[Question 6] Start-up companies case

One could think of financial problems. Indeed, it may take a good amount of money to get close to the consumer and to create a bundle of services.
However, if it is in the original business plan, as it was for Ikea, the way to success can be faster for start-up company. Indeed, long-establised company may be reluctant to change their operating mode.

Why should we change ? We always did it this way...

I agree, it could cost a large amount of money to get close to the consumer and to create a bundle of services. However many companies could already have services in place, and there are elaborate ways of getting close to the consumer through elaborate campaigns and large customer events, but there are always cheaper and more budget ways, through questionnaires, or conversation when looking to buy. Some may argue these aren't as reliable, but I still think positive results could be drawn from these in order for the business to innovate their services!

With the larger companies I definitely agree, they would feel there's no need to change currently. "If its not broke...dont fix it!"
Eventually in due course they may see the need to change. And business could be better from it!

I think that small companies can apply this strategy, only if they try to focus on one single service.
In addition, small start up are often more innovative than larger and frozen firms and they are likely more able to welcome new way of communicating.
However, as said before, the money can become a problem for little firms and I think they have to avoid being overwhelmed by new and expansive solutions.

I think that it may even be easier for small companies, as there will be no philosophy of "we always did it this way... " mentioned by florent. Moreover, New companies will be more eager to find their spot in the market. Usually more aggressive and original, they offer more innovations.

But not too many of them survive though...

BartekWu wrote:I think that it may even be easier for small companies, as there will be no philosophy of "we always did it this way... " mentioned by florent. Moreover, New companies will be more eager to find their spot in the market. Usually more aggressive and original, they offer more innovations.

But not too many of them survive though...

True enough, innovation is not enough to survive... If a start-up can't make money on a short-term basis, it is doomed ! Easier but the stakes are so high !

florent_lefevre wrote:

BartekWu wrote:I think that it may even be easier for small companies, as there will be no philosophy of "we always did it this way... " mentioned by florent. Moreover, New companies will be more eager to find their spot in the market. Usually more aggressive and original, they offer more innovations.

But not too many of them survive though...

True enough, innovation is not enough to survive... If a start-up can't make money on a short-term basis, it is doomed ! Easier but the stakes are so high !

I disagree! Deezer.com is still not making money... and yet the website is getting more and more financial aids from investors.

Obviously there are high costs associated with innovation, so although it is in a new business' best interest to be creative/innovative, they have to consider how much this would cost them. I think it would be easier for an established company to implement service-logic innovations. Their industry experience should hopefully give them a leg up on "what the consumer wants/needs" and help pave the way for new services to emerge.

No, I think it feasible for a start-up to apply service-logic innovation. But I suggest that it can focus on one single service. I agree with Vincent. On the other hand, large companies are always limited by inertia. They tend to use traditional approach to innovate.

I think that it could be easier for a start-up company to apply service-logic innovation as it won't have to change its operating mode, the problem of reluctantcy to change being avoided. However, thinking about the financial side of implementing service-logic innovation; larger established companies may not encounter as many problems as start-up compagnies.

I don't completely agree with what Chloé just said. Let's presume some students have a great idea of an innovative product and that they want to launch it, the "innovative part" won't cost them anything. On the other hand, if they just want to do business but don't have any idea to launch a product/service it will cost a lot of money... Moreover, it's not because companies are larger or well established that they are in a good financial situation, as a consequence they might have as many problems as start up companies.

I think that even if it is financially more difficult for a start-up to apply service-logic innovation that could be the key for them to enter very attractive markets despite their lack of knowledge and their supposedly small size. As they will offer services that meet consumers' needs differently, they will be able to target another group of consumers which is not well-served yet by the established companies. And as Aurélie has just said if a start-up has already a great idea (from the beginning) it would be less expensive than for a big company that has looked for something innovative for a long time.

I think the main difficulties for a start-up company to apply service-logic innovation are not only about money but although about network. An established company has a powerful and helpufl network while a start-up company remains unknown (at the beginning of course).

What do you guys mean by "an established company" ?
In my opinion all the arguments you give (finance, brand recognition...) are valid only for a few companies and you shouldn't only think of companies such as Coca-cola, Microsoft or Apple to answer this question.

For me, I would say it depends. It can go either way. An established company may or may not be at an advantage to apply service logic innovations. An established company may already have customer information, buying and usage patterns, distribution channels and may therefore be more able to use this information to serve the needs of consumers. They may have also established customer brand loyalty, so customers will try their new products more easily. On the other hand these same companies may believe that because they already have a huge market share, they don’t need to do much R&D and marketing to test new products. They get blinded by the power of new products and fail to examine proper customer demand for the product.

From another point of view, a new start up company may not have the technological knowhow, R&D skills or may lack the resources to develop the product. However, a new start up company can actually learn from the mistakes of the first mover, and create a better product that would serve customers need. He will be a free rider, because he does not have to spend too much on R&D, since the first mover already did most of the R&D. The first mover may want to compete, but may be unable to do so, since his assets are already tied up in an outdated/obsolete innovation.

A good example of this scenario was the failure of Apple Newton. When it first appeared in shops, Newton was a disappointment. It was big (not suitable for pocket), pricy (about $700 for the first model and as much as $1,000 for later), new (no market familiarity) and had software problems (notably, its handwriting recognition was fairly inaccurate). The cheaper Palm Pilot was released in 1995 and became a runaway success. It was smaller, thinner and sold at lower cost. It had an excellent PC synchronization and more robust handwriting recognition.

Again I would say it depends. Anyone agrees with me?

I totally agree with you and I was about to say the same thing. First, a start up doesn't have the relational learning capability: the company cannot learn from external long relationship linkages like suppliers, distributors, networks, and cannot acquire knowledge from developed contractual relationships. As the goal is to satisfy and understand the customers' needs, a firm which already accumlate relational knowledge is guided by the current and anticipate needs of the beneficiary. Same thinking for customer learning capability as a company which is already in the business should know better its customer than a start up.

I think that start-ups can afford to take more time in order to create a product that really meets the customer's service needs. A start-up always comes up with a new idea. There is lack of something, and the start-up wants to fill that gap. Often it's the founders themselves that identify the missing product in the market. Probably won't release or publish it until it's really perfect in their eyes.

I would say that many established companies rarely have the freedom to do so, as innovation cycles get faster. But still there are examples, even in the fast pacing IT and mobile world. Why was the iphone such a success? One reason is that Apple took a lot of time to identify service needs and create the according product. Nokia could never afford to wait for two years until they publish their next generation phone.

Of course, Apple should be considered a "newcomer" in the mobile phone market, rather than a startup. But I think you get my point.

Established companies have more potential for small-step continuing innovations, while start-ups have more potential to benefit from service-logic innovation, starting from scratch with only few influence from markets and competitors.

I agree with Leandar and Tobias. Sometimes an established company is burdened with its institutional properties, such as coporate culture, product design logisitics, and departmental conflicts. It is hard for them to think like a customer, never to speak they could move customer-centirc. However, a new start-up sometimes is built by adopting a brilliant service-logic innocations and lauched them at the right timing.

Yann_Gerardi wrote:

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Is it more difficult for start-up companies to apply service-logic innovation than larger established companies?

Why?

Why not?

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I think generally speaking it is more difficult for large established companies to apply service-logic innovation. They have to make a major change-up. Structurally it has to change a lot. And besides that, changing the attitudes of employees is also important to make this application successful. With a start-up, you have the right structure and attitudes to begin with.