Why Do Big Companies Struggle?

The Math of Mediocrity

The larger an organization becomes, the less reasonable it is that emerging markets can remain viable as growth engines for the business.

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While a $40 million company needs to find just $8 million in revenues to grow at 20 percent next year, a $4 billion company needs to find $800 million in new sales.

No new markets are that large.

—Christensen

Think about it this way:
A small company can double its size by entering a niche market and establishing “hockey stick” growth. But that same niche that represents a truly transformative opportunity for a startup is just a rounding error for a global corporation.

This new market might be innovative, lucrative, or the next big thing—but if it doesn’t generate nine figures by next quarter, it won’t even make the agenda at a board meeting.

Our obsession with scale kills innovation before it even starts because truly disruptive innovation occurs in small markets where the dynamics of product/market fit don’t align to the growth needs of larger companies.

Bureaucracy Breeds Banality

Large companies love their systems, processes, and KPIs. And for good reason: these are what help them churn out profits year after year.

But those same embedded systems act like innovation repellent.

Hat tip to Adam West.

Emerging ideas don’t come with clear ROI or predictable paths to success—and that’s a problem for risk-averse execs who measure progress in quarterly spreadsheets, not moonshots.

You Can’t Measure What You Can’t See

Of course, we can’t expect truly disruptive innovations to come with a clear ROI. A disruptive innovation, by definition, is something that creates opportunity by applying technology in new markets for new use cases. In fact, this represents one of the greatest conundrums in innovation…

Disruption rarely comes from the creation of some new technology, but rather from the application of new technology in new and novel markets.

(This IS the Innovator’s Dilemma.)

Given this reality, disruptive innovations will effectively never look appealing to executives in large organizations because the pursuit of those new market opportunities requires delving into the unknown.

New markets can’t be measured because the data doesn’t exist.

Companies whose budgeting and investment practices require that market opportunity be quantified in order to justify the expenditure become paralyzed to act in the face of a complete lack of data to support their pursuits.

It’s Comfortable on Top

When you’re on top, the instinct isn’t to disrupt yourself—it’s to protect what you’ve built. This “don’t rock the boat” mindset explains why so many great companies get blindsided by smaller, scrappier startups. Disruptive innovation rarely makes sense to big companies—until it’s too late .

How Big Companies Can Stop Failing at Innovation

Enough doom and gloom—how can the giants get their mojo back?
Spoiler alert: it’s not easy, but it IS doable.

1. Stop Chasing Scale, Start Chasing Customers

The best innovations don’t start with billion-dollar projections—they emerge from solving small, overlooked problems.

The struggle is often in finding those problems.

Startups thrive by targeting niche segments that incumbent companies view as too small to bother with. For established organizations, the challenge is to shift focus from squeezing incremental revenue out of your biggest accounts to exploring the needs of the audiences you’re ignoring.

This requires a new mindset: prioritize learning over immediate ROI, and invest in experiments that could unlock unexpected opportunities. By starting small and solving real problems, you lay the groundwork for scalable, meaningful innovation.

2. Carve Out a Skunkworks (Or Whatever You Want to Call It) Team

There’s an inherent problem in hiring today. Alex Bombeck (CEO of North Highland) summed this up beautifully during his presentation at the recent Techonomy event…

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Leaders need to get comfortable with the idea of hiring people to apply critical and creative thinking to solve problems instead of handing out a JD with a list of do’s and dont’s.

No, the answer is not another “innovation lab” that reports to the same execs who killed the last bold idea. Instead, build out truly independent teams tasked with exploring disruptive opportunities. Give them free reign to apply critical and creative thinking to solve problems relevant to your fringe audiences.

Of course, if you want this approach to succeed, you’ll need to match the size of your team to the size of the market opportunity. Don’t hire 100 people to tackle a $10MM market — hire 3. And set them free. Let them act outside the bounds of traditional company structure and process.

3. Learn to Love the Pivot

Lean Startup methodology isn’t just for scrappy founders in hoodies. It’s for anyone trying to navigate uncertainty.

Build, test, iterate, pivot. Then do it again.

Build a “failure framework” into your organization so that employees—particularly those on your exploratory teams—can pursue weird, off-the-wall ideas without the fear that it will come back to haunt them at their next performance review.

Which leads to our last point…

4. Think Like a Venture Builder

Corporate venture studios can offer large companies the speed and freedom of a startup while leveraging the resources of a giant. But they don’t work when they’re forced to adhere to the same set of rules and processes of the parent company.

The Bottom Line

Big companies don’t suck at innovation due to poor management or people with lack of vision. They suck at it because they’re stuck in their own success.

Breaking out means ditching the obsession with scale, embracing uncertainty, and having the guts to disrupt themselves before someone else does.

It’s hard, but the alternative is worse: irrelevance. Innovate, disrupt, or die.

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