Why does the world need start-ups? We existed without them a while back, and we seemed fine. Many industries today are also dominated by a limited number of widely respected industry leaders. How should start-ups gain a foothold then?
Today we investigate how start-ups will relate to large incumbents in the current age. In particular, why start-ups are important to large firms. Many of these ideas are inspired by Anders Broström, an economics professor from the Royal Institute of Technology in Stockholm.
Small but Mighty
As what Clay Christenssen has defined disruptive innovation to be- a product offering which is below-par with the current industry standard in terms of quality at a more competitive price. This means that it has the potential to overtake the existing standard in the longer term.
Start-ups might potentially be disruptors that will change the whole game plan. This means that they observed the current market and leveraged insights, experiences, and networks built up while they were working in established firms in that industry.
They play important roles as innovators, introducing novel ways of doing things into existing industries. For instance, they could break up the value chain in the economy and restructure it. This is done by identifying an opportunity to create value by specialising in an activity that is more efficient and effective than the existing solution.
If successful, they might evolve into new globally competitive players which in the long term may out-compete incumbents. Incumbents may do well to consider such proposals from new entrants and to observe how this plays out in the competitive market.
Still Small Though
However, the lack of resources to carry out plans on a huge scale may impede the progress of the start-up. This ties in nicely with the collaboration with incumbents, who have the scale, networks, but not so much for time and talent. The economist Baumol referred to such patterns as reflecting “the David-Goliath symbiosis”, pointing out that the close interdependencies between these two types of actors.
Through the complementary interplay between start-ups and incumbents, the partnerships play important roles for innovative capacity of industries and regions. This is especially so with firms with established production and marketing capabilities.
What types of partnerships are there? Read our next article to find out the 5 different relationships between a start-up and large firms!