Innovation: Why Startups Work

Innovation: Why Startups Work

What do independent startups have that the deep pocket, established R&D labs don't? Nothing. And that's the point.

The staff at NOMi file into their Manhattan offices Monday morning as tired and blurry-eyed as any other group of 20-something professionals. Only at NOMi, it wasn't just the usual long weekend of late nights that has these millenial software engineers, entrepreneurs and marketers so beat-- it was a long weekend of work. Another long weekend of work.

"That's the funny thing about startups," explains Schuyler Brown, vice president of marketing at NOMi (pronounced "know me"). "There's no weekend, there's no time off. You are constantly understaffed. There are never enough hours in the day and there are never enough resources."

But that, he says, is just one of the realities of startup life -- and one that all 58 of his coworkers signed up for without reservation.

NOMi's Bluetooth beacons bring the advantages of online shopping into the real world. Photo Unc Inc

For good reason, too. Everyone at NOMi seems to be pretty sure they are about to change the world, which is sort of a good motivator.

Since 2012, NOMi has been designing and installing cookie-sized beacons in shopping centers and stores along the east coast with the goal of digitizing and revolutionizing the real-world shopping experience.

It's a project combining existing sensor technologies with the Internet of Things, big data, cloud analytics and a bit of augmented reality -- basically a checklist of cutting edge technologies du jour -- to make the shopping experience at, say, brick and mortar J.Crew as personalized and customizable as it is on jcrew.com.

It's a cool idea that really does seem to have a shot at changing the world. If nothing else, the $13 million in investments it has raised since 2012 seems to point that way.

But it also begs an important question: Why NOMi?

And more to the point, with all of the multibillion-dollar startup deals making news lately -- Facebook's $2 billion purchase of virtual reality headset maker Oculus Rift, for example, or Google's $3.2 billion buyout of smart thermostat maker Nest -- one really has to ask: Why do these small-time startups keep beating the Ciscos, Googles and GEs of the world to the newest innovations and newest applications?

Why, despite the funding these established giants receive, the talent they hire, the innovative atmospheres they foster, do the best ideas always seem to come from startup nobodies popping up out of nowhere?

You can hear the same frustrated cry echoing in established R&D labs across the industry: What do they have that we don't!?

It turns out, that might be the wrong question.

A Clean Slate

"The advantage is not that the startup has better people or necessarily even a more innovative spirit," explains Paul Schwada, director of business innovation consultancy firm Locomotion Solutions. "It's what they lack."

Specifically, he says, it comes down to three things:
1. Precedent: Established businesses have been using highly constructed tools to solve the market problem for decades. That makes it difficult for them to envision -- let alone act on -- a disruptive new tool or method to solve the same problem.

2. Momentum: Usually, those highly constructed tools are expensive, and the established manufacturer's business is financially structured around the price point it sets. Disruptions can destroy those balance sheets.

3. Processes: Even if the established company can get past the precedent and momentum, they still have the tangled webs of legacy systems and processes to overcome. And that provides a significant agility advantage for the startups.

"Big companies are great at getting the innovation going inside, but the real trouble is getting it to the street," Schwada says.

It comes back to the flywheel analogy, he says. When a company is used to pushing on one kind of flywheel and gets the momentum going, it's difficult to suddenly start pushing in a totally different direction. A startup, on the other hand, has no momentum to overcome, no processes in place and no precedent to contradict, either businesswise or psychologically.

"It's not so much about getting the innovation thinking going inside the big companies, it's the practical steps to getting it into actual product development and then production and selling and all those things," Schwada says. "I think it's the bigger challenge for the existing, entrenched competitors."

Back at NOMi, Brown and his team are fully enjoying this advantage.

"The beauty of working at a startup is we are starting fresh with a clean slate -- there is no past product that we need to bring up to date or legacy mindset of how things are done here," he says. "When you are looking at a blank page, it's a lot easier to make really drastic decisions because there's nothing holding you back."

"You are creating something from scratch," he adds. "And I think that is very liberating."

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