The End is Near: How Big Companies Win by Plotting Their Own Demise
Originally published in Total Retail.
In the real world, the big usually eat the small. The strong eat the weak. The fast outstrip the slow. But in startup culture, disruption and innovation are inextricably linked with smaller companies backed by private funding.
In the typical narrative, large, publicly traded companies are cast as defenders of the status quo — and fat targets, too. As Clayton Christensen, the inventor of disruption theory and strategy, once said, “By doing what they must do to keep their margins strong and their stock price healthy, every company paves the way for its own disruption.”
However, it’s become increasingly clear that the standard tale of disruption is, at best, misleading. In many cases, large category leaders are the ones doing the disrupting and winning. One of the earlier examples was Netflix, which upended the mail-order DVD business with its digital delivery. However, Netflix is by no means alone. In fact, except for the occasional Tesla (and the jury is still out on that), it may be harder to compete with big companies than ever before.
That's because rather than defending the status quo, many large companies are planning for their own demise. They’re succeeding by setting themselves up for a future in which their most profitable product or their entire category no longer exists. In doing so, they're following a blueprint, whose principles are becoming increasingly clear.
They're Optimizing Current Cash Cows for the New Reality
Smart companies make sure their stars receive investment, while existing cash cows support growth. Microsoft is a great example of this. Its Office Suite of products was associated with the desktop as recently as 2010. Then came disruptive free apps, such as Google Docs and Open Office. As these increased in sophistication, many expected Office to go into an irreversible decline.
In fact, the opposite happened. Microsoft wasted no time in leveraging its boxed business to transform Office into a cloud-based service with a powerful desktop component. This combination of the familiar and the flexible has paid big dividends. Today, Office has a greater market share than it did in 2014, even though it’s the most expensive solution in its category.
They’re Unafraid to Engage Their Critics
Energy companies are often demonized as defenders of fossil fuels, but several are vocal about problems with the current energy mix. In spite of its involvement in Canada’s tar sands, Shell has frankly and honestly discussed the future of energy. As early as 1991, the company made a prescient film about the risks of global warming. Shell's CEO is a proponent of a carbon tax, and the company invests heavily in solar energy. While its scorecard isn’t perfect, Shell isn't hiding from the problems caused by the petroleum industry.
Another company doing much the same is Ford. In an interview with Business Insider, CEO Mark Fields frankly stated he doesn’t think many cars will be on city roads in the future. As a result, Ford is setting its sights on all forms of transportation, not just what it’s known for today. And, apparently, Fields himself wasn’t moving fast enough, as the company went further by bringing in James Hackett to replace him. The new CEO immediately brought in a former executive from Uber.
They Challenge Themselves Directly
Some companies support efforts that directly challenge their business models. Tyson Foods may be the largest poultry producer in the world, yet this company is investing heavily in a meatless future. In 2016, it launched a $150 million venture capital fund that invests in startups developing meat alternatives. Tyson also bought a 5 percent stake in Beyond Meat, a Silicon Valley startup that makes plant-based beef and chicken from pea protein. This may enable it to transition to a future in which meat isn't what’s for dinner.
They Improve Upon First-Mover Missteps
One of the persistent myths of startup culture is that first movers win. In fact, they often don’t. Large companies have the ability take the initiative from smaller startups, benefit from their mistakes and beat them at their own game. Zipcar, for example, showed that we could change the way urban dwellers commute, but it was far from prosperous.
Daimler managed to benefit from a critical deficiency in the startup’s business model: the annoying rule that you had to return your car to the same place you picked it up. When the larger company purchased competitor Car2Go, it included negotiations with city transportation departments to ensure that users could park the vehicles for free, allowing for one-way trips.
They Anticipate the End of Eras
Disruptive large companies know when the category they dominate will become irrelevant. For example, Facebook today owns a whopping 77 percent of mobile social traffic. Nonetheless, it’s already envisioning the end of smartphones. Mark Zuckerberg believes that we’ll eventually ditch our handheld devices for smart, augmented reality (AR) wearables. Instead of talking to a screen, we’ll have images implanted on our eyes. This accounts for Facebook’s heavy investment in AR technology.
Put simply, a company’s size can matter — and, yes, bigger is often better. While it may be difficult for large companies to innovate, if they’re willing to challenge their core, they often find new ways to succeed. Moving forward, it makes sense to pay attention to large company innovation as much as small. As in the real world, we’ll probably see more big fish eating small ones than the other way around.