 by Jason Cohen - @asmartbear, https://www.linkedin.com/in/jasoncohen/ Jason built 4 tech startups, both bootstrapped & funded, alone and with co-founders, all to $1M+ annual revenue, sold 2, currently at the 4th, https://WPEngine.com with 200k customers and 1200 global employees. He’s an angel investor, founding member of Capital Factory, an Austin incubator/co-working space, and has been writing about early-stage startups since 2007. This entire post can be found here. URL for this Post.  A startup can beat a large, successful incumbent, if it does things the incumbent can not or will not do. Here are those things.
It doesn’t seem possible for a startup to beat an incumbent. An incumbent has everything: money, brand, customers, a sales team, marketing that generates thousands of leads every month, product and engineering teams that constantly ship. They mine their big existing customer base for ideas, and then build exactly the right features, and then charge for it. Their 24/7 support team provides faster and better service than someone working in their pajamas at home. They don’t have to build the basics or ask Twitter how to manage international sales tax. They can just focus on innovating. Of course if you’ve ever worked at a big company, you know that while most of those things are true, it doesn’t feel like it. Big companies are rarely well-oiled innovation machines, and it certainly doesn’t feel like you’re constantly outpacing the competition. When we analyze how incumbents are vulnerable, we uncover opportunities that startups can exploit to win, where there’s often nothing the incumbent can do about it, despite their advantages:
The pattern: Every big-company advantage creates exploitable weakness The reason big companies don’t function as well as described above is that things at scale are super-linearly more difficult. It’s an advantage to have 100,000 customers when you’re figuring out what the next feature should be, or when you’re launching a second product, or when you get free growth from word-of-mouth. But it’s a disadvantage to have a lot of customers when you want to innovate with your product, because no customer wakes up in the morning and says: Gee, I hope the software I’m accustomed to dramatically changes today. Customers don’t want to learn new UIs. Customers have workflows that you have to accommodate. Old technology that powers those 100,000 customers doesn’t support the latest technology. You have to update documentation and videos and the people in support and sales who need to be retrained. Even a simple change can be difficult and expensive, and certainly low-ROI. Besides “scale,” a big company must accommodate things startups can ignore. There’s the legal department, for example. A startup does all kinds of illegal things. Most startups do not pay taxes properly, sometimes not at all, especially in other countries. Startups don’t adhere to all the Acceptable Use Policies of all the products they use. Startups don’t have a security team who vets vendors before sending them sensitive data, or vets libraries before they’re integrated into the code base, causing all of their supposed “secret intellectual property” to become open-source. As a result, the startup not only moves more quickly—which is how most people characterize it—but they can completely skip things that a larger company cannot. So Uber decided to just do illegal things in order to grow. An incumbent taxi company obeys the law, so they lose. You could say that that’s not fair. You could say that’s what regulation ought to prevent. But the reality is that startups often ignore the law, and that can be an edge. The way a startup wins, is to do things that incumbents cannot or will not do. So, let’s see how to attack where they cannot defend. Take risks that cannot be quantified The way a larger company decides to take a risk, such as launching a new product line or entering a new market, is by creating a detailed analysis of the opportunity, and a cost estimate. Then the decision is: 1. Is this is a good ROI? (potential-revenue divided by costs) 2. Do we have conviction that the risk of failure is low? How can a startup exploit this decision process? Starting with decision (1), the analysis is typically wrong. There are studies everywhere—and your own experience, if you’ve worked at a large company—showing that most development projects are significantly late and over-budget, and also that the outcome is typically worse than expected. Both sides of the ROI fraction are worse. Read the rest of this post here.
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