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Startups have the potential to squeeze into ‘gaps’ created by established companies

startup threat to incumbent

While it may seem obvious that all incumbents (established companies) face threat from startups in the market, however, this article illustrates why this threat is not only real but also a big opportunity for the startups.

When we talk of new entrants in the market (startups), we talk of innovation, we talk of better technology that these startups have that has the potential to overtake the bigger boys. However, what we never talk about is the “people”. And by people I do not mean those behind the growth of a startup. Rather I mean people behind the fall of the incumbent.

And no, I do not mean anyone sabotaging the incumbent player. Rather the purpose of this article is to point a big flaw in the system which has been overlooked and where startups can always capitalize.

When we talk about a big company, we always focus on the CEO and his vision. When we talk about Dell, we quote Michael Dell. When we talk about Microsoft, we talk about Bill Gates. But what we do not realize is that Michael Dell and Bill Gates are the not the ones who deal with vendors, partners, competition, sales and business development day to day. Neither the “C” level executives deal with these things every day.  These are dealt by middle managers. These middle managers are the ones who deal day in day out with sales, vendors, partners and are responsible for keeping a tab on the competition.

 Now the big question is – are these middle managers motivated enough?

Why do I say so? Let’s take a case study

In my experience in one of my earlier companies, I was working as a product reseller with one of the giants in software industry say “Big ABC” (I need to keep this confidential). At the same time, I was also a reseller at another smaller startup “Startup XYZ” (confidential again), who was ironically a competitor to one of ABC’s products (that I was a reseller of).

As I did not have any exclusive agreement with either, I was able to resell their products as a partner and earn a commission from the same. So to me, selling Big ABC’s product and Startup XYZ’s product were of equal consequence as long as I am able to make sales for my own company.

The products that each one had did exactly the same thing for the same target audience. However, technologically the product by Startup XYZ was superior as compared to the one by Big ABC. But the price that Big ABC charged was nearly three times the price charged by Startup XYZ.

And as a reseller of their products, when I approached clients, it was obvious that the clients would prefer the cheaper and more superior version as opposed to the costlier but inferior one. Clients were willing to give the product by Startup XYZ a try for a year, before they made any decision to switch to the costlier product by Big ABC.

When I informed this problem to the middle manager at Big ABC, and asked him what could be done, instead of acknowledging the threat of Startup XYZ, he came down upon me stating why I am not selling their product. His argument was “We are Big ABC. We are the big boys in the industry. Everyone knows us. We don’t care about any startup. Three years down the line we will be there but Startup XYZ would have shut shop”. I vividly remember the cockiness he showed when he said these lines.

When I analyzed why he said this, I understood the inherent flaw with the way incumbents operate, and this is where startups will always have an edge over them.

Incumbents have become so big, that it is operationally impossible for them to respond to every challenge unless the challenge becomes very big and it is a real threat to them. The incumbents leave the operations to their middle managers. And these middle managers, (mostly with more than 10-15 years of work experience), have no incentive to look through the problem and take them up with their bosses. They are happy to be under the radar and pass the baton to someone else. And these middle managers are the ones who give startups a chance to grow and outshine them.

And I am sure soon, when Startup XYZ grows, either Big ABC will try to acquire it, or Startup XYZ will do to Big ABC what Google did to Yahoo, or Facebook did to Orkut (do you even remember Google had Orkut ?).

This is the biggest advantage a startup has over any incumbent. And that is why startups will always grow and flourish no matter whether there is a big boy out there in the sea. The crux is; pick one area where you specialize in, and do it better and at a better price point than the incumbent can ever imagine. They will never be able to respond to you. And by the time they actually acknowledge that you are taking their share of the pie, you would have become big yourself.

So you can either sell your business to the incumbent or choose to take the incumbent head-on. Either way, you have made it big!

Do you agree that incumbents provide huge opportunity to startups? Do you have examples to share? Do let us know your opinion in the comments section below.

Pic Courtesy: neurosciencemarketing.com

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ABOUT THE AUTHOR

Raunak Guha – Co- founder FounderMates

Raunak holds an MBA in Innovation and Entrepreneurship from Imperial College London. Prior to starting FounderMates.com, he was working as a Business Development Executive with a Financial Analytics SME in the UK. He has been very active in the startup eco-system in London and possesses a deep passion to foster entrepreneurship globally.

He can be contacted at +91 9008 639 690 and his email id is: raunak.guha@foundermates.com

Raunak’s past article(s): Find them here.

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Summary
Article Name
Startups have the potential to squeeze into ‘gaps’ created by established companies
Author
Description
When we talk of startups, we think innovation alone gives them an advantage over incumbents. But often it is the people in these big companies that give startups that advantage.

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