For small companies looking to take on larger competitors, the ability to drive faster, more efficient, and more transformative innovation is a powerful competitive advantage. Just ask Salesforce.com.
In September of last year, Forbes named Salesforce.com the world’s most innovative company for the second straight year. It was certainly a high honor for a business that was little more than a feisty startup 20 years ago, but it wasn’t exactly a shocking revelation.
After all, Salesforce — the company that pioneered and continues to dominate the now crowded Customer Relationship Management (CRM) software market — has always been innovative. And, as Marc Benioff, the company’s founder and CEO, remarked in a keynote address at the annual Consumer Electronics Show in Las Vegas earlier this month, that innovative spirit continues to fuel almost everything the business does today.
“Technology at its heart, at its core, is transformational,” Benioff said in his keynote. Or, as VentureBeat’s Christina Farr summarized his message: early-stage technology companies can either choose to be disruptive, or find themselves in a virtual landfill. In order to avoid that fate, there are several small business innovation lessons companies can take from Salesforce.com.
An Incredible Track Record of Innovation
I’ve been following Salesforce.com closely for about 12 years now, and I’ve used many of the company’s practices as a model or example for our portfolio of expansion-stage companies. The Salesforce.com management team was even kind enough to deliver a full-day event for our portfolio earlier this year.
But preaching the importance of innovation isn’t new gospel from Benioff and Salesforce. It’s arguably been the driving force behind the company’s incredible growth from David to Goliath.
In fact, in its early days, Salesforce was able to leverage its size to create an innovation advantage that allowed the business to quickly and smartly innovate, and fly under the radar of its market’s Goliaths. The company did this by focusing on doing something new in an “old” market (which isn’t always an attractive growth strategy for large, publicly traded Goliaths), and making its approach so unique that it wasn’t easily replicable.
Essentially, Salesforce was able to go out on a limb and take a risk that its larger competitors — even if they were interested in developing a CRM solution — wouldn’t.
Why Innovation is Difficult for Larger Companies
The list of issues that typically prevent well-run large companies from driving true innovation is a lengthy one and, not surprisingly, it’s significantly larger for businesses that are poorly run.
Those issues revolve around their tendencies to be:
- Primarily focused on their core product markets: Since most large companies are public, they need to show revenue and earnings growth each quarter. The most effective way for them to do that is to focus on selling to the larger opportunities in their core markets. As a result, large companies tend to play to their strengths — their products, platforms, and channels of distributions already in place, or established customer relationships — and leave smaller opportunities up for grabs.
- Fact-based and sometimes political in their decision-making: That process tends to reject many of the new ideas that come through the pipeline in favor of lower-risk initiatives. The need for fact-based analysis comes from some combination of management training, some level of needing “proof” or evidence that a project will be successful, and the need to reduce proposed new initiatives to numerical analysis, which makes it easier to set priorities.
- Unable to adapt easily or quickly: Large companies rely on economies of scale and economies of scope, powerful economic concepts that help them reduce their cost structure and achieve higher operating margins. Essentially, this means that different products share manufacturing processes, distribution, finance, marketing, and all other areas of the company. This economic gain reduces their ability to change (due to complexity in each department), especially when change is significant.
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