May 18, 2024

sullivanprogressplaza

It's the Technology

Can Traditional Companies Act Like Start-Ups?

Much has been made about the culture clash between older, slower, more traditional companies and younger, more dynamic, faster-moving tech start-ups. Each has advantages and disadvantages, but, generally speaking, it is very hard to reconcile the two approaches, as they are naturally in opposition to each other.

The general motto among start-ups of “move fast and break things” has led to very quick yet massive successes with some companies. Google and Amazon — being the most obvious examples — are growing larger than traditional competitors who have been around for decades and decades. But it has also led to a lot of unconsidered damage to traditional industries like transportation and publishing, their ‘disruption’ doing as much harm as good.

And, more often than not, start-ups can see millions or even billions in investment being wasted on bad ideas and unproven tech (Theranos, anyone?). “Fake it till you make it” means that, eventually, you actually do need to make it.

Demos_Parneros_ Traditional Companies and Start Ups.jpg
Image Credits: Pexels

Meanwhile, traditional companies, while providing more useful and regular forms of employment, great institutional knowledge, and decades of business experience, have their own problems. Because they often resemble large, inefficient bureaucracies, they are slow to move and respond to change.

Old companies can be blind to, and even fearful of, innovation and new technology. This can leave them dead in the water when the future finally arrives. Kodak, for example, went from venerated, dominant business to almost nothing in just a few years because it refused to accept the revolution of digital photography.

But is there a way to integrate the two approaches? To take the best from both cultures and business plans and use those aspects to move into the future? To get big, old businesses to work, at least in some ways, like small, agile, young start-ups? Yes, but it isn’t easy.

Innovation Without Disruption

As stated, one of the greatest fears of traditional companies is having their business, or their entire sector, undercut by a growing start-up. While independent start-ups are expected to disrupt, be change agents, or, however you want to put it, more traditional companies are prone to be much more risk averse. Naturally, one of the smartest things that an old company can do to avoid being left behind is to lead the disruption themselves.

Demos_Parneros_ Traditional Companies and Start Ups_3.jpg
Image Credits: Pexels

Many traditional businesses are currently investing in and should continue to invest in, the digital transformation of their business model from top to bottom. This, however, is a slow process, especially in sizable companies.

The use of machine learning, predictive analysis, AI, and other cutting-edge digital tools allows old business models to become more efficient and respond to changes in supply and demand and market tumult in better and smarter ways. But it isn’t as easy as flipping a switch.

A New Business to Try New Things

Quite a few traditional businesses are spinning out new sectors, tech labs, and other separate silos to do the work of digital innovation for them. This isn’t uncommon. Businesses have, basically forever, had subsidiaries. The problem is those old businesses have trouble actually committing to the idea.

Often, the business that is spun out is, essentially, a temporary one. The leaders of the core business get cold feet, limit the new project’s mandate, and pull it back in as soon as possible. Such hesitance is limiting in today’s digital world, where the next revolutionary innovation is always just around the corner.

Demos_Parneros_ Traditional Companies and Start Ups_3.jpg
Image Credits: Pexels

Furthermore, spin-outs with good ideas and potential for growth are frequently allowed to die on the vine, just as often they go to seed. Or, to make things clearer, the core business doesn’t invest in the digital spin-out’s success. The great advance of digital companies is their ability to scale with almost lightning speed. But core businesses have to be ready with resources and support for the scale-up to even happen, let alone work. Otherwise, a grand opportunity will go to waste.

If a business spin-out does well enough, it should be allowed to grow and change as it needs to, provided that it remains successful and worthwhile. Whether the goal is for the new business to simply make money in an area the core business isn’t directly addressing or developing digital innovations for the core business to take up if it works, it works. Don’t get in the way of success just because it is new or comes in an unfamiliar form. At the same time, core businesses must be careful of how they measure success for these new experiments. Measuring the new company or spin-out with the same metrics as the core business can sometimes choke the momentum and not give an accurate picture. After all, newer, smaller businesses or initiatives shouldn’t be expected to be profitable immediately.

Cultural Change, From the Executive Level On Down

All the innovation in the world won’t mean anything if the people running the business itself refuse to change. Older companies, and older executives, can become set in their ways, dismissive of new technologies and ways of doing business, and ignore the automation and efficiencies of advanced digital tools. We saw this at the beginning of the widespread use of the internet twenty years ago, and we’re seeing it now.

More important than this is the need for people in positions of real power in companies to implement the changes needed for innovation and advancement and do so thoroughly and effectively. There must be a willingness to let the start-up culture infiltrate and influence the way business is done at every level, or it won’t be effective enough to help.

Demos_Parneros_ Traditional Companies and Start Ups_3.jpg
Image Credits: Pexels

It is painfully common for large, traditional companies to put money into research and development of new ideas and new technologies, only for executives and other decision-makers to ignore what’s in front of them, either because of cost, risk, or something as simple as a fear of the future.

But the future of business is changing in a digital world. Things move and change with an almost frightening speed. The Covid-19 pandemic is absolute proof of that; it wasn’t just companies with digital tools at the ready that were able to survive. While they had an advantage, it was the companies that were able to acknowledge the rapidly changing situation and react to it quickly and efficiently that kept things going and, in some cases, even improved their bottom lines.

But It’s More Than Just a Cultural Change

One of the biggest advantages of tech startup culture is that it is forward-facing. It is an attitude towards business and technology that is not just looking towards the future (every business does that) but is actively trying to grapple with it and even to shape it, if possible. Traditional, legacy businesses need to admit that the world is not static, and they have a responsibility to influence how their industry develops.

Part of that responsibility is letting innovators be innovators. If a large company spins out a business unit to study and improve its digital technology, that company can’t then balk when those innovators recommend widespread change or create a new idea that could shake the company, or its whole industry, to its core.

Demos_Parneros_ Traditional Companies and Start Ups_3.jpg
Image Credits: Pexels

Conclusion

To put it as simply as possible, for an older, more traditional company to reap the benefits of adopting a start-up model, it has to actually adopt it. It can’t just make superficial changes; it needs to truly invest. But that kind of investment carries risk, which can make more traditional companies nervous. The work of transformation must actually be done.

That means supporting digital innovations and changes when they make things more efficient. It means letting spin-out businesses actually try new things and grow to scale when they hit upon something new and successful. It means executives getting out of the way so the forces of change can actually, you know, change things.

Otherwise, the ‘traditional’ company will just be the ‘old’ company, sitting around waiting for some new tech upstart to disrupt it into obsolescence.

Demos Parneros

Demos Parneros

CEO | President | Board Director

Demos Parneros is an experienced and innovative retail and e-commerce leader, helping Staples grow from a startup to a Fortune 100 company, serving as President of North American Retail and E-commerce businesses. He subsequently took on the role of CEO at Barnes & Noble, leading a focused transformation plan, which eventually led to the sale of the company. In addition to previously serving on several high-profile company boards, Demos now leads CityPark LLC, where he has invested in 15 companies, including several leading-edge retail tech startups.