Startup tsunamis and how corporates face them

Most corporates think of startups as small businesses. Everyone knows that small businesses don’t matter. But startups move in waves. Sometimes waves are so big, we call them tsunamis. And tsunamis matter. This post will explain the nature of tsunamis. It will tell the story of a single earthquake that triggered two very different tsunamis. In the end, corporates know how to handle startup innovation. Do it.

In 2011, the most powerful earthquake in Japanese history triggered two devastating tsunamis.

The first tsunami hit the Japanese coast an hour later. A 40m tall mountain of water traveled 10 km inland demolishing everything in its path.

The second tsunami hit the global telco industry five years later. A cohort of chat apps reached maturity and shattered the future of telcos.

What happened was this: After the earthquake people wanted to call their loved ones, but the phone lines failed. Instead, people sought internet access and a group of developers developed a solution. They called it Line.

Line inspired entrepreneurs everywhere to build chat apps. Among these were: WeChat, Viber and Snapchat. All of them launched in 2011. A startup tsunami was in motion.

At this point, the telcos should have reacted. Today, we know they didn’t. The reason is the nature of tsunamis.

The nature of tsunamis

Tsunamis are always proceeded by an earthquake. Earthquakes are easy to read. The ground shakes and our needles move.

In contrast, tsunamis are hard to read. Only a fraction of earthquakes triggers one. When it happens, the tsunami is practically invisible. It travels underwater with the speed of a commercial jet. Just before the coast, it suddenly rises and darkens the horizon. At that point running is pointless.

The same happens in technology. Some big breakthrough occurs. Like an earthquake, the event is easy to read. Academics, research papers, and popular science media cover it in full.

In some cases, the technological breakthrough is practical enough for entrepreneurs to take advantage. In these cases, hordes of ambitious people found startups. The event has triggered a startup tsunami.

Like a normal tsunami, startups tsunamis also travel below eyesight. It moves through garages, co-working spaces, accelerators and obscure online forums. Places that are mostly invisible to corporates. But it moves fast, gain momentum and suddenly rises. At that point, innovation projects are meaningless.

Why corporates are paralyzed in face of startup tsunamis

Startups tsunamis travel for about 7 years before reaching shore. That means we get a rough picture about the future seven years in advance. If telcos had noticed the large cohort of chat apps launched in 2011, they could have saved themselves.

The problem is that most corporates don’t have proper sensors placed to detect these motions. And when they do, they don’t know what to do about the information.

Most corporates have no method to handle startups. Corporates normally have two defenses against competitors. They buy them or compete with them. But none of that works with startups.

Most M&A professionals would never consider buying a startup. It is simply too small. Why go through all the hassle to buy something small, when you can buy something big with the same amount of work.

Competing with startups seem equally silly. They have no market share.

The thing is this: startups are not competitors. In most cases, startups do not compete with the incumbents. Instead, they build a parallel industry that will eventually outperform the old industry.

Corporates have no answer to parallel industries. It’s not part of a standard MBA course. But there is a way.

Corporates must respond to startups by helping them build the parallel industry. Few founders want to disrupt. Most founders want to build. And when asked, an overwhelming majority of startups actually wants to collaborate with corporates.

If corporates help startups to build a new industry, the corporates will be a part of it. Luckily, new tools are available.

How to ride a startup tsunami

Corporates must take part in the startup tsunami. To do this, corporates need a dedicated interface towards startups. The interface can be an accelerator, incubator, VC arm or some other open innovation initiative. The most important thing is that the initiative follows these rules:

  1. It must scout startups globally. Innovation can arise anywhere.
  2. It must engage enough startups. The more exposure to the tsunami, the better you can react.
  3. It must have a value proposition that is attractive to startups. Startups don’t need you, so make them want to collaborate.
  4. It must include and incentivize all the relevant business units. To utilize synergies the startups must get access to operational decision makers.
  5. It must be rebranded. Even though your brand is a hundred years old and worth billions, startups don’t think it’s cool.

And most importantly….

  1. It must be run by people who know how to talk and deal with startup founders. Founders differ from the rest of humanity and disdain people who don’t get them.

Follow the rules above, and certain calamity becomes a possible future.

At Accelerace we help both startups and corporates.

Advertisements