Why Established Companies Should Innovate Like Startups

In 1935, the average lifespan of an S&P 500 company was 90 years. By 1958, that number had dropped to 61 years. It shrank to 24 years by 2016. And research by McKinsey suggests that it will be just 12 years by 2030.

Here's another way to look at the same phenomenon. Nearly 90% of the top Fortune 500 companies from 1955 have either gone bankrupt, merged, or fallen from the list. Among the few still recognizable names from the 1955 list are Boeing, Campbell Soup, General Motors, Kellogg, Procter & Gamble, Deere, IBM, and Whirlpool.

On one level, this faster turnover of large companies reflects the dynamism of our consumer-oriented market economy. However, it also reveals a long-standing question. How does an established company stay innovative once it has become successful?

3 top companies that missed the mark by missing the vision

There are three classic examples of companies, once leaders in their respective channels, that lost everything by dropping the ball when it came to innovation: Blockbuster Video, Toys R Us, and Kodak. Each of these companies at one time was the new kid on the block, an innovative startup business with founders eager to get their ideas out there to the consumers. Here’s what happened in all three cases:

• Blockbuster Video – Blockbuster, founded in 1985, grew to employ 84,300 people worldwide and, at its peak in 2004, had 9,094 stores. In 2000, Blockbuster turned down an offer to purchase Netflix for $50 million. Blockbuster filed for bankruptcy in 2010. As of April 2020, Netflix had a market value of $194 billion.
• Toys R Us – Once the world's largest toy store chain, Toys R Us, founded in 1948, embraced the digital market, but sealed its doom by signing a 10-year deal with Amazon in 2000 instead of pursuing its own e-commerce opportunities. Toys R Us filed for liquidation in 2018.
• Kodak – Kodak, founded in 1889, was once the world's biggest film companies. In fear of undermining its strong film product line, Kodak failed to embrace the transition to digital cameras. It filed for bankruptcy in 2012.

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Much of the reason each failed boils down to human nature. When you are working to build something out of nothing, you are willing to take more risks. You'll put in the long hours of hard work without the promise of financial security.

Once your company makes it, however, everything changes. You may still work long hours, but you don't spend them dreaming up ideas. You must run that company you built. You have responsibilities to your customers and your employees, and you have a reputation to maintain. As you do all this, it's easy to overlook, ignore, or not fully embrace changes within the marketplace.

Whether you’re a multinational enterprise or local player, the lessons learned here apply. Successful companies stay that way by doing more than having a research and development team. They make innovation a top priority.

7 ways to innovate like a startup  

1. Hire outside the lines

Many big companies promote from within. That's a good thing for the most part because you build a loyal employee base. A downside is that everyone has the same background and approach. Look for new blood to add to your team—entrepreneur-minded people with varied professional and cultural backgrounds who may not have experience with your company but who are passionate, full of ideas, and bring different perspectives. A great way to do this is to include freelance talent as part of your staffing model. This allows you to infuse new ideas, perspectives and skill sets as you expand and contract your team as needed.

2. Reward innovation

Encourage people both inside and outside your company to submit new ideas related to your business by sponsoring contests and events that invite contribution. Provide an outlet for employees to submit their thoughts about what could be better at your company and ideas for improving products or systems. Some companies do this in the form of ongoing competitions. Reward experimentation and offer real prizes to keep motivation high.

3. Invite venture capital

Many investors are looking to get in on the ground floor of a growing business. If you're willing to give up some control, venture capital firms will provide higher investment levels for shares in your business and offer new ideas and perspectives. Consider business angels who typically invest in private companies anywhere from $30,000 to $500,000. Another option is to use a crowdfunding platform like Microventures.com. It will provide the capital you need with many investors involved at a smaller stake as opposed to one or two big investors.

4. Promote teamwork

Good ideas get better when a group brainstorms and develops them. Make it easy and comfortable for your team members to share ideas with each other. To encourage an uninhibited flow of ideas, be sure to celebrate all ideas, even those that aren’t used or don't work.

5. Crowdsource ideas from customers

Coke, Pepsi, Procter & Gamble, and IBM all crowdsource ideas from their customer bases to gain innovative ideas and feedback. Some of the most successful long-standing and innovative companies devote part of their websites to this concept. You as a small business owner have the same access to social media sites like Facebook, Instagram and Twitter. Utilize these sites to generate feedback from your user base. You can do this with a simple post or even run a contest.

6. Go back to the beginning

You launched your business because you had a great idea that you thought would change the way people did things. You can still think that way from the vantage point you have today. Give yourself the time and circumstances to reconnect with this way of looking at the world. Schedule a quarterly or annual retreat to reassess. Find leadership partners or a group of peers with whom to explore ideas. For some it’s as simple as setting aside a weekly time to reflect.

7. Look beyond market research

It sounds odd as a marketing strategist to say, but too often companies rely on data and market research to make decisions, rather than relying on their gut. It’s the difference between chasing and leading. Trust the data when necessary, but if your instinct says to do otherwise, don’t be afraid to pay attention. Steve Jobs put it this way in an interview, "Some people say give the customers what they want, but that's not my approach. Our job is to figure out what they're going to want before they do. … People don't know what they want until you show it to them. That's why I never rely on market research. Our task is to read things that are not yet on the page."

Next steps to thrive

Established companies can still innovate like startups. The key is to plan for innovation, just like you plan for other aspects of your business. As your company grows, keep some of the same entrepreneurial practices that made you what you are today. By incorporating these seven strategies to innovate like a startup, you’ll be well on your way to thrive.