Tuesday, March 31, 2015

Startups and Corporates: How Davids are raising stakes for Goliaths

This post is a precursor to the next one 'Startups and Corporates: How Goliaths are shaking hands with Davids'. 

Democratisation of Research & Product Development

Earlier, New Product Development used to be expensive and hence only big corporates with deep pockets and research agencies were the main R&D centres. With time, new R&D areas and inexpensive ways of working emerged, allowing a person to access and work on cutting edge technologies from comfort of his/her home.

  • Software simulations reduced cost and time. One can simulate a complete physical system and run countless simulations at no incremental cost. 
  • Software itself became driver for new inventions. Hardware coded functionalities gave way to software coded functionalities. Eg: Software defined radio
  • Fabrication became inexpensive with 3D printing. No need for elaborate setup of lathe, 5 axes milling machines etc. One can now order Metal/Plastic printed parts over internet and get them delivered at the doorstep. Going forward even electronics will be 3D printed.
  • Open Source has revolutionized access to high end technology. From hardware to software, open source has made them inexpensive and readily available. Eg: Arduino, Raspberry Pi, OpenCV, Octave etc. (visit tindie.com for various open source hardware)

With above developments, R&D is no longer an exclusive club. It is now open and democratised allowing anyone and everyone to participate. For instance, in the field of Augmented Reality, alongside big brand devices like Google Glass, MS HoloLens and Epson Moverio, there are also devices from Start-ups like Oculus, Magic Leap, InfinityAR, Meta, i2i and others.  

Technology start-ups have mushroomed who are developing new products alongside corporates. And there is no dearth of Angel & VC money to scale them up. 

Splintering/Unbundling of Value Chain

Large organisations cover large segments of value chain. And organisations tend to integrate vertically or horizontally to grow. With size, comes the rigidity and constraints. Large organisations are slow in closing performance gaps and addressing new market opportunities. And these become white spaces for startups to enter. Potentially, a large segment of value chain can be split into small segments, each being served by a start-up. This trend is visible in several industries. A good example is logistics industry where the value chain has been splintered by several start-ups. Refer https://www.cbinsights.com/blog/startups-disrupting-fedex-ups/.

Another example is Home Delivery for food items. Delivery at door step is a segment of value chain which is integral part of PizzaHut, Dominos etc. They have long advertised their home delivery to differentiate themselves. But start-ups have emerged in this segment alone, collecting the food packets from the restaurants and delivering it to doorsteps of the customer. The value chain segment of food preparation and its delivery has been split into two and competition just got tougher. 

Further, start-ups generally go after high margin and high growth business. Which naturally puts the squeeze on the high-margin value segments of large organisations. 

In next post, the ways an organisation can address above challenges will be discussed. Stay tuned...

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