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Growth strategies that start-ups can teach other companies

“You need a new mindset … because technology is going to change the rules,” David Rowan, editor-in-chief of Wired magazine. 

He was addressing an audience of business leaders at the TCS Summit Europe in Berlin earlier this year, urging them to think beyond the norms of business today. Our own assumptions are outdated, he argued.

By way of example, he offered the following cautionary tale. In the early 1980s, AT&T was exploring the possibility of moving into the mobile cellular phone market. The telco asked McKinsey to estimate how many such phones would be in circulation by the end of the century. McKinsey came back with a figure of 900,000. It was, of course, a massive underestimation.

The problem, said Rowan, was that McKinsey “framed their thinking in a very fixed 1980s way. If you wanted to make a phone call [at that time] you would go back to the office or you would find a public phone box. Today, if you take a smartphone away from a 15-year-old for more than six seconds it’s a human rights abuse. These technologies change our behaviour in ways we don’t always acknowledge.

In this spirit of innovation – and innovative thinking – Rowan offered eight growth strategies today’s established businesses can learn from the world’s best start ups.

1. CEDE POWER TO THE MACHINE

Artificial intelligence is a game changer, said Rowan. He cited the example of Deepmind, a London-based AI company now owned by Google that is teaching machines to think like human by way of Space Invaders and the strategy board game Go. “Machine learning is accelerating faster than we thought,” said Rowan and these game-related activities will latterly give way to commercial and social applications. Among the commercial applications of AI around today, think Unbabel, a Lisbon-based professional translation company that combines AI with human translators. The AI delivers 95% accuracy, the humans do the rest – and the cost of professional translation drops from 30 cents a word to 3 cents a word. NeuralTalk, meanwhile, recognises what it sees in front of it and provides descriptive subtitles to describe the scene. “Every sector is going to be hit by the machine doing things previously only the human did,” said Rowan.

2. LEVERAGE THE NETWORK WRANGLE THE DATA

In other words, take data and turn it into something we need. In health, there’s a company using smartphones to perform eye tests in remote Indian villages, taking the cost of a scan from over $10 to just 35 cents. In retail, there’s a project that is capturing the Chinese retail experience and turning it into a stream of searchable data points. It connects millions of village stores and allows shopkeepers, suppliers and brands to query the database in real time. In logistics, Israeli firm Windward is tracking 200,000 ships on the world’s oceans, using algorithms to process satellite and other data, in order to help detect anomalies.

3. WRANGLE THE DATA

When you connect everything, you change the rules, noted Rowan. That’s why, he said, it took Airbnb barely three years to get a million rooms where it would take a traditional hotel chains decades to get a fraction of that number. And it’s why French ridesharing firm BlaBlaCar confounded “investors who said, ‘Why would people want to spend hours in a car with strangers?’”. It turned out many did and BlaBlaCar is now worth in excess of a billion dollars. “It turns out that when you connect people via a network they make use of it,” Rowan said pointing to another Chinese example – a network that matches truck drivers with cargo companies. When once the drivers never knew where the next job was coming from and always knew the return journey would be non-fee earning, now the network removes those old efficiencies. Moreover, because the app data provides evidence that the truck driver is in regular employment he can borrow money to buy his own truck at much lower rates of interest than before.

4. DISTRIBUTE INNOVATION

Chinese smartphone maker Xiaomi is finding new, interesting and lucrative ways to work with start ups. Specifically, it is investing relatively small amounts of money in start-ups that make accessories – think battery charging packs, for example – and then selling those accessories to its customer base. Xiaomi distributes innovation – and risk – while the start-ups get instant access to a market of 160 million customers.

5. DESIGN AGAINST FRICTION

Rowan urged the summit audience to deliver the smoothest customer experience possible. Taking messaging service WhatsApp as his inspiration – a company where CEO Jan Koum kept a note next to his desk that read: ‘No ads! No games! No gimmicks!’ – he advised organisations to “design against friction”. Rowan said: “If you build a friction-free product, the crowd will do the marketing for you.”

6. GO INSANELY BIG

“The mindset of many of these companies,” said Rowan, “is, ‘Let’s not go for the small problems.’” Think Elon Musk and his Hyperloop high speed transportation tubes. Or the company that wants to extract minerals from asteroids.

7. BUILD AN INNOVATION CULTURE

“You need to build a culture that brings people of different skill sets together,” argued Rowan, citing an Israeli material sciences start up called StoreDot that is drawing on nanotechnology experts, physicists and biologists to build batteries that recharge devices in 30 seconds. Rowan also pointed to the ambitious plans of Tony Hsieh, the man who made his money by creating the online shoe company Zappos and then selling it to Amazon. His next project: to turn downtown Las Vegas – 20 miles away from the casinos – into a new kind of town square. He has spent $350 million of his own money bringing start ups together with public and artistic spaces. By combining what he refers to as the three Cs – collisions, co-learning and connectedness – Hsieh believes he can create innovation culture at scale.

8. RE-FRAME THE PROBLEM

Where others see problems, smart organisations see solutions. As an example, Rowan referenced Fujifilm, effectively the anti-Kodak given the way it was able to respond to digital disruption while its American rival failed to do so. A move into digital imaging, cosmetics and other tangential lines of business meant Fujifilm could militate against the decline of film developing and printing. In short, it re-framed the problem.