Cooperate Or Compete? How To Handle A Disruptive Startup In Your Space

How to gauge when startups might mature into serious business threats

8Jun

They begin as benign blips on your radar. Innocent. Unimportant. Until the day you realize they’re closing in on your turf.

These are the disruptors, startups that are shortening the lives of established companies, according to an Innosight report suggesting that about 50% of today’s S&P 500 Index organizations will be supplanted in the next decade. Corporate life spans are shrinking, and it's largely thanks to these scrappy, young companies that knock big players off their feet.

Sooner or later, the disruptive entities that hang around will become more than mere irritants — they'll become major competitors. You'll have to figure out when to either prepare for a fight or bring these competitors over to your side.

Startups That You Shouldn’t Ignore

Some startups burn bright for a while and then flare out; some don't make much of an impact. Some, however, will mature into serious business threats. No single indicator can point to when exactly a startup is worth your attention, but two red flags are fairly common. The first is longevity; the second is intensity.

Consider DUDE Products Inc. and its original innovation, the DUDE Wipes. Not only did DUDE cleverly steal shares from other flushable wipe companies (which had focused on a different target audience: parents buying wipes for young children), but it did so by leveraging an e-commerce platform — Amazon, in this case — to minimize costs while the company built an audience.

By the time DUDE Wipes moved onto retail shelves, they were already a hit with male consumers who appreciated having a hypermasculine hygiene product. DUDE Products proved it could go the distance by branding itself remarkably well and piggybacking on an existing e-commerce platform to save costs. In other words, the company established longevity, and that helped it claim a sustainable market share.

How about intensity? A perfect example is Dollar Shave Club's viral ad campaign. The startup shined brightly for a brief period, but more important, it leveraged that intensity into lasting success, ultimately getting purchased by Unilever for $1 billion. Flashiness and personality proved to be Dollar Shave Club's strengths as well as its competitors’ weaknesses.

Of course, not every flashy startup will warrant a strategy change on your part. But regardless of where you decide to establish a threshold for the "blips" you spot, you must be prepared to act whenever that threshold is crossed. Sometimes, that means dealing out some smackdowns.

Strategically Fending Off a Startup

You’ve identified your foe: a startup with longevity and intensity to spare. Although your first inclination may be to strike quickly and ferociously, you first need to verify that your opponent is worthy of battle.

Find out whether the emerging company threatens your core market share through innovation, price, or a new distribution model. If not, it probably won't deal you much damage. If so, you have every reason to be concerned. Fortunately, you also have assets that will help you overcome the disruptor: scalability and efficiency.

Because you’ve been around the block a time or two, your marketing budget, retail locations, or raw brand power can probably dwarf any newcomer's. Plus, your scalability gives you tremendous efficiency, especially on a per-unit basis, which young companies generally can't match. You've long focused on streamlining production, distribution systems, and processes. This should help you control and minimize costs, which startups simply can't do.

In other words, you have the upper hand should you choose to compete for your claim. But it can get messy, and you might also take some damage in the process. Before you definitively strike out, always consider an alternative arrangement where you work hand-in-hand with a startup for mutual success.

Extending the Olive Branch to a Startup

Cooperation may not be your first instinct when a disruptive organization comes into your sphere, but joining forces can lead to positive outcomes for all involved. Heck, maybe your own business started the same way. Win-win solutions, when they're available, are always worth pursuing.

Say, for example, a brand has launched a niche product within your industry: It's not a direct threat to your market share, but it is breaking into a new audience that you've been trying to reach. Why not reach that audience through the startup? Tyson Foods did this by investing heavily in Beyond Meat, a company that makes plant-based proteins like faux burger patties. Beyond Meat's target audience is certainly different from that of Tyson, the largest meat processor in the U.S. But by working with Beyond Meat, Tyson is giving itself some insurance against a potential industry disruption.

Or what if a startup in your industry debuts a new, exciting technology? In the world of techno-gadgetry, massive consumer markets come and go quickly: two-way pagers, PDAs, HD DVDs, etc. Lending some of your resources to a startup that seems to have a winning product allows both of you to enjoy faster market entry. Hewlett-Packard did this with the Michael Bastian Chronowing, its attractive smartwatch that was actually created by a disruptive startup called Meta.

Let’s say that you discover a Meta to your HP. Game recognzes game. Ask what you can learn about the startup; its leaders will appreciate a conversation. Most startups need cash, capital, distribution, information, and other resources. Your enterprise can provide that, and you can learn more about lean, innovative business strategies. If your cultures fit, it could be the start of a beautiful — and profitable — friendship.

Is every startup worth losing sleep over? Of course not. Some won’t be around long enough to snag a “Shark Tank” preliminary audition, let alone knock established companies off their perches. However, be watchful and cautious with those that pick up traction. In time, you’ll have to engage them. It’s up to you to figure out whether the engagement is a handshake in the boardroom or a brawl in the marketplace.

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