Growing up in Tasmania, I spent a lot of time outdoors in the bush. Snakes are a real threat when you’re outdoors in that environment, yet we didn’t let that deter us. We didn’t because of the saying “They are more afraid of you than you are of them”. (Since then, I’ve seen a rather large one aggressively attack a bike rider, so it is probably more a confidence statement than a true reflection on our reptile friends.)
This statement however, is actually quite applicable in the startup world.
When starting a business, it’s often quite daunting when you’re trying to take on an industry that is dominated by large groups or corporates – that’s scary. So it’s no surprise that founders are often afraid of the big guy taking them on and are overly protective as a result. I’m sure you’ve heard of a startup founder in “stealth mode”, trying to protect their concept or idea from the big guys.
But I think the reverse is true.
Like our Tasmanian snake, corporates are more afraid of startups than startups are of them. Startups can take on incredible challenges and by virtue of their nature, they are fast, they are dynamic and they are disruptive. Corporates are the opposite and they are terrified of what startups can do.
Everyone knows of the Kodak vs Instagram analogy. Kodak literally invented the technology (digital photography) that sunk them. They took 100 years to get to a $bn valuation, the digital photography startup Instagram only took four. So it should be no surprise that corporates are shit-scared of disruptive startups and their power in the modern tech environment.
Back bushwalking, we learned to overcome our fear of snakes by understanding their environment and behaviour, and we adapted ours to overcome them. Startups need to do the same with the corporates they share an ecosystem with.
So what is a corporate behaviour to a disruptive startup?
After hearing me speak at a conference, Andrew Cameron came up with a very simple model. Corporate behaviour follows three distinct phases when approaching a disruptive threat; Attack, Compete, Acquire.
In the first phase, a corporate will attack the startup. We’re seeing this now with car sharing. The taxi industry is terrified and is using its political influence and media spending to attack car-sharing startups, especially Uber.
In the second phase, the corporate will launch its own competing product, using it’s marketshare as its weapon. The taxi industry in Australia has launched it’s own “taxi hailing app” but generally they will fail. They’re too late. The disruptive startup has gained popular traction and are able to iterate much faster, something the corporates just can’t keep up with.
In the third phase, the corporate will protect its interests by using its large capital reserves as a weapon. They will acquire (or attempt to acquire) the startup or the copy-cat startups in the industry. And as most startups are hungry for an awesome exit, this will generally work out.
So, by understanding this behaviour we can change ours. We need to be prepared for the attack, push through the compete phase and then take advantage of the acquisition.
Photo credit: “Bull snake a.ka. the Deige (Pituophis catenifer sayi)” by Dallas Krentzel https://flic.kr/p/9KhWNn