Tuesday, June 25, 2019

“Startups have these four key advantages over larger competitors - MarketWatch” plus 1 more

“Startups have these four key advantages over larger competitors - MarketWatch” plus 1 more


Startups have these four key advantages over larger competitors - MarketWatch

Posted: 25 Jun 2019 07:02 AM PDT

Amid the wave of U.S. initial public offerings this year, it occurred to me that companies going public leave one world and enter another.

Startups come out of nowhere and burn down entire established industries, in part because they are small and scrappy enough that they can take the risk of ignoring rules — long-held conventions, business etiquette, dress code, branding and sometimes even the letter of the law — that their big-company competitors simply cannot.

Yes, the internet enables disruption. And certainly big companies can get complacent and bureaucratic, creating an opportunity for small competitors.

But when you think about it, big companies are just startups that won. There are plenty of hyper-competitive smart people in charge of big companies, backed by massive budgets. If all they needed to compete and win was better technology and more efficient management, they could easily make that happen.

So what's really going on here? What's putting big companies at such a disadvantage? If it seems like they are fighting with one hand tied behind their back, it's because they are.

I would submit Peloton as Exhibit A.

When the stationary-bike maker was still playing David to the fitness industry's Goliath, it was too small to attract much attention. Now that the company is going public, music publishers are suing Peloton for allegedly playing music in spin classes without paying a license fee. (Peloton objects to the claims of wrongdoing, and it's countersuing.) It doesn't matter who's right here: This is a situation that Peloton probably could have avoided.

Startups are like speedboats blasting through the waves with the singular goal of grabbing market share. That is part of the startup playbook. Uber Technologies UBER, +0.00%  didn't ask for permission, either, and look where it is now — in almost every city and town in America.

By contrast, big companies are like large ocean liners, where the captain follows maritime law to a T. The expectation is a comfortable ride that always arrives on time, so when there is engine trouble or anything other than the pleasant day on the water that's been promised, it's news.

Thinking of it this way: It's not that surprising that startups can gleefully torpedo big companies on the open seas.

There are four areas where I see this dynamic playing out:

Customer expectations

Large companies' mass-market customers are unforgiving. At least at the beginning, a startup's customer base is composed entirely of early adopters, who are willing to trade nearly everything — top-quality service, reliability, etc. — for access to something new and interesting. Surprises are a selling point. Startups get a pass when it comes to standard business rules around service and quirks.

By contrast, large companies' customers don't want any surprises.

When Tesla's TSLA, -1.73%  only customers were wealthier car lovers who wanted the newest thing, the cars were beloved, bugs and all. Now that Tesla is a mass manufacturer with mass-market customers who rely on its vehicles for their daily commute, those glitches are a problem.

Brand flexibility

A startup has zero brand equity but endless options for how it presents itself and its products or services. It can change the brand all it wants by changing a name, reworking a website or overhauling the marketing message. Large companies don't have this flexibility. They have too much invested in their brand to risk a pivot. And that puts them at a disadvantage to smaller companies that can adapt to whatever is trending in the market at any given moment. You can almost chart the growth of a company from startup to entrenched stalwart by how people react to their blunders. Coca-Cola KO, -0.31%  wasn't allowed to tweak its formula without a global brand crisis. But your local organic kombucha maker? She can do whatever she wants.

Technical debt

Most large enterprises are sitting on a tech stack that's complicated, interconnected and rigid. It's part of their competitive moat that ends up drowning them instead. Your typical startup, on the other hand, has no legacy systems, meaning it can overhaul everything overnight if need be. That makes startups much more agile, adaptable and better able to take risks. Take what happened at Equifax EFX, -1.64%  two years ago when its systems were hacked and the personal data of more than 148 million people was exposed. It was later reported that the company had a patch available two months prior that would have protected that consumer data, but it didn't react fast enough to get it out to everyone. The result was a nearly 50% drop in Equifax's share price, a matching rise in the price of its biggest competitor, a lasting stain on the company's reputation and, perhaps, enough of an opening for an upstart to think it could do the job better.

Legal barriers

Corporations are motivated to construct legal barriers, both to protect their businesses from competition and also to protect their interests in the market. Taxi drivers have their medallions, for instance. But in doing so they often end up constructing their own prison. Those barriers end up giving startups an advantage because they don't necessarily have to follow those rules. Consider how Uber and Lyft LYFT, +0.44%  have upended the taxi industry, or Airbnb the travel sector, simply by working around the regulations that cabbies and hotels had followed for decades. The castle walls they'd constructed were breached not only because startups failed to respect their sovereignty, but because a lack of barriers was also beneficial to consumers.

Those "unfair" advantages make it more difficult for large companies, even those doing the smart, forward-looking thing of investing heavily in innovation. Human nature tilts the field even further, because no one is as motivated to solve a problem as the startup founder they are competing against. And if anyone within a large company happens to come up with a solution and also has the maniacal, singular focus to execute on it, then comes the ultimate kick in the shins: They likely won't solve the problem at the company itself, but instead find and market the solution at a new startup of their own creation.

Rather than merely waking up to the threat that's lurking, corporate leaders need to start seeing those same threats as potential opportunities. They need to take a page from the people currently putting money into startups and aim wide and aim often, investing in the nascent competitors and technology that, with or without their help, may one day get big enough to disrupt them.

Culturally, there may be no bigger gap than the one between the people piloting boats and the pirates trying to ram them. That is why it is important to start the relationship long before there's a hole in your hull.

Toby Krout is co-founder and CEO of Boomtown Accelerators.

For Tech Upstarts, Pasadena is Funds City | Pasadena California, Hotels,CA Real Estate,Restaurants,City Guide... - Pasadena.com - Pasadena Now

Posted: 25 Jun 2019 06:16 AM PDT

Innovate Pasadena, which celebrates its sixth birthday this mongth, has been pivotal in creating techn community through events like Conndect week. Here, Umang Bhatt moderates a panel discussion during #ConnectWeek2018. Photo by Akiko Whalen at the CTRL Collective, Pasadena via Facebook.

Councilmember Andy Wilson is bullish on tech in Pasadena and his bet looks increasingly like a safe one.

Wilson recently released some statistics that paint a portrait of tech promise for the city, statistics that demonstrate a legitimate clustering of innovation companies in recent years and the economic benefits flowing from that critical mass of business.

Following the founding of Innovate Pasadena in June, 2013, the city has experienced "tremendous" growth in the quantity and size of venture capital funding for tech companies locally, according to the data provided by the councilman.

Wilson's figures demonstrate that there were six "rounds" of tech funding in 2012. That's the year before Innovate Pasadena came onto the scene. The numbers do not increase consistently. Some years like 2017 (22 rounds), were more fertile than other, such as 2013 (11 rounds), but most years doubled, or better, the 2012 number.

Funding: Graphic courtesy Andy Wilson

The size of projects funded has increased as well. In 2012, $15 million in seed money was made available to those wanting to develop technology products.

By 2018, that number had grown to $144 million. Funding mostly hovered in the $60 million range after 2012, save for 2015 ($94 million), so the 2018 figure represents a significant jump in funding availability.

"Additionally," he observed, "there are eight new funds that manage more than $300 million that either were originally headquartered here or have offices [in Pasadena]. Having easy access to local funders is really important. When we started there were just a few angel groups. Now we have a bunch of institutions writing more and bigger checks."

Wilson, the City Council representative for District 7, says it is Innovate Pasadena that is the powerhouse behind what is happening.

Innovate Pasadena was formed by a small group of community and business leaders from Caltech, ArtCenter, Pasadena City College, the City, and local technology companies, with an eye to fostering innovation locally.

"Our mission is to advance greater Pasadena as a center for technology and design innovation by supporting collaboration across and within business, academia and the broader community in order to attract and retain companies, entrepreneurs, innovators and capital," says Innovate's website.

Since its start, the internal volunteer leadership team has nearly tripled, according to Innovate Pasadena President Beth Kuchar. Four major businesses have been brought into Pasadena with the group's participation and some 630-plus job seekers have been connected to 20 local tech companies.

Wilson's figures were pulled from a larger, regional study focusing on what is happening in innovation across Southern California; a look at which communities are hot.

The study was done by the Alliance for Southern California Innovation, which Wilson runs, and Boston Consulting Group (BCG). He said BCG gifts the Alliance $2 million-worth of consulting and analysis on the Southern California market.

Funding, Wilson noted, is an important indicator, as is the number of patents being issued to local innovation companies, and the number of startups.

"So the Alliance looked at a number of variables to figure out what the hotspots are and Pasadena very much shows up as an up-and-comer, a city that's on the move," said Wilson.

"What's also important is having people who write these checks in your own community," he added.

"In addition to all of the new funds and new capital that we're seeing flow into the city, said Innovate's Kuchar, "which of course is backed up by that lovely BCG study, before Innovate Pasadena was founded, we had no coworking space here."

The BCG study put current square-footage of coworking space in Pasadena at a healthy 100,000. Such complexes, Kuchar explained, allow start-ups the flexibility to focus on building a business without the long-term, stultifying terms of a typical, bricks-and-mortar rental arrangement.

"While you see all different types of businesses using coworking spaces, they do tend to attract technology and design-oriented companies," Kuchar explained. "So a lot of tech and design start-ups here tend to be drawn from them."

When the project first got going, Wilson and Innovate Pasadena worked with the City of Pasadena and spoke with major cowork outfits, showing them appropriate spaces for them to unpack their business, according to Kuchar.

"That's a role that, to this day, Innovate Pasadena still plays where there are businesses that are exploring moving into the area," she said. "We try to show them an unbiased view of the talent that lives here and similar companies that have grown up here and become successful."

Justin Tsui, incoming chair of the Pasadena Chamber of Commerce, sees Innovate Pasadena's role as one of connecting individual technology resources, putting them together through different forms of meet-ups.

"It's a great name and it's one of a number of groups helping to make Pasadena a regional center for technology," said Tsui.

Asked to provide another, Tsui singled out the Alliance for Southern California Innovation.

Different parts of Southern California have different capabilities, explained Councilmember Wilson. Pasadena is strong in biotechnology, robotics and artificial intelligence. Riverside's focus tends to be on agricultural technology, while Irvine is mostly about medical technology and cybersecurity.

Wilson was a co-founder of Innovate Pasadena and the Alliance is merely an effort to apply the apparently successful to other locales in the region.

"We believe that a vibrant ecosystem brings energy and excitement," said the Councilman-businessman. "And that ecosystem starts telling a story; a narrative about what's going on. And as the story gets louder and the energy gets higher, it attracts more entrepreneurs, which attract more capital, which create more jobs, and it becomes a flywheel."

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