By Nick Dormon
Large companies are great at being great – finding efficiencies and scale through size – squeezing out every drop of margin by selling to the majority.
There is a strong preference for working with a known entity – they can be measured, assessed and then improved or removed. Innovation on the other hand struggles in this environment. Ideas are fragile things that don't take kindly to the rough handling that sales, finance and supply chain can dish out. This is perhaps why there is preference to snap up entrepreneurial brands and bring them into the fold rather than develop new offers themselves. On the surface this is a great plan. Let the entrepreneurs do what they are good at – having fresh ideas and injecting them with the belief and passion required to be successful. Then the big guys can do what they do best and scale them up.
I’m sure they are many examples where this has been very successful particularly in the short term. However there are signs that this approach alone will not bring success in the future. Consumers are looking for authenticity and value but also innovation, intimacy and interactivity with their brands and this implies constant evolution to keep up. The digital age is enabling, fuelling and accelerating the pace with an explosion of new brands. This new world favours the entrepreneur as evidenced by the explosion of new brands snapping at the heels of the big guys. Global consumer-goods corporations, who only a few years ago were centralizing their brands teams, are rapidly decentralising so they can compete against new local competition.
However there is an issue. Entrepreneurs tend to seize opportunities of the moment. Both AirBNB and Uber saw the possibility to shake up existing inflexible, dated offers and have grown exponentially. However, in the resulting volatile markets, even more competitors appear and entrenched brands up their game in this new competitive context. So how do Uber and AirBnB respond now they are the big guys and have become tied down with process and policy just like the old guard they pushed around? The same is true for the new brands that the corporations snap up. Once they have scale they can become just as encumbered.
Entrepreneurs who build businesses and sell early will inevitably design them for that purpose– singular, appealing propositions with the potential to scale. Unilever have spent a cool billion buying up The Dollar Shave Club but what is it other than an unprotectable new sales channel. How will it change, build and grow as DTC competition proliferates.
The entrepreneur, who builds to keep, thinks about the future knowing they will need to create a pipeline of innovations to role out over the years to come. They build a brand with purpose and invest in an active R&D capability. Dyson started out with a bagless vacuum cleaner but then branched out into a series of on-brand innovations from robots to hairdryers building a strong long-term business empire.
So when a brand is bought at an early stage, before the scaling up, investment is needed in the brand model to give it a future focus and an inspiration for innovation whist the business is still flexible and not fully formed.
As corporations are becoming more transparent and build their brands for the general public as well as investors the brands they buy should support their corporate values. Social, ethical and environmental pressures mean their manifestos need to have long-term aspirations, which also need to be reflected in their new fledgling brands.
Alongside work to define the current marketing and logistical offer, the brand needs to build a more expansive definition of the original offer’s function that can ladder up to a higher order emotive idea. This will give the brand a future purpose that will allow it to respond to market changes and take advantage of upcoming opportunities. As part of this activity, the brand needs to be interwoven with the values of its new parent for mutual benefit.
So, no, corporations cannot sidestep innovation by buying it in of the shelf, but they can embed a robust culture of innovation in the conducive environments of entrepreneurial businesses before the rigors of scaling up make it difficult to thrive over the long term.
If you would like to delve deeper into any of points raised in the following piece then please feel free to drop Nick a line.
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