New versus old, small versus big
“New company beats old company” is an outdated fallacy, says Professor Hamel.
“Why shouldn’t large companies have an advantage? They have deep pockets and employ thousands of talented people. They have entrenched customer relationships, business partnerships and powerful brands,” he says.
Established giants have the right ingredients to be entrepreneurial, but few are.
Rather than being overawed by the unicorns, big companies need to take a much more radical approach to building their own entrepreneurial edge, says Professor Hamel.
At the moment, there are 214 unicorns according to a CBInsights report. More than half are based in the US, many a stone’s throw from Silicon Valley. Nearly one quarter are based in China. Collectively, unicorns are valued at US$745 billion (£569 billion), an increase from US$663 billion (£506 billion) at the beginning of 2017.
“The media fall all over themselves celebrating the supposedly prescient leaders who create these unicorns,” says Professor Hamel, “but consistently overestimate their impact on the economy.”
“In the US,” Hamel notes, “unicorns are worth about US$403 billion (£307 billion). While that’s a big number, it’s less than 2% of the market value of the companies that make up the S&P 500. That’s a tiny share of the economy.” Their value in the UK is smaller still: the combined value of unicorns is just 1% of the value of the FTSE 100.
Another issue is that as young companies grow, they lose their entrepreneurial spirit. Start-ups “bureaucratise” and layer by layer, rule by rule, creativity is wiped out. “I know of a software company that’s long been a darling Silicon Valley,” says Professor Hamel. “Yet by the time it reached US$4 billion (£3.3 billion) in revenue it had 600 vice presidents. Start-ups are great, but few retain their youthful vigour as they grow.”
Too often, Hamel argues, the first impulse of a big company when challenged by insurgents is to buy a large competitor. “Rather than raising their sales when facing the winds of creative destruction, incumbents lash themselves up to another wallowing supertanker.”
Why leaders miss the future
Nearly 20 years ago, Professor Hamel wrote: