MIT Sloan Management Review, June 30, 2016
by Theodore Kinni
Every MBA knows economist Joseph Schumpeter’s theory of creative destruction. So why is it that established, resource-rich companies still get the stuffing kicked out them by upstarts that seemingly appear out of nowhere? Steve Blank, who’s credited with launching the Lean Startup movement, offers an interesting take on that question in a new post on his blog.
“In the 21st century it’s harder for large corporations to create disruptive breakthroughs,” writes Blank. “Disruptive innovations are coming from startups — Tesla for automobiles, Uber for taxis, Airbnb for hotel rentals, Netflix for video rentals and Facebook for media.”Blank says there are four reasons for this. “First, companies bought into the false premise that they exist to maximize shareholder value,” he writes. As a result, they subscribe to metrics like return on net assets, return on capital deployed, and internal rate of return that discourage investment in in long-term innovation. Second, too often company leaders are execs who excelled at functions like finance or procurement. “They knew how to execute the current business model,” says Blank. The third reason is “the explosive shifts in technology, platforms and markets that have occurred in the last 15 years.” Presumably, this adds too many wild cards for companies to track. And finally, there is the explosion of startups that has been engendered by easy access to venture capital. “For the first 75 years of the 20th century, when capital for new ventures was scarce, the smartest engineering talent went to corporate R&D labs,” says Blank. Now, these talented people are starting their own companies.
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