Small Businesses Destroying Established Companies
There’s a time in every startups life that it has to grow up and become a real businesses. Unfortunately, becoming a mature business has it’s downsides that ultimately lead to it’s demise. Today I want to talk about that vicious circle. Why and how small nimble companies destroy established companies.
This may also serve as a helpful guide to show you that taking on Goliath isn’t as difficult as you think.
Media Spend is a Much Smaller Percent of Revenue
I never understood the concept of budgeting a dollar amount on marketing when you can prove a good ROI. The key here is proving the ROI. I’ve seen large companies set aside only 5-10% of last years revenue for marketing when they can prove that they get a strong/positive ROI.
I am intimately familiar with 2 companies selling the exact same product.
Company A does 2 Billion a year in sales and has a 50 Million dollar marketing budget. A paltry 2.5% of revenue. They have a proven ROI on their marketing initiatives, their growth is negative or flat and they’re so confused as to why. They also control less than 5% of the market.
Company B sells almost the exact same products with different branding and does 20 Million a year. Their marketing budget is 5 Million a year and they’re growing 50% YoY. Essentially all of their free cash flow (FCF) is going back into marketing.
The lesson here is that marketing works and if you find an avenue that is strongly positive, put the pedal to the floor.
Decision Are Slow
Picture yourself working in a business unit that sells on Amazon. Counterfeiters start knocking off your products and undercutting you on price. You go to your boss to try to solve this issue. How long do you think your company will take before they start taking action on this? If you’re in many modern corporations, the answer is 6-12 months. During that time, your company has lost millions due to indecision and bureaucracy.
A smaller company will make that decision in a week or two. They’ll go after the counterfeiters and put an end to it.
Legacy Technology Stops Innovation
If you’ve ever been inside the IT department of a large company, the thing that will shock you most is the technology. Years of patchwork and lack of investment have crippled these organizations.
They try to upgrade to the latest CRM system or BI Tool, all the while leaving the 80’s era databases in place. This makes everything new that they buy become ineffective at best. On the other end of the spectrum, more work is spent trying to integrate 2019 technology with 1980 technology than is actually saved by the new system.
Getting the Right People in the Room to Do the Work Takes Longer Than the Actual Work
If you want to implement an analytics code on your website, how long does it take you? 1-2 hours if you know what you’re doing.
If you’re in a large corporation, you have to get all of the right groups together. Try scheduling a meeting with your business owners, IT department, digital consultants, and your development consultants. So now you’ve added two weeks to the 2 hours of implementation. After the meeting, there has to be another meeting to actually get the work done. So you’re looking at a month to implement 2 hours of work.
Smart Millenniums Are Sick of Trying to Convince 50 Year Old Executives That Don’t Know How to Even Use Their Email
This is where you come in. And this is the last part of this post. The last reason why large companies are getting destroyed by small businesses is that younger generations have given up. They’ve given up on trying to innovate inside of a company that is being held back by dinosaurs.
So what do they do? They take the knowledge that they’ve learned from the dinosaurs and start their own company.
If you’re still stuck in one of these companies, I urge you to start now. Start and destroy your former employer before you become one of those dinosaurs.