Tuesday, December 13, 2005

Why startups are needed for big firms to survive?

This is just a corollary to my previous post, last paragraph. If the equilibrium described there must exist, then we have a compelling argument for why we will always need startups - because big firms, by the very nature of their incentive structures [stock price = wall street's pleasure] cannot risk innovating beyond a certain limit. Startups fill that gap.

Apple is a firm more in the startup mode - product focussed and a risk-taker, therefore with a very volatile wall street record. Microsoft is the opposite - a big company mindset from the start, which is why they wait for someone else to show them a big potential market, then they go after it like their life depends on it [Google?].

These two previous posts dont just apply to technology companies. Consider P&G and GE. Both underwent a radical change under their current CEOs - AG Lafley and Jeff Immelt [both non-engineers with Harvard MBAs] - who broke with years of tradition by acknowledging the need to buy innovative new firms as well as hire outsiders into senior management positions. P&G's acquisition of SpinBrush [small startup] and Gillette are results of that choice. GE's acquisition of Amersham Healthcare Plc., and the appointment of Amersham's CEO as the head of GE healthcare again reflect the same reality. Thoughts?

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