Every entrepreneur who works in a large company knows of the “innovator’s dilemma” — when companies, even extremely successful ones, focus all of their energy on meeting current customer needs at the expense of anticipating future needs. By sticking to what they know works now, companies open themselves up to the very real possibility of letting a multi-million dollar idea go to waste, falling behind in the market, and facing serious consequences. 

Every large tech company wants to be the “exception” to this rule, but the fact is that exceptions are rare. Take the SaaS/Cloud market, for example. It may seem hard to believe, but virtually every SaaS company in existence today began as a startup.

The Curse of the Status Quo

Why should it be that when you have companies with billions of dollars in cash on their balance sheets and small armies of engineers in their employ, that startups can throw the big legacy players into spasms of doubt about their ability to match their miniature competitors’ propositions? Feeling so threatened that they quickly pluck them up like they’re collectibles? It has always been something that has intrigued me, because the advantage in talent, capital and the customer base is all with the large players. Why don’t they just build it themselves?

op/edThe problem at large tech companies is not lack of technology or ability — it’s too much “tradition.” It works against them time and again when it comes to innovation. These companies have built up billions of dollars in intellectual property and market share in products that they naturally feel compelled to protect. The model works well for incremental innovation but works against a company during disruptive periods. 

It’s similar to renovating a house. Often it makes sense to work with what you’ve got, but once in a while, you need to tear it down and start anew.

Blowing up your existing technology isn’t intuitive and you can be sure that it will be pretty much universally disliked across the organization. Engineers don’t want to do it because they often believe that their value and status depend on the knowledge they possess on the existing code. Sales hates it because abandoning existing products gives customers a chance to switch vendors. Executives are often reluctant because of the near-term bottom-line impact. Customers may initially profess they don’t want it either, creating some validation for the legacy company. 

The problem is that once a few startups prove out a disruptive technology and everyone wants to move, it is too late.

Third Time's the Charm? 

Formation Data Systems is my third attempt to create a more ubiquitous data virtualization layer. The results of my first two forays were … well … not so great. Is the third time the charm? I believe it is. And I’m reminded of four lessons I learned in past innovation “failures” that stand out. 

First, to innovate you must look forward, not backward. The design focus of both previous products was toward accommodating existing (legacy) storage arrays and not on building the best forward-looking solution. Bad. 

Second, it’s nearly impossible to create transformational technology inside a company that will be financially hurt by the disruption (Insert Innovator’s Dilemma here).

Third, massing a large team isn’t the way to go; small teams are key to innovation success, even on “large” projects. 

Fourth — and this is most important — everyone, and I mean everyone, has to believe. If it is a “pet project” or an “alternative,” it will most likely fail.

When people ask me if I’m “scared” of some large company doing what we are doing at Formation, I would have to say no. Running a startup has me paranoid about a lot of things, but that simply isn’t one of them. Sure, our idea could fail in the market or we could face competition from other startups. There are lots of risks but as we have seen in startups for decades, tradition is the great equalizer between large and small.

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