Silicon Valley experience report IV/IV: Written by David Ballagi, Co-Founder and CTO Zippsafe AG
Can start-ups really make such a significant impact on national scale? Why is it that the next big innovation is expected from some guys in the garage instead of a company with vast resources and abundance of expertise and experience? Why are (some) companies less worried about their competition than start-ups?
One often hears that start-ups are more agile, they are not held back by bureaucracy, tedious processes and legal hurdles. They do not have a product which has proved in the past and therefore makes more sense to maintain and develop instead of starting something completely new. Other examples I hear is that with experience you become more aware of why something cannot be done which holds you back to even start compared to a naive inexperienced start-upper who only focused on the goal. Or even if they start an innovative project, the people in charge will never be as passionate as the founders or they are afraid of realizing the innovation fearing that they cannibalizes themselves and so forth.
Despite this, it would still seem that a company with vast resources should be able to replicate the “start-up environment” and thus out-compete the start-up counterparts. If we look at companies like Amazon, Facebook and maybe the most prominent Google, they are all big corporations and still manage to innovate at a very high rate, why can they do it so well? Clearly this is a very complex topic with many variables and there are many reasons. In this case perhaps one of the strongest is that these are young companies where the structure and culture was built on innovation, it lays in their foundation. Something that cannot just be changed from one day to another at firms with longer history.
However one interesting additional thought to the topic relates to what was mentioned in the book AI Superpowers by Kai-Fu Lee , in which he compares the AI race between Silicon Valley and China. While the US still has more expertise, China is much faster at implementing the technology, take for example mobile payment which is the norm over there but still is at an early stage in the US - he argues this fast implementation might eventually give them the edge. While the next big breakthrough which changes the nature of the game like deep learning was for AI a couple of decades ago is still most likely to come out from research lab at a university or a big corporation with high resources and great expertise even today.
Yet when it comes to implementation it is a different story. Consider for example the case of Apple, they did not invent the graphical user interface, it was Xerox Parc (an innovation center of Xerox which among other things made the printers), yet it was Steve visiting the center who had the vision that this will be used everywhere and the flexibility to realise it. Same holds through for AI, it is the big corporations and research center making the technology, but then the implementation especially for very focused application is much easier done by start-ups. A big corporation cannot easily make substantial changes to their product due to processes. Alternatively if it is something completely new, it is simply not interesting for them as a business case as the returns are too small, at least the immediate returns. This allows for start-ups to implement AI for example into drones and help farmers to surveillance a certain crop from which they then can make revenue and continue to grow. It is a niche market outside of the core, exactly the area where start-ups can start off and operate - then eventually move on to attack the core.
To zoom out even more from AI, the overall trend that can be seen is that we are currently in the process of digitalisation of our offline world, being it sharing our apartment or signing contracts online, the tools making these possible are created by the big corporations in likes of computers, internet, AI, google drive, cloud architecture etc. the implementation into everyday life however is then often done by start-ups. This digitalization makes a nation as a whole more effective, allowing all players to become more efficient on the market - including the corporations who then buy up the start-ups when they are mature enough. I believe this is why the start-up concept is so effective and why it is pushed by governments, with the new tools there are simply a lot of things that can be digitized. What was done back in the day by electrical firms installing grid or the developers making electronic appliances following the invention of electricity in its controlled form by Tesla, are start-ups in the digitalization age. The difference is that whilst those required high resources and were therefore relatively slow in realization, digitalization can often be done with by a single engineer with a laptop. This is why in my opinion we are moving so fast now and why all these small companies are of great value to a nation.
Then in some rare cases the start-ups that are successful become huge corporations on their own. What is the secret to that, they started with something on the perisphere, how did they suddenly become bigger than the companies that were competing with? What was mentioned several times was to create platforms or hubs in a network if you like to which other companies connect or build upon. This not only allows your product to become more scalable, which is of course a key criteria on its own for success but gives you protection against your competition. The more you become the hub in the network the harder it becomes to replace you even if the product is copied. In addition it allows you to offer more services in turn attracting more customers. So if you have the key ingredients to be scalable as well as having more and more links to your “hub” your chances to become the next unicorn will drastically increase.
To compare this further to network theory, if one observes a bundle of christmas light from above and these are lighted one bulb after the other then what will happen is not that it slowly becomes brighter and brighter as one might expect. No, instead it is dark for a long time, then suddenly patches start to appear, these are the small local networks with hubs and then finally when these hubs start to connect initially through a single links forming one network, the transition until the whole bundle appears lit is extremely rapid. Similarly in this case if more and more companies connect to you, and then maybe one that is linked to another hub as well the scaling is just out of proportion in speed compared to if you are on your own. As this is usually easier to achieve with software, because of the amount of resources needed, flexibility to make changes, easiness to make APIs where other applications can connect to it and the fact that there are no logistics makes it easier to scale very fast. In fact we know most start-ups are coming from software. However, on the other side if you do not manage to create the hub effect fast enough, software is usually also easier to copy. In this regards hardware has an advantage!
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