Friday, September 13, 2013

Small V.S. Big Companies


  A lot of startups are afraid of big companies. Big companies have a lot of money. If they start a price war on startups, the startups wouldn’t stand a chance.
But, big companies also have large momentum. It’s hard for them to abandon what they have and start an entirely new business. They tend to have ‘marginal thinking’ where they try to build business based on what they have.

Being Small Is Not a Bad Thing

So, if you are running a startup, don’t clash into big companies head on. Think of something new. You don’t have existing stake to care about. You have an advantage of ‘full thinking’.

Why Do We Prefer Marginal Cost over Full Cost?

It’s simply because marginal cost is usually smaller than full cost. Big companies can easily see this, while startups don’t see it. The startups just have nothing. So, they don’t have anything to compare with. They just have to do it with full cost, or they don’t do it at all. 

Why Can’t Big Company Copy the New Business Model?

It is hard for the executives to abandon their entire business and start something new. If they decide to run two parallel business models, the new one usually kill the existing one. In the end, big companies decide to stick to the existing one, and let the startups steal the emerging market. 

Case Study: Netflix v.s. Blockbuster

Take Netflix for example. In late 1990s, Blockbuster was the number one in the movie renting business. It had thousands of stores, and tens of thousands of employees.   But Netflix came along with a new business model. Instead of having stores, it charged customers for monthly fee and mailed movies to/from customers. Netflix operated with much lower cost than Blockbuster. Yet, Blockbuster could not copy Netflix’s business model, because implementing such model would kill Blockbuster business and overall revenues would decrease. At least, that’s what they thought. But in the end, Netflix had around 24 million customers, while Blockbuster filed for bankruptcy. 
Netflix is not the only one. Nucor Steel also stole the market from US Steel--the number one in steel industry at the time. This is simply because big companies use ‘marginal thinking’, while startups use ‘full thinking’.


“Thinking on a marginal basis can be very very dangerous.”


Source: How Will You Measure Your Life? by Clayton M. Christensen, James Allworth, and Karen Dillon

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Book or Audiobooks?

Personally, I prefer audiobooks. It's fun, and I can listen when I'm doing something else. It also makes other activities (e.g., jogging) a lot more fun. For more detail about audiobooks, please read [this post].

There is one more reason that may encourage you to go for the audiobook version. You can get it now for FREE. Audible offers you a free trial for 14 days. Even if you get the book and cancel the subscription right away (so that you don't have to pay), you can keep the book. And, don't worry if you lost the audiobook file. Just log into audible.com. You can keep downloading the over and over again.

   About the summary: It takes time to finish up a book. And, when you do, sometimes, you want to review what you learn from the book. If you do not make  notes as you read, you might have to go through the book once again. This can be time-consuming when you are dealing with a book. But you can still flip through the book and locate what you are looking for.

However, when the material is an audiobook, it is extremely hard to locate a specific part of content. Most likely you will have to listen to the entire audiobook once again.

This book summary will help solve the pain of having to go through the book all over again.

I am leaving out the details of the books. Most books have interesting examples and case studies, not included here. Reading the original book would be much more entertaining and enlightening. If you like the summary, you may want to get the original from the source below.

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