The Exchange is part of an ongoing series on The Hive tackling the questions facing Boston’s entrepreneurs, investors, and innovators. In this edition, contributors debate whether true innovations comes best from scrappy start-ups, or from stablished companies with more resources to bring to bear. Doron Kempel argues for the start-ups. Read the other side of the debate. Have your own opinion, or an idea for another topic? E-mail Hive@Boston.
History shows that large companies can be very successful at fostering innovation. The iPhone, Lipitor, and the Stealth Bomber are examples of great innovations that were initiated and delivered by dedicated, brilliant employees within their companies. Large companies seem more likely to innovate – albeit, at their own pace – in cases that are resource-intensive (for research, development or commercialization) and/or in cases whereby the innovation is incremental in nature.
Yet in other industries, such as information technology, where extreme resources are not necessary, innovation thrives at the startup level. Small, focused, resolute startups are typically responsible for revolutionary innovation such as Google, Facebook, Amazon, and VMware.
Large companies are typically adept at incremental innovation; extending existing platforms and supporting existing business models. Revolutionary innovation, however, is often disruptive to existing market leaders, and they resist it, psychologically and politically, as if it is an infection. The new product may upset the sales of a more important legacy product, thus upset certain groups, the company’s quarterly commitments to investors, or even conflict with an existing partnership. This may undermine resolve, focus, perseverance, and unity – all critical for the success of a new technology. Some potent large companies create independent external organizations, allowing a new concept to be realized outside of the company and only once it has reached a certain size/momentum, bring it back in-house and mainstream it. This model partially addresses the above concerns.
Another important determining factor are the capital requirements of given innovative endeavors. Developing and commercializing iPhone and Lipitor required immense capital resources and existing notoriety that are out of reach for typical entrepreneurs. Google and Facebook are extreme counter examples, whereby young, virtually resourceless founders developed much of the product by themselves in their proverbial garage or dorm room, raising the big money from venture capital firms only after the concept had demonstrable “legs.’’
In 1998, EMC empowered me to lead the creation of a new division that extended EMC’s market and technology reach from standard IT to Rich Media. This innovation was well suited for a large company: It required significant capital resources and was incremental, rather than revolutionary or disruptive in nature.
In 2002, I founded Diligent Technologies that revolutionized/disrupted the data-protection market, by allowing end-users to more effectively backup data to disk vs. tape. This was a disruptive project that did not belong inside a large incumbent company. Further, the capital needs were easily fundable by venture capital firms.
Thus, I would argue that true revolutionary innovation can only come from a startup as long as ample resources can be secured.
Doron Kempel is a serial entrepreneur who has led innovation at large companies, as VP&GM at EMC, as well as founder of independent startup, Diligent Technologies, and SimpliVity Corporation. Want to continue the discussion? Tweet us at @HiveBoston or email Hive@Boston.com.