Outside-In is the New Way to Win
Rather than trying to take on increasingly
large and powerful companies, a better strategy is to make your firm essential
by fusing with their infrastructure.
CEO, 1871@tullman
I have been talking
for several years about the increasing power and economic value of building and
aggressively deploying proprietary platforms.
It has become clearer and clearer - as we see the growing dominance of the
major tech players - that this oligopolistic trend will continue largely
uninterrupted. That is, unless the government decides to interfere and possibly
try to break up some of these businesses, which would be unwise, I would argue,
given what happened after the attempted breakups of AT&T and Microsoft.
Whether you call them
FAMGA or FANGA and regardless of which of the four, five or six tech
giants you include in the current mix (does Google get a second slot for
Alphabet? Do you prefer Netflix or Microsoft?), the impact that these monster
entities are already having on our businesses and lives, especially going
forward, is more than a little frightening. Frankly, our best hope is that the
big guys are so competitive that they will keep each other in check and
relatively honest - although there is little evidence of that happy outcome to
date. Right now, Google still owns search, Amazon dominates e-commerce, and
Facebook and Google have pretty much split digital advertising down the middle.
Nonetheless, as an
encouraging example, at least in the short term, you might take some solace
from Amazon's immediate actions to reduce prices at its newly acquired Whole
Foods division. Google's teaming with Walmart to help both compete more
effectively with Amazon is another ray of hope. FedEx using Walgreen's stores
as depots is a further instance of what I have called the PxP (platform to
platform) program, which basically amounts to paying someone (in some form or
other) who has already built a platform or other effective distribution channel
to send your goods and services down the same pipeline.
This shared channel
strategy has extremely compelling economics. Players avoid the costs and risks
of trying to reinvent the wheel; they're able to move into the market much more
quickly than if they had to build it themselves; and the platform provider gets
to amortize and offset some of the initial costs incurred in building out the
system in the first place. A nice deal if you can get it and basically a win-win
for both parties. Of course, if it's just the big guys partnering in
cross-industry strategic alliances, it doesn't really help us peasants. As I
like to say: when the elephants dance, the grass (that's us) takes a beating.
But the real question
is, how does a startup play in this space?
The answer may be an
interesting new development that offers some very exciting opportunities for
smaller and newer companies that grow out of a different directional view and a
new perspective on the platform theory. Instead of looking at a specific
platform as an attractor - extended by the creator/builder out to new potential
users - which I call the inside-outside approach, I'm seeing more and more
small startups approaching bigger organizations with an outside-in pitch that
seems to be gaining considerable traction in a number of areas.
These new businesses
almost all make the same pitch to the big, old, traditional firms: a) we built
a clean, new system from scratch (no spaghetti code or hair on our baby) to
solve specific, known problems; b) we move much faster than you can because
you're lugging all that legacy load along with you; c) the people who built
your systems won't break them or blow them up - they're believers in Band-Aids
and duct tape, not clean, new solutions; d) we have the talent and skills in
critical new areas (machine learning, for one), which you can't buy, hire or
otherwise afford to add to your already enormous IT departments; and e) solving
this particular problem is No. 1 on our list. In fact, it's all we do while in
your shop it's lost somewhere in the pile of problems that your CTO and CIO are
trying to manage. I'd say these are all pretty accurate observations and very
convincing arguments. So how does it work in practice?
Two recent examples
that I've seen - both in the human capital space - are instances of taking the
existing resources, skill sets, and technologies of a startup and extending
them into a larger entity to expand, enhance and eventually replace existing
and badly antiquated legacy systems. It's outside-in and eventually, in many
industries, it's going to be the most effective way for startups to win.
The basic idea is to
seamlessly integrate: (a) incremental gig economy resources that were
previously thought of as being exclusively outside the big business, such as
fresh creative talent or additional skilled and technical workers, callable on
demand, with (b) the internal resources and talents of the big business which,
as often as not, the big business itself does a lousy job of identifying,
organizing and utilizing because its own HR systems don't have that capability.
In many respects, this
situation is another version of the old problem of a company that doesn't know
what it knows. (See How KnowledgeHound Sniffed Out
a New Platform.) In these
cases, the big businesses aren't able to marshal their internal resources
quickly and effectively so they end up unnecessarily turning to third party
vendors on a project basis. They also pay for services their own people could
provide more cost-effectively if they had been "visible" within the
organization.
In one case, the
personnel need was literally bodies to staff events; in the other case, it was
creatives needed to execute and complete projects in a timely, professional
fashion. In both instances, the costs to the big businesses were secondary, not
because that made good economic sense, but because the immediate demands and
absence of good information afforded them little choice but to pay up if they
wanted the jobs done on time.
While the third-party
startup vendors were happy to take their money, the far better strategy would
be to suggest to these "buyers" that the same outside software
solutions built by the startups to manage their workforces' descriptive data
and scheduling could be used inside the larger companies to provide the same
analytical and organizational capabilities for their own employees. By melding
the internal and external workforces into a single, readily-accessible
resource, each time there are specific personnel requirements, the buyers could
quickly look over all the available talent inside and outside the business.
They can then optimize their selections to minimize incremental costs and
utilize all of their own people first. Then they can seamlessly supplement any
jobs with the outside talent available through the startups' own workforces.
Not only could this
solution be implemented easily and quickly without disrupting the big
companies' existing systems, the startups are happy to add the internal
employees to their systems for free. Why would the startups do that? Because it
sets up an easy and immediate way to demonstrate the superiority of their
solutions. It's also a Trojan horse because it gives them access to thousands
of additional (albeit currently employed) creatives and other skilled workers
who might very well be interested in outside or incremental work. Or even in
new employment opportunities. Obviously, there are some ethical issues, but the
main objective is the first - for the startups to quickly show how effective
their systems could be in better allocating resources, reducing outside costs,
and actually being more responsive to both internal and external customers.
These kinds of shifts
and penetrations from the outside in won't happen overnight, but because they
initially operate in parallel to the status quo systems, they are far more
attractive to the change agents in these big businesses because they don't
really require anyone's permission. They basically can't be effectively blocked
or stymied by the IT or HR departments. Even more importantly, the financial
results are immediately apparent and indisputable. Ready or not, another big
change in workforce management is heading our way.