We live in transformative times. Never before has it been so easy or quick to turn an idea into a real business. From start-ups to the middle market, competitors are rising up to challenge the status quo across many major industries. One need only glance at the apps on our phones to see how radically consumer behavior is changing.
But what distinguishes disruption from regular innovation? On first glance, these concepts may seem like two sides of the same coin. Certainly, many companies, both new and established, are breaking ground within their sectors. To truly disrupt, though, means going a step further; it’s using a technology or idea to build a sustained structural advantage over rivals.
In this sense, real disrupters aren’t nearly as common as you might think. For every shining star like Netflix or Snapchat, there are dozens more that have fizzled out and fallen from the sky. But it is worth noting the key attributes common to many of these breakthrough organizations when they do succeed.
Disruption requires ingenuity, nimbleness and vision — traits we often associate with start-ups and fast-growing smaller firms. It also requires industry expertise, scale and financial strength — more often the domain of large enterprises. At the same time, we must understand that innovation is often coming out of that in-between space where industries collide. As a result, the breadth of complexities one must navigate to succeed is expanding exponentially.
At EY, we think more disruptive businesses can be cultivated by bringing these different companies together to leverage their respective strengths and capabilities. We surveyed more than 100 start-up leaders earlier this year to better understand their perspectives and plans.
A venture state of mind
Most start-ups understand growth is highly reliant on financing, whether to scale up their ideas or to attract top-notch talent and resources. Unsurprisingly, two-thirds of the start-ups we polled said venture capital (VC) is their financing partner of choice. To a degree, the reasons behind this are quite structural: venture capital firms tend to move quickly on due diligence, invest sizable amounts of cash, and don’t insist on collateral or onerous repayment schedules.
Another reason venture capital is so popular is the value-add these investors offer. Portfolio companies typically gain access to their VC’s broader professional network, which can dramatically improve a start-up’s ability to screen and hire the right talent.
This is especially critical when your team is limited to just a handful of people. It also helps them to connect with the right people and grow their network, which enables them to gain reputation and recognition in the market at a faster pace. Another reason is the mentorship and strategic perspective VCs offer, while not interfering with the company culture. Finally, VCs tend to have a good understanding of the challenges start-ups face and how to work around them.