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Only recently, just before the pandemic, it seemed that big business was on a roll. A few “superstar” companies dominated the software industries, reaching out with their tentacles into multiple sectors. Market share was concentrated in much of the economy, the achievement gap between big and small businesses was expanding and people were starting fewer new businesses. An article in the Harvard Business Review reported concerns that “a lack of competition was strangling the American economy.”
Many of those concerns have begun to fade. we are seeing a historic increase in new business creation and a Reducing the achievement gap between large and small companies. The pandemic, with its “great resignation” Y “quit smoking quietly“It was just a catalyst, accelerating an inevitable change, inevitable because that’s the nature of large organizations. They can’t maintain dominance for long and indeed profitability and longevity of large companies have been shrinking for decades. Superstar companies, now suffering from depressed stock prices, are laying off thousands of talented employees, making way for smaller companies that are still hiring.
While this is a surprising turn of events, it follows a cycle that has been around since the dawn of capitalism. Looking back at earlier cycles of creative destruction, in which big companies rose only to fall to smaller, rudimentary competitors, entrepreneurs can find many lessons that apply today.
Lesson 1: Take advantage of complacency
The first lesson is that large companies tend to grow enough more successful they become. This provides an opening to smaller companies that are hungrier and more ambitious.
For example, the East India Company, incorporated in 1600 and arguably the world’s first great corporation, once operated not only ships and warehouses, but also armies of soldiers to enforce colonial exploitation. Enjoying a monopoly on imports of tea and other staples, his power was so great that Adam Smith devoted a large part of his The Wealth of Nations to criticize your weight. However, the company became a victim of its own success, ultimately faltering as its leaders got richer, got involved in politics, and stopped innovating.
The same lesson applies today. As soon as big companies think they are in a strong position, they relax and start enjoying their position. That is the perfect time to enter the market with an innovation or a new way of thinking.
Lesson 2: Powerful connections aren’t everything
The second lesson is that entrepreneurs can still beat the biggest companies, even if they lack the same connections to power. History shows that “right” can often trump “might.”
Consider the example of wealthy Robert Livingston, who financed Robert Fulton’s successful invention of the steamboat in 1807. Livingston used his connections and wealth to gain a monopoly on the ferry business between New York City and New Jersey. But wrestler Cornelius Vanderbilt, with no social status or education, dared to challenge Livingston’s privilege and won a landmark Supreme Court case, Gibbons v. Ogden, nullifying the interstate monopoly statutes. Thanks to Vanderbilt’s relentless drive for efficiency and lower costs, and the new country’s distaste for government-backed privileges, he raised the capital to improve not only ferries but ocean-going ships and later railroads.
Vanderbilt demonstrated that companies that rely on personal connections often become overconfident and insulated from the competition. This makes them vulnerable to smaller competitors who are willing to denounce their unfair practices.
Lesson 3: Large companies prefer stability to innovation
By the end of the 19th century, steel had become essential to the economy, and Andrew Carnegie had the biggest and best factories. Like Vanderbilt, he had expanded rapidly by keeping costs down and reinvesting profits. The remaining steel companies were so worried about its moves in their markets that they lobbied JP Morgan to buy it for the then incredible price of $480 million.
After Morgan did so, creating US Steel, he couldn’t keep up with Carnegie’s aggressiveness, allowing smaller rivals to expand. Fearing antitrust laws and preferring stability and dividends to risky growth, US Steel failed to innovate and eventually collapsed in the face of foreign competition and the rise of mini-steel mills in the 1960s.
US Steel’s concern for stability is common among large companies, and it is an opportunity for smaller competitors to emerge. Consider the many brick-and-mortar retailers that didn’t invest in e-commerce until it was too late. They assumed they were safe due to their size, but their lack of innovation ultimately led to their downfall.
Innovation It is critical to building and maintaining a competitive advantage, and it becomes more difficult to achieve as companies succeed and grow. Entrepreneurs, like guerrillas, can often find attack opportunities against even the most powerful gorilla companies.
We need big and small
The history of creative destruction shows us that the current travails of big tech companies like Meta are nothing new. Large companies tend to fall prey to a combination of arrogance and complacency, while ambitious entrepreneurs continue to find opportunities to take advantage of emerging technologies and market trends.
Spirited commitment and talent will win out over resource-rich rivals, as long as the entrepreneurs pick their fights wisely. There are two reliable ways to spot opportunities to do so.
First, as companies grow, even well-managed ones must leave opportunities on the table: market segments or product opportunities too small or too different for them to do well or to focus on. These often provide windows of opportunity for smaller players. The small markets of today can become the large markets of tomorrow.
Second, new technologies and platform changes inevitably create opportunities for more agile companies, whether in niche areas like digital marketing or transformational areas like blockchain. Big companies almost never move fast enough.
Finally, when evaluating today’s great companies, it’s important to remember that their success often stemmed from basic business achievement combined with an organizational mindset. As entrepreneurs grow their businesses, they must be aware of the competencies they have developed and remain determined to develop new ones over time. New competencies, driven by innovation, will likely add to your trajectory in growth and value.
A modern economy still needs large companies, which are essential for producing goods and services on a large scale at an affordable price. That is where they excel. But we also need entrepreneurs who will challenge them wherever they fall short and eventually replace them as new giants to move the economy forward.
To pundits and other desktop observers, greatness may seem inevitable. But greatness also inevitably corrupts. The vitality is not in the supposedly “professional” management but in the rudimentary entrepreneurs.