In the past few years, the world has seen how information and communication technologies have evolved. Starting from the ’90s, when desktop computers first appeared, up to today, when compact, handheld devices such as smartphones and tablets, or even wearables, are common.

Today, enterprises have perceived the need to adapt to the new emerging technologies, such as predictive analytics and real-time sensing, to continue improving their performance and offering.

According to a report titled Tech Giants, Corporations and Disruptive Start-ups by the multinational consulting firm Everis: “The path of innovation cannot be [walked] alone. Tech giants and big corporations have a heavy structure that does not allow them to follow the innovation path as easily as start-ups can. They have consolidated business strategies and good positions in their market. A great amount of resources is invested in their R&D departments to face the challenge of innovation and to explore new ideas and solutions over their own products and services. But nowadays, thanks to technological advances and the low cost of technology anyone can try to start their ‘innovative’ business creating a start-up.”

START-UPS VS GIANTS
Start-ups are very light in their structures, with few workers and smaller cash amounts. Usually, they have only one advantage: a bagful of fresh ideas. The problems arise with the need for start-ups to improve their products and when it’s time to pitch to market. They need resources from somewhere to succeed and to create a good impact on society.

It is at this point, the Everis report says, that tech giants and start-ups start their relationship. Start-ups get resources to continue creating and tech giants get fresh ideas to incorporate them into their products to expand their market strategy.

Taking the example of the insurance sector, the report notes that start-ups are crucial actors in the digital transformation of insurance, enabling the creation of new products and business models based on the Internet of Things (IoT).

This has led to the appearance of new start-ups that offer innovative solutions and the consolidation of existing ones, providing benefits for insurers and customers. They are challenging traditional businesses with customised offerings.

Compared to other non-digital companies, new start-ups are competing with light structure costs through the intensive use of technology and efficient use of resources. Additionally, they are operating under new business models that promote disaggregation of core processes and optimisation of the actors involved in the value chain.

In this new insurance environment, technological giants are the other key actors in the transformation of the sector. These tech giants use their economic capabilities to access new technologies that they cannot develop on their own, to complement their solutions already integrated in the sector or to boost their presence in new business, opening the way to the development of new products and the redefinition of smart insurance policies.

Most of the times, the relationship between big corporations and start-ups ends up with a revolutionary new product or service and new business strategies for the big ones.

EARLY CATCHERS
Start-ups are entering the IoT market with a strong footstep. They have been able to adapt and innovate in this new era, building disruptive business models and new capabilities. The growing and competitive market of smartphones and computers has enabled a major decrease in the production costs and sizes of these kind of technologies and devices, without losing processing power – something start-ups have been able to make the most of.

Also, a report by the Business Performance Innovation (BPI) Network, a peer-driven thought leadership and professional networking organisation, says many of the world’s largest corporations are scrambling to transform and remodel their businesses because lean and inventive new start-ups with vision, ambition and a willingness to take risks are disrupting their markets, prompting acquisitions, restructuring and a new focus on innovation.

This is because the upstart disruptors are tapping into shared economy business models, agile and efficient cloud-based IT operations, Big Data insights and more digitally connected and socially influenced consumers to create new value and experiences.

The new crop of emerging growth companies are forcing large corporate incumbents to rethink and reinvent the way they engage more intimately with customers and make their products and services more accessible and available through all channels of interaction, the BPI research found.

THE STRATEGY
Apart from facing disruptive technologies, start-ups also need to optimise the performance of their sales force and learn how to cut costs while raising sales. A report by McKinsey, titled Beating the odds in market entry, by John T Horn, Dan P Lovallo, and S Patrick Viguerie, says: “The annals of business history report that for every successful market entry, [approximately] four fail. Inexperienced start-ups suffer some of these disappointments, but so do many sophisticated corporations and seasoned entrepreneurs who should know better.”

After all, the authors add, industrial economists and strategists generally agree about what makes market entrants successful: timing, scale relative to the competition, and the ability to leverage complementary assets, among others. Moreover, the magnitude and importance of entry decisions – encompassing everything from geographic expansion to new products to diversification efforts – should prompt detailed analysis.

The report goes on to note that the closer a company stays to its core capabilities and value proposition, the greater are its chances of mounting a successful entry. Additionally, it notes, some market entries fail because companies underestimate the competition. So how should start-ups decide their marketing strategy?

Every start-up dreams of having the billion-dollar troughs of Uber, the industry-disrupting business model of Airbnb or the brand recognition of Snapchat. However, according to a Knowledge@Wharton report, Shooting for Start-up Success? Take a Detour, the vast majority of tech start-ups are far from achieving the status or financial backing of these high-profile companies. Instead, they have to work harder to make sure their product or service makes it to market, whether they go solo or with a corporate partner.

“We have these ‘unicorns’ and ‘decacorns’ [start-ups valued at billions of dollars] that everyone recognises as being disruptive and whose valuations are incredible. But for most new ventures, there’s going to be a healthy amount of scepticism [about their business models],” says Wharton management professor David Hsu. “A lot of times, entrepreneurs believe they could just jump into a particular way of commercialising or making money from their innovations. There are two dominant ways: one is entering into the product market directly and competing with others, and the other is a partnership type of strategy. The problem is, each of these strategies might not initially be feasible.”

This means a start-up might want to sell directly to customers, but lack the necessary supporting infrastructure in terms of marketing, distribution and services. The business doesn’t have these “complementary assets” because it cannot afford or does not know how to build them by itself.

Conversely, a start-up might prefer to license its technology to a big corporate partner, but cannot land a strategic alliance because its product is unproven. These are two scenarios that can trouble many start-ups. Hsu says start-ups should consider taking a strategic detour if a direct path seems unattainable at first. While people might see victory as a straight ascension, sometimes the road to success goes sideways before going straight up.

The head of Performance Marketing at dubizzle for MENA and Pakistan region, Shanil Jagatia, says: “Your media plan and tactics should support the path to your ambition, with your team and stakeholders all being in sync with it. A detractor or partially committed team will not drive success at the pace you need and may disrupt progress. Instead, direct the team’s energy on being persistent, fast and innovative in a collaborative manner, with your key objectives in mind.”

The speed at which you spur growth is important, he says, adding that firms should remember it’s not just about numbers, but quality too.

INTERVIEW:

“The role of early adapters is key”

Prof. Ramesh Jagannathan, MD of startAD, the innovation and entrepreneurship platform at NYU Abu Dhabi, says start-ups in the UAE and the GCC are well positioned to lead the global entrepreneurial economic transformation

How can start-ups in the Middle East deal with disruptive technologies? Are these a challenge or an opportunity?

Disruptive technologies, first proposed by Prof. Christensen at Harvard, by definition are “game changers in the marketplace” and, usually, the market for them is not readily apparent. They usually take a different – generally, a much longer – path to success.

The role of “early adapters” is key to driving innovation in this space. Since disruptive innovation falls in the high-risk/high-reward category, most big companies are not ideally suited to develop and support them.

A good example is Kodak and digital imaging. Even though Kodak invented the first digital camera, it was considered “bad for chemical imaging business” and the rest is history.

What are the major challenges being faced by start-ups in the region?

There are many, but it is not necessarily a negative. Yes, it is an emerging ecosystem, we do not have enough capacity, the regulatory infrastructure needs to change significantly, etc. But to me, it is a strength, because we do not have the so-called “legacy thinking” to hold us back. There is a “hunger” to transform from the “oil economy” to an entrepreneurial economy and we have a “clean slate”. With strong leadership and significant financial resources, we could borrow the best practices from the West and have an agile strategy to guide this transformation. Moreover, there are already signs of change – there have been significant top-down initiatives and changing regulations that are making it easier to do business in MENA.

For example, the Banque du Liban Circular 311 in Lebanon gives an incentive to banks to invest in start-ups by guaranteeing up to 75 per cent of the investment. Also, in the UAE, along with proposed changes to the bankruptcy law, there have been recent changes to how VC firms can operate, allowing for greater transparency and protections for start-ups.

Are start-ups in the region losing relevance in the face of challenging economic conditions and the rise of similar start-ups with no marked difference?

In my opinion, the GCC region and, more particularly, the UAE are well positioned to be leaders in driving the global entrepreneurial economy transformation.

Let me explain. As traditional wisdom would suggest, the world’s economic engines are powered by the economic health of the “middle class”. The 21st century middle class is going to be 4.9 billion strong and three billion of them would be in India, China and Africa. There is a void/white space and the start-ups from the UAE and the GCC countries are well positioned to fill this void and lead the global entrepreneurial economic transformation.