Someone very smart once commented (anyone remembers who I'm refering to ?) that the big Internet Bubble in reality was not a big bubble... It liberated an incredible amount of energy from people from all walks of life, and blended them together: techies, marketeers, corporate sharks, financiers, dreamers, graphical artists... Something the blogging phenomenon is doing again, by the way!
Hence, that same person went on to compare some key data (I wish someone still had that around) between R&D expenditure and amounts spend on M&A with smaller start-ups.
Take Cisco for example: some would argue that Cisco had a fantastic R&D department and that this helped it become the networking behemoth we all know, and once #1 market cap in the world. Others (including myself) would argue that Cisco outsourced it's R&D to the aggressive and competitive marketplace, and snatched up any project that looked promising enough.
Indeed, innovation is probably the soul of start-ups: differentiate with more services, features, execution. Differentiate with lower costs, leaner operations, more creative solutions. Not all will succeed of course. But some will. Greed (hum... financial benefit should I say?) is another.
It then makes sometimes a lot of sense for some companies not to build enormous R&D departments (did the respective companies really benefit competitive advantage from the PARC or the Bell Labs ?) and buy up something.
It's maybe cheaper: technology works, market is proven, team is built, execution is there. Of course some improvements are required, and that's one of the reasons that corporate consultants (also called venture capitalists ;) come in handy.
Google has a different approach. So does 3M: everything in-house.
It really comes down to how you define your company and your sustainable competitive advantage.
So when Marc cries wolf, I only half agree with him:
"The trend over and over again - is to let the startup innovate and then the big boys come in, copy them and try to take over."
"And I hope all you entrepreneurs are learning a lesson.
NO MATTER WHAT - the big guys will steal your idea.
NO MATTER WHAT!
Bake that into your DNA. Write it on your forhead.
Macromedia did it to Laszlo.
Apple does it over and over again - it's too numerous to even account for.
Microsoft has been the KING of this tactic.
And now it's come to the DVD rental world.
Why not?
The only thing worse than this - is standing still - expecting that some patent or installed base of customers will protect.
Stay lean and mean - and keep moving forweard.
The one thing we have that they don't have - is new ideas."
Well it all depends on which side you are in, or what you're after:
1) create a venture with the hope of a trade-sale ? (hey AMAZON, wanna buy us?)
2) create a venture with the hope of an IPO (Reed Hastings from Netflix probably can retire by now...)
3) create a venture as a going-concern and keep running it forever... well, we're not all in the game of creating a GE or Nokia... There as so many opportunities of cashing out before...
Summary:
- start-ups are like out-sourced R&D to me. They provide big financial return opportunities for entrepreneurs (along with other thrills such as a roller-coaster learning experience, etc.), and maybe cost-savings for large corporations that buy them.
- are start-ups sustainable in the long run against Goliaths ? sometimes. They require however a unique combination of perfect leasership, perfect timing, unique technology and a couple of other magical ingredients.
Counter-arguments ?
I've been waiting to install this new version of linux for a while. Then I ran into this review on OSnews.com (screenshots here). Pretty nice: I also have an old Armada m700 currently running Fedora Core2. I'll test Mandrake 10.1 on it, before testing out Fedora Core 3 as soon as it comes out.
