Despite having billions under their kitty, big corporates in India or elsewhere struggle against startup. Here are 10 reasons why.
Big corporates in India and elsewhere struggle against the agility of a startup, depite the cushion of huge coffers. Small divisions under an Oracle, Microsoft, Cisco or in India’s case a Future Group or AB Group lose out to young startups and often end up up buying these startups by paying a fortune.
Microsoft this year acquired TouchType, a keyboard productivity application, which it could have as easily developed inhouse. Cisco acquired Jasper Technologies, a cloud based IoT platform, for over USD 1.4 billion.
In India, Future Group (which also runs Futurebazaar.com) was in talks to buy Jabong. It lost out the race to Flipkart, which closed a cash deal for about US$70 million, and even wired the money within three days. Aditya Birla Group is trying to compete with fashion e-tailing startups through its brand Abof.
Despite pumping in millions to fund huge salaries and attract talent from startups themselves, the corporate giants lose out to young ventures.
Here are 10 reasons I think explains this trend:
Startups move at an unprecedented agility. From designing a new logo, to launching a new product, startups are able to bypass the serpentine loops of permissions and processes which keep a large structure in place.
The same processes which ensure stability of a large organization, impede its growth too.
The processes become an albatross for a big corporate which ultimately blocks innovation, making it die a slow death.
Startups are able to hire at humongous salaries, post large funding rounds. Large corporates can compete with startups for the same talent, but they chose not to.
A big organization has to see the parity of the incoming talent to its superiors and peers. Of course, various levels of tax structures imposed on an employee in a big company, making his take home cash go down. This impedes attractiveness of bright young talent to join a big company.
A large company will blow up millions on marketing and travel budgets but invest little in breaking these structures which can divert the same cash to people. A startup moves on minimal travel and marketing budgets (even to the point of having minimal office furniture). This makes it’s cash free to be invested upon people. It makes war for talent seem a piece of cake for funded startups. Of course, a startup has to manage perceptions of stability which a large structure does not.
A startup mindset gives complete freedom to its employees to make mistakes, even blow up cash. Everything is fluid – from structures to processes and controls. This creates a fertile ground for innovation.
A large corporate devoid of a startup mindset can impede innovation and swift execution because of multiple layers of approvals.
Tech companies such as Google and Intuit have understood this challenge and thus emphasise on the power of small teams independent to make decisions.
Startups love working with startups due to cultural similarities. The advantage which large companies enjoyed of having piles of cash has been neutralised by the influx of venture capital (VC) funds. Thus, startups are able to forge critical partnerships fast.
A dream project such as an app, or a new product can be launched by a small team of even 3 people in a startup. Cash spent during launch on simple stuff such as making standees, marketing collaterals, food, even sundry payments is immediately transferred to employee bank accounts. Startups don’t wait for the monthly reimbursement and salary cycle such as in a large corporate.
5. Founder’s passion
This is one of the most critical ones. Often in large corporates, an employee works for an unknown name or face. The founder, owner or even the CEO of a large corporates rarely takes time out to meet the junior most employee or simply conduct monthly town halls across location – online or offline.
The employee rarely gets a chance to meet the CEO leave alone the company’s founder. The employee is left clueless about the strategy that the company wants to take. He or she is given directions by other employees who are several levels down.
The message and the founder’s passion, even if it exists at the top, gets diluted or absent at the lowest levels.
The foot soldiers in such corporates fight a mindless war without a goal or direction given by its general. A soldier fighting a war for a monthly salary cheque hardly stands to win the war.
At startups, the founder/s makes sure to infuse employees with energy daily or weekly doses. This keeps the morale high. When tough times befall, employees happily forego salaries for weeks altogether to keep that startup afloat.
There are ample examples of it with InMobi, IndiaMart, Shopclues, PepperFry all having gone through tough times.
This keeps the often unpaid soldier super charged. Thus cash starved startups are able capture territory from profitable large corporates.
However, often startups which become huge, understand this predicament. Google, a large company with over 55,000 people has a monthly town-hall with its founders, the CEO and all employees, to talk on the company’s direction.
6. Pivoting in disruption
Small startups are able to respond to changes better than a large corporate.
I recently met the founder of iZooto, who changed the business model of his start-up thrice.
While a big corporate may take weeks and months to shutdown a unit and start a new one, the young startup can do it within a day.
As the market dynamics change, a small division inside a large company will move super slow on any given day than a large unit inside a big startup (with less than 100 people).
One97 was able to evolve into Paytm whereas telecom value added services divisions of some large companies died a natural death, after Trai’s spam regulations.
7. Dealing with failure
While big corporates dread failures, young startups love, and even encourage them. The yearly increment of an employee in a large company can often be dependent upon sales and numbers than the innovation she might have brought.
A wrong business decision, project, or failed market entry is rarely tolerated by a large company. There could be leadership changes, more with a view to cover the wounds from a wrong decision, than. Young ventures have the agility to cut an infected limb even if it’s painful, than simply dressing it up.
In young ventures, the failed are often promoted to newer important responsibilities.
8. Fun on team bonding
It’s a well known fact that startups love to work and then party hard. Team lunches, dinners, night outs help in team bonding and assimilate an employee faster in the company culture.
For any small party, a large corporate has to multiple permissions to get the funds arranged. In startups, a credit card in the name of the founder or the company can do the trick.
Lack of team bonding opportunities can make an employee take longer to assimilate and start collaboration with other teams in large monolithic companies.
9. The employee’s desk
An average Indian employee in a large company wastes about 1 hour in a commute working in a big city such as a Mumbai, New Delhi, or a Bangalore. That’s about a day wasted per month in just commute. Top it with the energy and productivity loss when an employee arrives at his desk depleted of energy braving the traffic, and the loss to a company’s bottom-line is humongous.
Startups have evolved a culture of work from anywhere without the need for attendance roll-calling.
The concept of co-working spaces and offices near places to live make them agile.
Large companies such as IBM have realized it early on. It encourages its staff both in India and the US to work on projects from home, as long as deliverables are met.
This often makes an employee productive the moment he or she wakes up. It also frees up time for exercise to keep the body and mind fit, resulting in happier employees and their families.
10. Building a Culture
Large corporations fail to recognize the most important fact in keeping its customers and employees happy – a vibrant culture.
Startups form a set of values and beliefs as per their mission and vision. An employee is assimilated or not in that culture. In large corporations, various divisions form their own culture.
The HR department in large corporations are seldom able to communicate what the company’s culture is all about. Many large companies in India in retail, IT, even software have failed to develop a culture where an employee can relate or belong to.
And ultimately it is a sense of belonging which an employee can recall or relate to even decades after he or she has left that organisation.
The faster global corporations understand this, the happier their employees will be.
Disclaimer: Flipkart and Big Bazaar are just nomenclatures for a new age and old company. Startups here mean young ventures with small teams (less than 100 people), or those which are just 7-8 years old or lesser. This is an opinion piece. Views expressed are personal.
(This article was first published on Moneycontrol).