Let’s face it: Today’s most significant digital innovation does not come from large corporations; it comes from startups. Corporations worldwide are facing the pressure to innovation and stay relevant in today’s ever-changing world. Today’s economic landscape can either be perceived as a threat – OR – as an opportunity. Today’s digital, multistakeholder, and bottom-up economy is giving the opportunity to startups to thrive; but large corporations can benefit from it as all. Let’s explore now why this is inevitable.
Let’s come first with some numbers. According to a MIT and Capgemini study (Thompson, Bonnet, and Jaballah, 2020), innovation coming from the outside world is becoming increasingly relevant for companies:
Corp
“Over the next five years, startups will rank as top innovation sources for companies. Moreover, hybrid forms such as innovation labs are essential as an interface between internal and external innovation. It is even more relevant for companies that do not have to innovate internally. Many are forced to source externally. As a result of this development, traditional R&D and internal business units’ employees will become less relevant as innovation sources within the next five years.”
Global companies working with startups as part of their innovation activities:
1% in 2015 VS 44% in 2025
The study’s authors surveyed over 320 global companies and asked them about their top three innovation sources; internal vs external, the result is stagnant. While in 2015; only 1% had startups has a main source for innovation; the ones surveyed are predicting 44 percent by 2025!
Why such an increase? There are three main reasons, let us start with reason n*1; Politics.
1. Politics
For this, I like to cite the research of Brad Feld, which he highlights in his book, The Startup Community Way: Evolving an Entrepreneurial Ecosystem, four significant events shaped the new economy, which highlights how it really started in the US:
- The great depression of 1929 to 1933: Employees felt insecure and not part of their company anymore due to the crisis. Young people started to think about how else they could contribute to society. Opportunities evaporated from New York City, and many moved to California (today’s Silicon Valley) to start businesses.
- The low-interest-rate strategy adopted by central banks worldwide: Persistently low interest rates pushed unprecedented amounts of financial capital into startups globally. Investors searched for riskier assets, such as venture capital, to generate higher returns. This continues today.
- A broader set of actors pushed the entrepreneurial movement forward: President Obama announced, “Startup America,” a national initiative designed to cultivate startup community development throughout the United States. Many other venture capital funds followed, which focused on early-stage investment, as did the growing number of corporate venture capital groups. With that, a range of support mechanisms, like accelerators, incubators, and other models, snowballed in size and scope.
While these events happened in the US, the trend is growing in Europe as well. Take my home country, France, for example. President Macron vowed in 2018 to make France a “startup nation” (Alderman, 2018). The same trend is happening in Germany. The number of startups will double annually in the country until 2030. Startups will become the backbone of its economy generating over 1.4 million jobs and boosting economic growth (McKinsey & Company, 2021). This trend is not only a US, German, or French one. The movement is global.
On top of it; COVID forced people to work from home, boosting digital transformation, and changing consumer behavior in the long run. Furthermore, an increasing number of startups are being created as a result of people re-questioning their lives.
2. COVID
The COVID-19 crisis also pushed millions of workers to quit their job. This trend, called “The Great Resignation,” is mainly noticeable in the US and globally (Tharoor, 2021). This great resignation came together with the rise of new business applications. As the McKinsey article named The Next Normal Arrives Trends That Will Define 2021—and Beyond. cites it:
“The crisis sparks a wave of innovation and launches a generation of entrepreneurs” ; with the following numbers regarding new business applications:
- USA: In 2020’s third quarter alone, there were > 1.5 million new-business applications (2x than the same period in 2020)
- France: 84,000 in October 2020, the highest ever recorded
- Ditto for Germany and Japan in comparison to 2019.
3. Speed Of Change
Today, we live in an age of exponential technologies that drive our world forward—to name a few, artificial intelligence, the internet of things, 3D printing, blockchain, cloud computing. These digital technologies use network effects that can scale much faster than what we’ve previously experienced in the industrial world. Basically no company can adapt fast enough to market changes if they do not collaboration and invest in companies which have the technologies, talents, and customers they don’t have. Startups are today’s getting created in a matter of few clicks.
As Peter Diamandis likes to say, we’re going to experience more progress in this decade than in the past century. Keeping up with this change and technological evolution is a matter of survival; otherwise you become what happened to Kodak; the victim.
Conclusion:
Forward-thinking companies—the ones adapting to the change and aiming to solve the world’s biggest problems with cutting-edge technologies—enhance collaboration with the outside world. Alibaba is already generating over 33% of their revenue from external startups for instance. The new model is ecosystem-driven—in other words, different players working together as networks.
However, companies who do train their employees to engage with the external world will see a rapid decline in their innovation successes. What do you do to enable a culture which is ecosystem-driven? Let’s create a discussion here and find solution to this!
Source:
Thompson, Neil, Didier Bonnet, and Sarah Jaballah. Lifting the Lid on Corporate Innovation in the Digital Age. Paris: Capgemini, 2020. https://www.capgemini.com/wp-content/uploads/2020/05/MIT-INVENT-Report_NEW-2020.pdf
Alderman, Liz. “Macron Vowed to Make France a ‘Startup Nation.’ Is It Getting There?” New York Times, May 23, 2018. https://www.nytimes.com/2018/05/23/business/emmanuel-macron-france-technology.html
McKinsey & Company. “Deutsche Gründerlandschaft kann 1,4 Millionen neue Jobs bis 2030 schaffen.” McKinsey & Company press release, October 26, 2021. McKinsey & Company website
Feld, Brad, and Ian Hathaway. The Startup Community Way: Evolving an Entrepreneurial Ecosystem. Hoboken, New Jersey: John Wiley & Sons, 2020.
https://www.theguardian.com/technology/2020/jan/25/peter-diamandis-future-faster-think-interview-ai-industry
Osterwalder, Alexander, Tendayi Viki, and Yves Pigneur. “Why Your Organization Needs an Innovation Ecosystem.” Harvard Business Review, November 15, 2019. https://hbr.org/2019/11/why-your-organization-needs-an-innovation-ecosystem
