Slow and Steady… Can Lose the Race

By Shereen Khanuja

Over and over again, we watch market leaders fall behind to scrappier companies. And each time, hoards of analysts rush to answer the question, why? Why is it so difficult for new businesses within larger corporations to practice lean methods and keep their share?  Here are a few possible explanations:

1.       Early promises. CEOs of large, public companies are forced to prematurely make bold statements to the board and the public about the future of the industry and growth plans. This inevitably creates less flexibility than is given to a lean startup, which is expected to pivot. The result for the large company is commitment to specific ideas on product development, a large audience to answer to for mistakes, and reputational risk for saying, “I’m not sure.” Furthermore, as Katie Rae mentioned about Alta Vista, public companies must be focused on quarterly revenue growth whereas lean startups, which in this case was early Google, can iterate on or even postpone a business model while the product is being proven.

2.       It’s a new business in an old organization structure. In the lean method, teams need to be agile and quickly make decisions on product advances or changes. However, large company practices can fetter down its new business with long, complicated decision-making cycles and lengthy consensus building. Additionally, in an ideal execution of lean, the best person for the role will be chosen if it’s best for the product. In large companies, however, seniority often trumps fit. The 26 year-old salesman with a keen aptitude for the new market may be passed for the salesman with 20 years in-company experience and success in a different division. Accompanying these legacy company members are entrenched mindsets and business practices, as opposed to the “everything is new, I just need to learn” mindset of lean.

3.       Protect the brand. A strong brand is a blessing, but it can also be a shackle. A reputable company is less able than a startup to release an unpolished product without risking some customer backlash and reputational damage. Larger companies also have to consider the impact the new product will have on the sales and pricing of its existing product lines. On the other hand, a lean startup is often just trying to get a foot in and can maintain more leeway by having no legacy to protect.LOOOK

4.       Too many resources can make you slow. When you have the money and the people, it’s hard not to dig into those deep pockets. Large companies can quickly devolve into overcommitting resources early on feature sets that are just hypotheses which can impede iteration, whereas lean companies start with an MVP product and only add on other features as the need is proven. Thus, in lean companies, resources get more appropriately allocated as the product begins to take form.

5.       Can I acquire? Large companies can, though not always, fall on their pockets to make acquisitions when someone else has proven a market for a product. For these companies, this mentality can quiet the sense of urgency that makes lean startups scrappy.