The myths of disruption

A fascinating evening last night at the Hidden Edge Club’s networking event at the rather lovely Soho Hotel. The theme – Competing with Digital Natives – and I was honoured to be part of the panel discussion exploring themes around digitization, and how traditional companies can react to competition from pure-play digital businesses (and particularly the big 4 – Apple, Amazon, Google and Facebook).

In the reflection of the morning after, there are a few things that strike me about the conversations we had last night.

First of all, that this is still a topic of concern and interest to big, established organisations. Whilst many of them might now be doing agile, and have labs and run accelerators, I have this nagging suspicion that many big organisations are now wondering why they don’t have massive returns on all this Hoxtonite stuff on which they are spending money. There’s a survivorship bias at play in the tech industry that significantly distorts the perceptions of reality.

In the distorted view, Amazon, Apple, Facebook and Google have some sort of special sauce that if only established business could bottle and liberally dollop it all over their own operations would produce fine digital cuisine. These companies, and other poster-children, have better talented people than everyone else, use data better than everyone else, are smarter than everyone else, and are therefore better than everyone else by merit. They will reign supreme from this point forth…

This is, of course, balderdash. Let’s unpack it a bit.

Whilst it’s undoubtedly the case that there are some very clever people at all four of those companies, an awful lot of their innovation doesn’t come from within – they are companies that acquire products and talent as much as generating it themselves. Those acquisitions are a bit unpredictable as to whether they’ll be successful or not (as is the case with most M&A activity). If there are two things that do set those four companies apart from the rest of the market it’s a combination of understanding that it’s way more efficient to pay top dollar for a company through acquisition than it is to do it yourself, and very, very, very deep pockets.

Startups are a reasonably effective way for innovation to happen. But it’s terribly inefficient. The vast majority of technology startups fail. Even those that are successful often will have an exit strategy of acquisition by the big four, and then run a significant chance of collapse on take over.

So when a big established firm starts thinking about what they can learn from startups, they need to think about the whole startup ecosystem not just the successful bits. I was chatting to a book publisher last year, and he described the difference between a good and bad publisher thus: a bad publisher will attribute the success of a title to it’s individual attributes (the subject, the author, the marketing campaign and so on); a good publisher will attribute the success of a title to the other twenty or so in which he or she invested which bombed. Success in portfolios comes from hedging across a lot of things, not getting very lucky with a few.

To some extent big organisations can learn from this: they need to foster innovation and experimentation throughout (not just in an ivory tower Innovation or R&D team). Give as many people as possible the opportunity to be curious, to try things out, to find out what doesn’t work as much as what does. That involves trust, above all else. Big organisations tend to have trust issues.

They also, though, need to be realistic. If you’re a tens of thousand sized organisation, you can’t think like a startup. The people capable of doing so don’t work in big organisations – they’re out there being entrepreneurial! Intrapreneurship is one of the daftest ideas imaginable because it’s entrepreneurship de-risked. And that becomes either rubbish or corrupt. Or possibly both.

Big organisations might learn from the world around them. From my work to date, though, I’d say they can probably learn as much about how to innovate from looking at improvisational comedy as they can from looking at hipsters in Shoreditch.