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Countering the ‘unfair’ advantages of startups

Kenny MacIver — June 2020
Steve Blank, co-creator of the Lean Startup movement, serial tech entrepreneur and lecturer at Stanford and Columbia Universities, shares a blueprint of how enterprises can take on — and beat — disruptive startups at their own game.

The environment in which corporations exist has changed beyond recognition in recent decades — and executives who are struggling to understand this fast-evolving landscape are leading their companies towards oblivion.

In the face of an onslaught of digital disruption, that’s where one of Silicon Valley’s most respected voices, Steve Blank, thinks many of today’s market-leading companies are heading. But their demise is far from inevitable, he argues in our exclusive Big Thinker video. If their executives grasp what they are up against and create “ambidextrous” organizations that are great at execution but have continuous innovation as part of their DNA, they can not only take on startups but beat them at their own game.

Steve Blank certainly has the standing to back up such an assessment.

As a serial entrepreneur, he co-founded or played a leading role in eight startups across markets as diverse as CRM, semiconductor design, workstations and video games. In some cases, those failed to ignite enough customer interest; in others, though, he created companies that generated billions of dollars of value. He channelled that hard-won experience into a blueprint for startup success, his book The Four Steps to Epiphany, and shared those lessons as a lecturer at Stanford University and UC Berkeley. Together with his “best-ever student” (now-bestselling author) Eric Ries he co-created the highly influential Lean Startup movement.
Rethinking strategy

The starting point for any large company threatened by digital disruption, Blank argues, is depth of understanding.

“In the 20th century, for large corporation, your competitors were almost always your peers. And you and your peers tended to move at the same clock speed, could figure out where technology was going and what each wave was all about — largely cost savings, efficiency and adding new capabilities within the core [of your organization],” he says.

Any talk of disruption was absent from boardrooms — and any movement in market share was measured over years and in low single-digit percentages.

However, that old world is long gone, says Blank, who paints a picture of the new “What does disruption mean for executives at established companies today?” he asks. “It means, ‘There goes our market share to a new technology or startup or a consumer change that came out of.’ And that change is happening at a cycle time unlike anything we've ever had to deal with.”

He finds many organizations’ leaders simply do not have the business framework to deal with that upheaval. “When I meet CEOs, I remind them: ‘If you've gotten your MBA more than 10 years ago, almost everything you learned is now obsolete.’ I don’t mean [the basics like] accounting are obsolete but strategy. Strategy in the world you graduated in looks nothing like strategy in the world today,” says Blank.

“If you’re a CIO from an established company, the rules are now completely unfair and stacked to your disadvantage.”

Many of the assumptions informing strategy have been inverted, he says, including something as fundamental as access to funding.

“What's really interesting about today’s environment for corporations — and their CIOs — is that, for the first time ever, startups have more capital than large corporations,” says Blank, pointing to the huge venture funding rounds and valuations of tech ‘unicorns.’

“That was just unthinkable in the 20th century. Startups used to be what I call ‘ankle-biters,’” he says. Typically, these would be small corporations that operated at the edges of markets that would either be acquire or simply fizzle out through a lack of cash. “But now these companies are raising hundreds of millions and, in some cases, billions of dollars, and [executives at market leaders] are looking at their smaller budgets and asking, ‘How can they do that?’”

What’s worse, he says, is “there’s not even a need for those startups to make either profit or revenue, at least until they go public. So if you’re a CxO inside of a large corporation today, the rules are completely unfair and stacked to your disadvantage.”
Execution plus search

The upshot is that leaders at established companies need to understand what makes startups so different — at every level.

One key observation, says Blank, emerged from academic studies into the application of the Lean business approach in the early 2000s. “The insight was that startups were not simply smaller versions of large companies. The primary distinction is that large companies at their core execute a known business model.

“And that’s a big idea. Because if you look at startups, they’re not executing any business model; in fact, the ones that try to usually fail. By their very nature, startups are actually searching for business models. And that distinction is important because when you're executing [as an established corporation], failure really isn't an option,” he says. Mission-critical systems can’t just partly work; products can’t break on first customer use; services can’t simply be ignored.

“When you’re a startup that is all kind of expected. It’s called the ‘learning and discovery’ phase, when risk and failure are okay and built into the business model search process. So [as a corporation] you’re not only competing against dollars and Agile but you're competing against a culture where risk and experimentation are built in.”

The existential challenge: “Large companies need to figure out how to do both” — that is, search for innovative business models and execute their known models.

And that ambidextrous capability does not come naturally.

“How do I, as a CIO say, run my core systems that don’t have any option for downtime or any flexibility for ‘maybe this will work’ and, at the same time, build an experimentation culture that allows us to do things just as quickly as a startup? That's really difficult for larger organizations,” says Blank.

“Yet this ability to execute and search at the same time is a core competence that large organizations need to build in. The biggest challenge is not just how to be ambidextrous — to succeed at both execution and innovation — but to ensure that you have the capability to innovate continuously.”
New peer group

That means corporations can no longer simply measure themselves against their traditional peers. “You're tracking these new insurgents. It’s tough because now you’re stacked against not only dollar juggernauts but technology juggernauts that are moving at speeds that look like a blur from inside your organizations,” says Blank.

“So being ambidextrous means not only do you need to do your job 100% — supporting existing customers, existing infrastructure, existing systems — but now you need to be going at the same clock speed of startups. That feels quite unfair. And the answer is, that’s because it is.”

• Potrait photography: Marc Olivier Le Blanc
First published
June 2020
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About: Steve Blank
A Silicon Valley icon, Steve Blank is the co-creator of the Lean Startup movement, an author on entrepreneurship and a professor at Stanford University and senior fellow at Columbia University. He co-founded eight tech startups over 21 years, including E.piphany, MIPS Computer Systems, Zilog and Convergent Technologies, and has guided hundreds more to success.

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