On startup groups in organizations…

…Not too long ago, I used to think, startup groups in large organizations had a big advantage over pure play startups. Imagine the financial muscle, the ability to pull people from different divisions and groups together, the market clout etc etc.

The thing is, it doesn’t work quite like that. No doubt there are some advantages, but all said and done, there are enough countervailing disadvantages, which probably explains why startups often beat bigger players. Or get acquired.

1.      Funding – Any project that needs more than a nominal investment needs to be funded. Funding for infrastructure, hiring new people/experts, software licenses, whatever. A startup with some kind of VC funding has much more flexibility in this – they can buy infrastructure pretty much immediately, get people on-board quickly. For startups, these are “investments”. In a large enterprise, that’s not quite so. Unless, it’s a project that’s being seeded in the R&D arm/division, any such funding is “cost that needs to be customer-funded” – i.e. either a guinea-pig external customer, or an internal sponsor. Neither is easy – external customers aren’t going to fund you for something you don’t have, and internal sponsors themselves have cost-budget pressures, and are unlikely to invest in something that isn’t directly useful for them.  So long as a startup has reasonable seed-money, I think they have a distinct  advantage on this count.

2.      Getting the first customer – The first customer is “gold”. Well, almost. He is that proof-point that you are not just yet another alchemist. You might think startups have a big disadvantage here. Not quite. Any half decent startup typically has at least 2-3 highly networked and well-respected people in their senior management or board. If they are VC backed, the VCs bring in their contacts. So while getting that first customer is difficult, personal relationships at the highest levels make their job easier. On the other hand, in a large organization, a small group has significant disadvantages. One, since they don’t have funding, they can’t get their own field sales force. They need to get mindshare with internal stakeholders – business group heads, account managers, engagement managers yada yada. Difficult as that is, the really hard part is to get these guys to sell what you have to offer (which is mostly nothing more than a pitch and a POC). And why is that such a problem – well ‘cos you are too small to matter for a sales guy who is used to much larger deals. You don’t bring him enough value – he is measured by revenue he brings, and the revenue you bring is just too small to matter. There are other aspects as well – you may not be able to do a “free pilot”, for e.g. That probably requires you to get an approval from someone three levels above you!

3.      Agility – I guess, this is probably the most obvious. Startups don’t have to deal with internal bureaucracy – and by bureaucracy, it’s more than just people.  The processes, no matter who the person, can slow things down a fair bit. Minimal approvals to go through, no  time consuming hassles over travel arrangements. Decisions can be taken faster, and people are better connected internally.

4.      Brand Perception  – There are two aspects to brand perception, and both can be a big problem.

a.      Internal Perception – People within the company have a perception on what a company’s strengths are. For e.g., the sales guys may think that the organization’s bread and butter is selling servers and PCs. Now, if you have an idea that doesn’t sit with that perception – say, here’s some cool analytics we can do for this customer we already have, you aren’t going to get much of a hearing.

b.      External Perception – This is legacy. People look at you as being good in xyz thing. Let’s take Mircosoft – their brand perception is that of a software player – operating systems, office productivity, fair game all. But getting people to notice them for something outside what they are considered good at – a music player device, or an ERP application – much, much tougher. Pricing, of course, can tilt things significantly.

5.      Focus – A startup is almost always far more focused on its objectives. They need the customer more desperately, their existence depends on that. There really is no back-up option. Not so with startup groups in a large organization. Typically, the ideas are a consequence of work that is already being done for an internal customer or an external client. Most people within the group have their regular deliverables & clients, and innovations are a consequence of that. Taking that innovation to the next level, bring it to a wider audience is exciting to think about, plan and work on, but it’s got to be tempered with the responsibilities of managing expectations from existing stake-holders. Even if the bigger deal doesn’t pan out, not too much is going to change.

 
But having had my say, I must add that this is not always the case. You can get an internal sponsor, you can change perceptions, and you can make yourself reasonably agile. It’s just tougher than you think. And organizational culture can also play an important role. From what I have seen here, the culture is conducive to reduce many of these problems. Not sure if that is the case in most other places. Some places are just more bureaucratic and more lethargic than others.

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Posted on September 7, 2007, in Uncategorized and tagged , . Bookmark the permalink. Leave a comment.

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