A few years ago, taxi services in major cities across Europe, including Croatia, went on strike. Taxi drivers in London, Paris, Zagreb, and other cities blocked key traffic routes in the city, protesting against Uber’s entry into their market. However, it turned out that the strike was a very bad idea, as on the day of the strike, Uber’s traffic increased by 800 percent. Today, Uber (and similar companies) operate more vehicles than all the taxi services in the world combined, while Uber itself has a market value of around 30 billion dollars, which is approximately half of Croatia’s annual gross domestic product. This is just one example that leads us to the question: how can a startup disrupt a large industry and its well-established corporations?
During my 25-year career, I have had the privilege of founding, advising, managing, and investing in a number of startup companies with several collaborators, but I have also had the opportunity to manage international corporation projects with thousands of employees for years. The key lesson from my extensive experience working with startups and large companies is that a startup is not just a smaller version of a large company or corporation. There are significant and substantial differences between them in almost all aspects.
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In recent years, entrepreneurs, economists, and academics around the world have been considering the precise definition of what a startup actually is. The definition of a startup that business schools most commonly accept is as follows: A startup is a “temporary organization in search of a business model that is repeatable and scalable.” On the other hand, a large company or corporation can be defined as “a permanent organization designed to execute a business model that is repeatable and scalable.” This difference affects the nature and needs of both types of organizations.
Simplistically, unlike corporations, startup companies are focused on questioning parts of the existing value chain and are directed towards discovering new approaches to problems and ways of doing business. This creates a new business model that can lead to fundamental changes in the entire industry or sector. In search of a business model, a startup tries to find a better, cheaper, and more market-acceptable solution to a specific problem and customer needs.
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But startup companies did not emerge recently, nor are they always based on digital technologies. For example, a well-known startup emerged in the USA in the 1950s in the restaurant industry. Its founders were looking for a new business model that was repeatable and scalable. When they found it and then scaled it, one of the largest global corporations was born: McDonald’s.
On the other hand, different rules apply in large companies and corporations. They are large because they successfully operate according to a given business model, managing the corporation’s resources optimally, efficiently, and productively. Although this is not an easy task, there are hundreds of thousands of books, educational programs, and business schools designed to facilitate managers in implementing the business model of a large company.
In the end, the question arises: can an organization simultaneously implement an existing and seek a new business model? It turns out that this is possible and that almost all the most successful corporations in the world that have also grown out of startups are doing it.
One of the best examples of this is Netflix. It started as a startup that disrupted the established video rental and DVD industry, initially introducing mail delivery services as a substitute for customers going to video stores. Over the years, Netflix has grown into a corporation that executed an established business model extremely efficiently and productively. However, all this time, Netflix has been in search of a new business model. After a few years, it realized that the internet was growing and that data transfer speeds were becoming faster. Therefore, it decided on a very risky move of disruption, i.e., cannibalization of its existing business model, and the new Netflix business model became the distribution of video content over the Internet.
Today, Netflix is the leading and largest provider of video content in the world that continues to question its own and seek new business models, thus entering many other areas, industries, and sectors. The question is how long Netflix will be able to simultaneously implement and seek a new business model as right now dozens of startups are questioning parts of the value chain of Netflix’s business model, and it is only a matter of time before disruption occurs and whether Netflix will timely acquire the startup leading that disruption.
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