This is the number one reason that large companies discard great new product ideas, new markets, even potential acquisitions. In light of the existing revenue streams the new idea doesn’t make a material difference to the company’s bottom line. Not only in the short term, but in the long term too. The projected P&Ls always say that the new thing will never eclipse the big ol’ cash cows.
Why then, do these small ideas grow up and ultimately become the things that kill the large company’s existing business? Two simple reasons:
- The potential of the new idea is underestimated, even by their champions. Sometimes the social impact is understood, but the business model is undiscovered. Internet search is the great example of this one.
- Sustainability of existing revenue streams is overestimated. This is the classic innovator’s dilemma and the last few decades are littered with good examples… mainframes, mini computers, hard drives, hard drives again (and again).
Of course, hindsight is 20/20. Consistently betting on the right small ideas is impossible, so despite what shelfloads of business books will tell you, there is no simple way for a large company to solve this problem.
The startup world, on the other hand, has the perfect solution — natural selection. The bad small ideas just die. Some good ones die too. The ideas that succeed and become great businesses are, by definition, good ones.
In short, there is no problem here. Just a natural mechanism for leveling the playing field between the big guys and the small guys. Awesome.
Posted: February 2nd, 2010 under Business As Usual.