For the sixth instalment in his Industry Reflections series, Lio Grealou reflects on the comparative advantages and disadvantages faced by product-led complex engineering start-ups and their established OEM counterparts when attempting to innovate, scale and accelerate time to market. And could partnerships, spin-offs and investments allow start-ups and mature organizations to create synergies and learn from each other without the organisational barriers of attempting to recreate the best aspects of the other?
Above: Teamwork, autonomous working, trust, empowerment and leadership, combined with creative thinking, are key qualities to test new ideas and get things done (image credit: Unsplash)
The difference between engineering start-ups and established OEMs is obvious. Key challenges, enterprise development roadmaps, NPD processes, continuous improvement, and cultural factors were discussed in previous Industry Reflections instalments, both from the perspective of start-ups getting ready to scale and for established OEMs reinventing themselves and adapting to new market imperatives.
Learning and experimenting is the constant with product-led companies as they encounter multiple trade-off requirements across technical and commercial decisions, strategic market positioning, operational effectiveness and efficiency, manufacturing execution excellence, product quality certification, ongoing business change, etc. Though they differ in maturity, agility, and scalability, both start-ups and established OEMs face similar decisions throughout their business lifecycle.
In this article, I elaborate on how engineering start-ups and established OEMs can learn from each other, exploring further opportunities to create win-win synergies and manage risk as they innovate and enhance their ability to deliver.
On the one hand, start-ups foster a unique working context to build new skills and experience for talent seeking a work-hard-play-hard environment with potential "high-value equity earning (albeit not guaranteed) in exchange for lower-than-the-market level pay" (Austin, 2018). On the other hand, mature EOMs have reached a level of stability, though they must continue to innovate to remain competitive. Austin (2018) described several attributes which characterize both business types, as they continue to forge their identity and operating effectiveness, fostering their ability to:
- Create innovative products and services
- Transform themselves
- Lead change and continuous improvement
- Attract new talent
- Attract new investors
- Build alliances
- Sustain competitive advantage
- Build strong brands
- Define and lead new strategieS
Above: Contextual attributes which characterize start-ups versus mature organizations: "start-ups can offer a chance to do all the things that can be either a blessing or a curse depending on [one’s] interests" (Austin, 2018)
Furthermore, Christensen et al (2016) highlighted that innovation, and more specifically disrupting innovation, can be fostered by removing barriers and creating the conditions to think outside-the-box and thrive, or do things differently. They also elaborated on developing a new metric-based framework to assert how organizations progress towards successful innovations. Start-ups and mature companies may have different business pressure points, though in the long run they strategically converge towards the development of novel business models to become or remain relevant in their market segment.
What engineering start-ups can learn from established OEMs: open networks and mature delivery models
Start-ups aspire to grow into established businesses, scale, gain market share and attract investors; they typically achieve this by creating novel offerings and value propositions, disrupting existing markets and finding white space in the competitive landscape. Nevertheless, start-ups can also learn from mature OEMs in different ways:
Firstly, start-ups can learn what works and what does not work; to be more precise, this relates to what worked and what did not work in a specific context. For example, this implies lessons learned, good practices and mitigations to avoid facing similar challenges or issues, which established OEMs might have spent years to solve—from product R&D to production, service, and commercialization.
Secondly, start-ups can learn how established businesses built their delivery and sales ecosystem, based on the relevant operating and sourcing models, leveraging supply chain and investor networks.
Additionally, start-ups can learn about complexity management, both from a technology and operational point of view; their mature OEM counterparts built such capabilities over time, this knowledge and experience can be directly leveraged to support new entrants.
Furthermore, learning from mature businesses includes learning from their strategic and brand positioning, their ability to build and manage networks: from open innovation with suppliers and customers, to good practices towards new operating models, without the legacy inertia.
Beyond product or service innovation, start-ups can learn about effective business change, leadership, product planning, production ramp-up and scalability requirements; this includes the management of investor relationships, new roadmap development, verification and validation, wider portfolio alignment, scalable ‘right-sized’ enterprise solutions to enable growth (processes, infrastructure, tools, people, data, etc.).
What established OEMs can learn from engineering start-ups: agility, creative thinking, and boldness
Start-ups are often assumed to be effective as they combine lean yet unstructured operations with no legacy burden, no bureaucratic processes, no over-constrained enterprise governance, tools, and digital platforms. Their operations typically rely on creative thinking, teamwork, boldness, based on a strong vision and beliefs. Early immaturity can be associated with chaos, yet creative problem solving can emerge from it.
Established organizations can learn from start-ups in multiple ways:
Start-ups hire multi-disciplinary talent expected to multi-task; similarly, they need to build a credible management team which can bring business to the next level; established OEMs can equally experiment with new talent sourcing approaches for specific projects and experiment.
Bringing together self-contained teams for a given business unit or project can create new synergies and levels of autonomy to foster creativity. Embrace the ‘best athletes’ approach of letting those best equipped for a task run with it, regardless of seniority or nominal position.
Mature OEMs can launch "skunk projects" in start-up mode with limited structure barriers and overhead burden, driving the implementation of new products and services, with leaner operating practices (there are many benefits of taking an agile approach to project management vs the more traditional waterfall led methodology – something we will explore in future articles).
Established OEMs can drive innovation in new industry sectors (such as entering the EV market) by partnering with technology start-ups, by creating joint ventures or dedicated entities to facilitate the implementation of new business model.
This can also be a way for established businesses to attract new investors and partnerships, operating in an agile and bolder "start-up model"; this is also a way to assign a known brand (mature OEM) with a brand-new venture, hence leverage existing network and stability from the parent organization.
Learning from start-ups, established OEMs can build and test self-contained solutions without compromising the rest of their business, legacy product lines, and existing brand image. This way, internal best practice can be leveraged whereas sub-optimum components can be disregarded or substituted; this also implies nurturing new product development (NPD) modus operandi without completely starting from scratch, mitigating risks of uncertainty while not damaging the organization’s ambition from the fear of failure.
How established OEMs and engineering start-ups can collaborate: fostering win-win and managing risk
There are several ways for start-ups and mature organizations to create synergies and learn from each other. For example, this can be covered by one or more of the following scenarios:
An establish OEM can penetrate a new market or build new business offerings by creating a spin-off start-up, on its own or in collaboration with another established player; this will likely contribute to a fresh sub-identity, removing legacy barriers while building a new operating opportunity.
An established OEM can become the customer of an existing start-up, leveraging new product or service offerings, entering into a strategic sourcing agreement, learning from the partnership, and capitalizing on new knowledge and expertise.
A start-up can partner with an established OEM on a specific new technology, product, service, engineering capability, manufacturing function, or business model—leveraging the best from both worlds, combining proven capabilities and outside-of-the-box thinking.
A start-up can seek investment from an established OEM to leverage their existing ecosystem, supplier network, established technology advantage, knowledge, or experience; this can also cover scalable operations and transformational change expertise.
Lastly, start-ups and established OEMs can learn from each other in an indirect manner. This includes working with the same supplier or customer networks, hiring talents from each other’s businesses, creating new relationships and business growth opportunities from open innovation.
Creating synergies through one or more of the other above scenarios is certainly a way to mitigate business risk and bolster their chance of success. If they fail, start-ups might have less to lose than establish OEMs which already have a reputation, financial stability, and an existing market share to protect.
What are your thoughts?
Austin JB (2018); Startup or Established Company? Which Is Best for You?; HBS.
Christensen CM, Christensen R, Altman EJ, Palmer J (2016); Disruptive Innovation: Intellectual History and Future Paths; HBS.