Playing the high-stakes game of business
In the stock market, there are plenty of people looking for safe, reliable investments. These types of companies are referred to as “blue chips.”
Companies like Apple, Coca-Cola, McDonalds, IBM are great examples. They are established and continue to profit whether the economy is good or bad.
However, there is one risk factor blue chip companies face – the threat of startup companies. Startups come into a market with an innovative idea and typically a new way to do things. The larger blue chip companies have a hard time reacting to this due to their size and scale of the operations.
“Predicting the Turn: The High Stakes Game of Business Between Startups and Blue Chips” by Dave Knox is a great read for anyone working for a blue chip company because it gives ways to combat this risk factor.
The book covers the relationship between large Fortune 500 companies (AKA blue chips) and startups, and explains why startups cannot be ignored by larger corporations. The book also offers tips on how established brands can compete and interact with startup companies across various markets.
Though the book was published in 2017, most of the ideas still ring true. Readers can get more out of the book by considering the long-term effects the tactics have had on the companies explored in each example.
Innovate or die: The role of consumer insights in business
The book has an overarching theme for blue chips that boils down to innovate or die. If a company does not stay on top of new developments in aspects like technology and consumer insights, it will slowly start to lose money.
My favorite example that Knox uses is The Eastman Kodak Company. Kodak was the leading photo company until 2012 when it filed for bankruptcy. Kodak held 90% of the market in film and 85% in camera sales in the U.S. during the 1990s. Its tag line, “Kodak Moment,” is still popular today.
So, what happened? The company didn’t invest in the digitization of the film industry until it was too late.
In fact, former employee Steven Sasson created the first digital camera in 1975, according to Knox. Executives at Kodak told Sasson to keep working on the project but not show anyone the technology.
“Kodak’s management missed the technological opportunity of a lifetime because they were shortsighted, focused on their current business and not the future,” says Knox.
The book gives insight on how not to make the same mistake Kodak did by staying ahead of the innovation happening around large companies.
Market intelligence and emerging innovations
One way to combat the agility of startup companies is to have good market intelligence.
Knox defines market intelligence as “developing a sense of how and when the future will happen in a given industry, while using breadth and depth of knowledge gained through frequent engagement with startups.”
There are multiple ways to do this. One is through a blue chip acting as a venture capitalist and looking at startups that are in the core category and beyond. This idea will allow for pattern recognition in emerging innovations and bring it back to the company.
Part of finding the right startups and the patterns that emerge is through the company's overall market intelligence. To build this type of intelligence, companies need to ask three core questions, according to Knox.
1. What business is your company in today/tomorrow?
This question is not about analyzing a business’s current competitors or category. It is about what you do for your consumers. On example from Knox: “Nike is not in the sneaker business, they are in the athletic performance business.”
2. What is the total available market of these new opportunities?
First, know that the total available market is basically the pot you are playing for. The total amount of the market shares within the niche you have. Most large businesses see a disruption as a threat, according to Konx, but they should see it as an opportunity. This way of thinking is better for growth.
3. What is the approach forward to realize these opportunities?
Blue chips are leaders in their category. As a leader, they should use that position to build market share versus just defending it.
How to focus on innovation-driven acquisition and investment
Knox uses the term innovation-driven acquisition to describe the “acquisition of a startup with the strategic attempt to bring a company into new markets or introduce disruptive technologies.” This type of acquisition is about seeing the potential of the startup and buying it to advance the larger company.
According to Knox, there are typically three categories of this kind of acquisition:
- Core. This type of acquisition would bring innovation to the existing products or business models.
- Adjacent. In this category a blue chip then becomes part of an adjacent market. This is adding to the list of products or services a company offers.
- Emergent. This category of innovation-driven acquisition is when a company enters a new market with a new product for consumers that they have not had experience with yet.
Another reason blue chips turn to acquisitions is not only because they can then take on the business model, but they also gain the talent within the company. This reason for acquisition is especially true in the technology industry.
Through corporate investment in a startup, a blue chip can:
- Identify new products, services or technologies to replace what they are currently offering.
- Gain a way into a new market, technology or enhance innovation opportunities.
- Fund future investment in ventures, which helps increase the value of the corporate ecosystem.
Blue chips and startups: Partners in innovation
One growing way that startups and blue chips interact is through a form of partnership called joint business plans (JBPs). These plans bring together the top executives from multiple companies for a shared planning session.
Knox describes JBPs through Walmart. The retailer brings executives from its company and people from companies that supply the goods together at its home office. Everyone then shares insights to create a plan to benefit all involved including the consumers.
JBPs are just one form of partnership mentioned within the book. No matter the form a partnership takes, Knox had one main point for all of them:
“Partnerships are usually the first step in many cases given the flexibility and lack of permanence that come from an investment or acquisition. With that said, good partnerships are difficult. Partnerships take time, commitment and collaboration to build relationships that work and deliver value.”
Basically, Knox says partnerships need to create value and financial results for both the startup and the blue chip.
Disrupting the disruptors
Knox says, “A fourth strategy is to disrupt the disruptor and beat the innovators at their own game.”
According to Knox, most startups can go around the incumbent larger company that then makes it hard for said company to feel their presence. However, with good market intelligence, they would be able to take inspiration from the innovators and turn the tables by using their own scale.
In the book, Knox uses the same three categories as an acquisition to describe the ways in which a blue chip can disrupt the disruptors:
- Core. “One-degree innovation” is a safe approach to disruption. In this approach, a blue chip takes inspiration from the innovative startup and applies it to its core business.
- Adjacent. For this approach, like an acquisition, a large company enters a neighboring market to the one they are currently in. An example is Valvoline. The company started with simply selling oil. It entered the adjacent service industry by offering an “Instant Oil Change.”
- Emergent. This is when a company completely changes its business model. Think Netflix. It went from mailing DVDs to streaming.
“Predicting the Turn: The High Stakes Game of Business Between Startups and Blue Chips” by Dave Knox has a lot of information for blue chip companies looking for a strategy on how to compete in our entrepreneurial world.