think out of the conventional car making paradigm and come up with new and unsurpassed technologies.

Having limited resources lead to re-innovating business models
From limited solvency to difficulties in receiving external investment, start-ups always face massive financial pressure that breaks most of them apart sooner or later. But the resilient ones get inspired with such constraint and turn to innovate the business model to achieve the best results with the least resource utilization. By redesigning the standard operational models of the industry and looking for some operational innovations in manufacturing, supply chain or outsourcing, they tend to disrupt industries and redefine competitive landscapes. UBER, Airbnb, Blockchain, as well as, many other platforms are just some of the recent examples besides Toyota’s classical case study, which introduced the widely applied lean techniques.

No recognizable reputation or market credibility makes them take bolder risks
Most clients do not know them and the few who do, don’t want to be the first to try. Such challenge further strengthens the start-up’s innovation drive as it has to come up with something new whether in the product / service features, or in the customer experience to get attention and trigger trials. Furthermore, without fame or a high brand equity they tend to be more daring to try innovative ideas in the market than the large companies, since failure would not harm an unknown upstart as it would harm a big brand which has an image to worry about.

The small scale and generic job duties fosters co creativity and interaction
A micro-workforce is a tough obstacle when the industry is labour intensive but when it is innovation driven, it has some pros. As information flows faster and the workflow tends to be more flexible than the complex multinationals, co-innovation is easier to achieve in the small group. Apple’s start-up stage is a good example on that. Also, the limited number of personnel gets almost everyone engaged in everything without rigid boundaries. This brings some chaos with time, but for a beginning, it allows better utilization of the team’s creative potential and the staff gets to feel more empowered and inspired, which is quite needed in the innovation marathon.

Loose operational standards allow agility and quick learning
Most start-ups, especially the ones who have invented a business model, figure out the optimal operational system after a long series of trials and adjustments. This also explains some of the mess and the inconsistency happening at the early stage due to having an immature business system. But from the innovation perspective it makes them more agile, adaptive and better learners, which is a must-have feature in the innovation-driven organizations amid today’s uncertain and rapidly changing business environment.

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