With the rapid advance of technology, the traditional barrier to entry of almost all industries have tumbled. Incumbent enterprises are feeling the heat of these disruptive innovations and are reacting in three distinct ways:
1. Market disruption and leveraging the legal system
2. Cloning start-up methodologies and processes
3. A wait and see approach
A number of incumbent enterprises are reacting to disruptive innovation by leveraging every advantage they can muster including staging strikes and/or using the legal system to stifle the contenders. Ironically, this knee-jerk reaction has given their competitors a strategic toe-hold and free publicity that they could never dream of.
While another group of incumbent enterprises have taken the route of cloning the methodologies and processes found in the start-up world and replicating it in-house. However, this approach too has important caveats that are often overlooked by incumbents, but has been faithfully illustrated by Steve Blank. In essence, incumbent enterprises lack a sense of urgency to drive innovation at speed. In contrast, start-ups operate at a speed driven by the urgency of the “burn rate.” Consequently, all start-up founders live and breathe by the following three criteria:
- The amount of cash left in the bank
- Their burn rate (the amount of money they’re spending monthly minus any revenue coming in) and
- The day they run out of money and have to shut the doors (or get a new round of funding.)
Moreover, a start-up founder translates this urgency to their employees with a call to action – namely, making measurable progress in getting minimum viable products in front of customers, beating competitors, getting users/customer quickly, and generating revenue. It is this real sense of urgency—and how it shapes employee attitudes and practices that is the biggest reason why innovation processes in start-ups are different from those in large enterprises. If large enterprises are not as nimble as start-ups in driving innovation at speed, how can they compete effectively?
One solution that is gaining momentum is the wait-and-see approach as advocated by Matthew Marx at the MIT Sloan School of Management. In essence, the wait-and-see strategy puts the onus on start-ups to prove their new technology and/or business model before incumbents either partner-up or acquire them. Naturally, this approach too has its own caveats, however, the real challenge for enterprise executives is when do you build, buy or partner.