However, as good as large companies may be at startups, there are certain limitations, boundaries if you will, around a big company’s ability to launch a startup:
Pursue businesses that protect and defend the core. Amazon Web Services’ success strengthens Amazon’s retail business by building scale and world-class abilities in computing and large data management.
Defend the core. If the best idea in the world comes to life, but it’s not part of the core business, it gets put on the shelf. Another boundary: size.
Fortune 500 companies need to grow their bottom lines. Their stock prices are driven by growth. Growth comes organically or through acquisition. Organic growth can come through expanding existing markets or by entering or creating new markets. The latter two require innovation. Innovation requires making new investments and earning big returns.
But when you’re trying to move the needle on a multi-billion dollar bottom line, your bar for success is very high. For most Fortune 500 companies, a new idea, product line, business, or service that can net $100M a year simply isn’t worth the effort. Here are nine reasons that Fortune 500 companies won’t touch the $100M idea about which any startup entrepreneur can only fantasize.
- Required ROI – If the expected return isn’t big enough, the project doesn’t move forward. What is a phenomenal return for a startup is totally unacceptable for a publicly traded, multi-billion dollar enterprise.
- Investment – Large companies have existing overhead that is automatically loaded onto any new product or line of business. Therefore, the investment required to try new things is significantly higher than, for example, two entrepreneurs to build a SaaS startup.
- Brand – A Fortune 500 company’s brand is on the line when they take a risk on a new venture that could fail. Would you risk a multi-billion dollar brand for $100M?
- Time – Even the very best ideas take time to develop. Investors are impatient, especially when the CEO invests millions or hundreds of millions of dollars.
- Synergy – Should Coca-Cola invest millions of dollars in logistics AI software? On the surface, absolutely not, no matter how much it might help them distribute more syrup faster across the globe. But if it’s not core to soft drinks, then when push comes to shove, that new investment will get put on the shelf.
- Resources – Money, people and time are the primary resources in any business, and that includes new ideas or products. Why should a Fortune 500 company invest any money, time, or resources in a product that will never generate more than $100 million to the business?
- Commitment – When a big company rolls out a new idea, their brand is on that new idea (think Tesla, PowerWall or Nike Golf), so they have to be committed to it. Big companies commit to big ideas, not $100 million ideas.
- Arrogance – Kodak patented the digital photograph in 1976. That patent sat on the shelf because Kodak was killing it in the film business, and continued to do so for the next 30 years. Why should they divert resources into an unknown technology? That could also be categorized as “timing”.
- Mentality – The big corporate mentality is big corporate. No matter how “entrepreneurial” anyone is or claims to be within a big company, they are still used to certain hours, benefits, 401(k), vacation time, and little things like a salary. Those things are not even whispered about in startup-land. The mentality of starting from zero, with zero, to build a $100M idea is foreign to most people.
Fortune 500 companies have literally thousands of ideas, products, and other intellectual property that is sitting on the shelf because it doesn’t meet any of the above criteria for them.
But it does as a startup. That’s what The Combine does. We take unused IP and turn it into great businesses.