Have you noticed how many of the best new products of the last few years have been created by new companies? From drinks brands like Innocent, Fever Tree, Brewdog, and Brooklyn Brewery to financial services apps like Osper (in which we proudly hold an investment), Mondo and Atom, today’s most exciting brands are new companies not established heavyweights.
There is no doubt we are living in an age of disruption and in 2016 the biggest challenge to market leaders remains the startup, the entrepreneur, the revolutionary new challenger with the power to reshape whole markets with innovative new products and services.
Whereas once-upon-a-time market leaders would have been able to simply stamp out this threat by pouring money into the development, distribution and marketing of their own new products, in today’s world this is no longer a viable strategy. Incumbent advantage is declining in a world where big no longer means better.
In 2016, there are a number of key ways startups are challenging Goliath corporations.
1) Market Access
We’ve seen huge disruption in the journey from manufacture to purchase. Where in the past the tie-ups between big consumer goods companies and a small number of mega-retailers made it hard for new brands to get on the shelf, the rise of online channels and the hard work that Amazon and other logistics companies have put into solving the challenge of shipping globally has made it easier for small brands to reach a big audience.
2) Better Infrastructures
One of the reasons you’re likely frustrated with your (big) bank is that they typically run dozens of separate systems which barely connect to each other – the person you’re talking to might be able to see your current account, but they are unaware of your credit card statement, your years of being a great mortgage customer and the multiple savings and insurance products you have.
In contrast, the opportunity to create a 'greenfield business; built from scratch often enables new players to eliminate the huge costs of running complex infrastructures with which many established players are burdened, and at the same time enables quantum-leaps in levels of service. New players have agile, unified systems that can see the whole picture in one place – they know as much (or more) than you yourself do, and so are able to anticipate and meet your needs much more easily.
3) Better at meeting consumer needs
The traditional corporate structure has proved itself an utter failure in looking after the interests of consumers. Mis-selling of PPI insurance by the banks, the horsemeat scandal in our food chain, VW’s deliberate cheating of emissions tests… the list of failures by big corporates is long and getting longer.
Meanwhile, founder-led businesses are uniquely placed to meet what consumers are looking for right now in the brands they buy. Elon Musk’s mission to build the best car, the Brewdog founders’ commitment to making great beer, and Osper’s desire to see young people empowered to make smart money choices through taking on responsibility at a young age – all of these inspire a trust that big listed corporate entities have shown they can’t generate and in many cases don’t deserve.
So if this trend of new innovation happening outside of the corporation is going to continue, what should the big corporates do about it?
Many corporate boards turn to acquisition – BBVA bought the US startup bank Simple, while Coca-Cola bought Innocent, and craft brewers from California to Camden Town are being snapped up at a rate of knots. But this is no easy route: being absorbed into the big corporation might very well kill the special sauce that lies behind the startup’s success, and retaining the founders who created and stand behind the brand can be really difficult in the medium term.
One solution is to adopt more of a venturing and partnership approach rather than a straight M&A model. It’s become a hot topic, and models which have long existed in the technology space like accelerators and corporate venture funds are now spreading into sectors like retail and consumer goods.
One of the benefits of this approach is that it can prompt an honest appraisal of what the big corporation is good at, and what is best done by entrepreneurs and startups. Although big players face challenges on many fronts, they likely still have considerable assets which can be tabled alongside the energy and agility of startups to create mutually beneficial approaches.
An example of this is the Distill Ventures accelerator we created for Diageo. This sees Diageo contribute technical expertise, knowledge of regulations and product specifications, insight into global drinks trends and cash investment to entrepreneurs who bring unique ideas, brands built around a genuine purpose, and innovative thinking in how to build communities around those brands.
Other corporate venturing programmes we’ve consulted on have enabled travel companies to access exciting new services to enhance the customer experience, while we’ve also worked with companies who have deep R&D resources and many valuable – but unused – patents which are now being offered to startups who are creating powerful and purposeful brands against them.
Getting these deals right can help big corporates play an active role in the new economy, participating in growth opportunities, adapting their resources, and leveraging them in new ways.
Big corporates can become the engine of great brands, innovative products, and breakthrough services – but this comes through adopting a partnership model where providing growth finance and access to huge customer bases creates viable pathways for entrepreneurs to reach global scale.