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The "unfair advantages" of large companies

Scaling business
4min

For most of the 20th century, the leading companies in an industry were considered the "player" to beat. Size was a competitive advantage, an asset, not a liability. In the early 1990s, large companies that had dominated for a long time began to decline, triggering a change in mentality that has continued to the present day. Today, it seems that a company's experience and size are perceived as a sign of vulnerability, a kind of inability to adapt to the rapid pace of innovation in the market.

The current reality is that when we talk about "creating new businesses" it is very difficult not to think of the startup world as the main alternative.

What about large companies?

Large companies have found that while startups have greater agility, flexibility, capability and knowledge to use new technologies to disrupt certain business models, they lack the "unfair advantages" that only companies that have been leading their industries for many years have.

At 7r we define "unfair advantage" as "a company's ability to leverage very specific assets (industry knowledge, customers, intellectual property, technology, supplier network, etc.) to identify and launch new business".

  • AdvantageThe advantage is that it quickly raises barriers to entry by taking advantage of already developed capabilities that place it in a better position than the rest of the competitors.
  • Unfairbecause only those who are under the umbrella of the company that holds such "Advantage" can take advantage of it.

From the conversations we have had in recent months with Corporate Venturing managers of large Spanish companies*, we have detected an important change in the "how" they are shaping their relationship with the startups that play in their market. They have gone from an initial "defensive" posture to a strongly "offensive" attitude. They have gone on the attack:

"91% of large Spanish companies expect that within 5 years, between 5-14% of their revenues will come from new business."

It should therefore come as no surprise that more and more companies are leveraging their "unfair advantages" to develop their diversification strategy. This strategy also allows them to create new technology-based businesses with a much higher efficiency in the use of capital than any startup that does not enjoy such advantages.

*Link to see the rest of the conclusions: Decoding Corporate Venturing, 11 keys.

The 5 sources of "Unfair Advantage".

Corporate Venture Building has established itself as the most efficient process to capture the value of these "unfair advantages" since it also takes advantage of the good things that startups have (methodology, flexibility, agility, access to entrepreneurial talent, etc...).

There are 5 of the most common "unfair advantages" in Corporate Venture Building. We explain them together with an international success story below:

  1. Market knowledge and intelligence

Knowledge of customer preferences and trends is a critical success factor in the launch of any new business. The time and cost associated with the acquisition of this knowledge by a new entrant gives existing players an advantage that, if well exploited, becomes clearly "unfair".

Example: Heineken launched Beerwulf to anticipate a market trend it had clearly identified.

  1. Customer access

Having a large customer base significantly reduces the time required to validate an idea/product/service. It reduces time-to-market and accelerates business traction in growth phases.

Example: Lufthansa used its customer base to launch Rydes in 2019.

  1. Strategic assets

Recycle intellectual property, leverage existing assets within the organization, proprietary technology or capitalize on an existing partnership network.

Example: Daimler, faced with the growth of the collaborative economy, launched Share Now (formerly Car2go).

  1. Investment

The ability of a large company to finance new businesses in their early stages prevents the Venture from being distracted by tedious fundraising processes. The startup is born accelerated as the entire focus is on validating and building the foundation for rapid growth.

All the examples used in this article have made use of this unfair advantage.

  1. Credibility

Leveraging an established company's brand is critical, especially in regulated industries or where brand trust is key to success.

Example: Goldman Sachs, launched Marcus. Its first end-customer focused proposition offering unsecured personal loans.

The best way to learn is by doing

Rento is a platform that we launched together with Pryconsa to lower the initial cost to access the purchase of a home. Using its "unfair advantages" we were able to validate the business model, launch it to the market and generate revenue in record time.

You can see the rest of our portfolio here.

In summary:

When creating a new business together with a large company, it is essential to identify, as soon as possible, all the "unfair advantages" that can be exploited to maximize the Venture 's value proposition and accelerate the deployment of its operating model.

During its construction and launch, it must be ensured that the unfair advantage accelerates the process and just the opposite does not happen. To do this, it is essential to take the Venture outside the walls of the company and put an independent team at the controls. It is very common to see how the organization's unfair advantage is nullified because it acts as a bottleneck, slowing down the decision-making process.

These and many other lessons learned are included in the 7th Playbook. Our methodology gathers the experience acquired during the last 5 years designing more than 30 business models that take advantage of the "unfair advantages" of large companies.

If you're interested in how we do it, set up a conversation with us today, and identify how to leverage your organization's "unfair advantages".

GOAT

Elon Musk

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