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Why Big companies struggle to do the startup thing in MedTech

Some of this may surprise you... some of it you may well agree with, and some you may violently disagree with. But following my experience having worked for years within the big companies and then years out in startup land, my observations lead me to theses thoughts. (and more)

Why big medtech companies fail to be able to do a startup in medtech
Why big companies struggle to do the startup thing in MedTech

Innovation vs Iteration

The word Innovation gets bandied about a lot, especially in management meetings. But in my opinion it often gets mixed up with iteration. My experience has led me to believe that in the big companies there is a true desire for innovation, but their real strength is actually iteration. And they are very good at that. A longer reload, a faster cutting action, four new variants for different population groups. The entire structure and mentality is based around a mid single digit to low double digit growth pattern (which I strongly believe favours iteration not innovation). Iteration of products gets those KPIs all day long. It's pretty low risk and medium reward. Most people don't generally get fired if the slightly bigger handle is delayed coming out by six months.

On the other hand - I've seen lots of people get frowned upon for trying to innovate - create a new category - fail (because of a lot of the stuff below) and some lose their jobs. And that then sends the signal to the rest of the organisation to not take any more risks. Sorry to say, but for real innovation you need to take massive risks.

Instead, startups have nothing to iterate - they really are in that white space. For the startup there is no ten year old product portfolio to iterate and to fall back on should it all all apart. Instead it is go big or go home. Their ONLY purpose is to innovate. So the entire mindset of the startup is just about innovation and more so... a pure focus on that innovation. The risk is massive, I've seen people lose their houses, college funds and more. Not just their job. If the innovation fails - then the company is dead and the team loses everything - job, salary and all the equity they were building. It's ultra Darwinian. 

For the big company the priority is "keep the current business healthy with steady growth" and a small piece of that equation is product line refreshes for incremental growth. Which naturally leads to the bias for iteration. It's way safer. I'll cover this more later.

The type of people in those environments 

in my book there are generally big company people and there are start up people. Often there are potential startup superstars in big companies just waiting to escape; that eventually through frustration bust out and strike it alone. They often get tired of the "promise of innovation" and then see iteration dressed up as innovation. If they have start up in their DNA... eventually they will go to Startup land. It is rare that startup people can go back to big companies and thrive. I've seen absolute world class startup people be acquired in to the big companies - and most of them leave in two to three years. Frustrated. I've also seen big company folk arrive in startup land and ask "where's my assistant to book my travel?" They don't usually stay around for that long.

These are of course generalisations: so forgive me.

What I have seen is that "Big company" and "Mid company" people have a very different profile than what I see succeed in startup land. Generally they like to work within well ordered systems, have more security, more surety, predictability, and know that no matter what a pay cheque arrives at the end of the month. They run the machine - not build and then run the machine. Everything is established and systems are in place. They understand really well how to service the customers, they are masters of popping product iterations into the distribution engine and watching the same play book work time and time again. They are steady, stable individuals that know how to do the day in day out repetitive single digit growth machine. They are great at quarterly reviews, financial reviews, and will deal with management courses etc. They like the corporate structure and all that offers. Iteration feels natural to them. They are professionals at big company life.

In the startups I've seen - most people are simply mad... But in a great way. They thrive in change and risk. Their focus is to rip up the status quo and disrupt. They like a different set of fires to put out every day. They live in the frantic and urgent to get things done before the money runs out. They like to build the machine from nothing. They have a sole purpose - to drive that innovation forwards to milestone after milestone. The enemy is "out there" not in the company. They hate politics, they hate bullshit and are utterly driven to have the idea, the company and the team thrive. Innovation is in their blood and they would love nothing more than their innovation to either spawn an entire new multi billion $ segment or totally disrupt a current one - smash the old and bring in the new. They don't mind that their mortgage is on the line, that next week they may not get paid (until the round closes). They are mavericks that shy from politics and meeting for meetings sake. 

Generalisations of two very different beasts. But with those two character types - how could the first group embrace innovation? And how could the second group calmly run a mothership? They can't. They are two different beasts. The first are made to iterate. The latter are made to innovate.

So the first clue for why big companies fail is down to the profile of the people in the company. And I can hear the groans of the big corporate managers saying "we innovate.". Yes - now and again an innovation leaks through by osmosis but it's not a systematic mentality that drives it through. Just like some start ups iterate. But it's not the sweet spot.

What do the people get rewarded for 

So now you have that profile of team member in the organisation. You have to look at the reward and punishment structures in those different organisations to understand the motivators for behaviour. You are what you reward was said to me many many many years ago.

In the start up your are only rewarded for innovation. It's all or nothing. If your product doesn't innovate enough - disrupt enough - change the dial enough - it dies. If that product dies... guess what... the company dies. You lose your job, your investment, the years you put in, the equity and you walk away with nothing but lessons and scar tissue. And this happens 75% plus of the time - it's normal. So the intrinsic motivation from the startup is taking all or nothing risks - push the envelope - disrupt - smash the old business models - do what it takes for your innovation to win, and you and your company to survive and grow at massive rates. If it fails then everyone loses their jobs 100% on that very day.

Now let's look at big companies. You are primarily rewarded for protecting the massive business, and growing that base of business a few points each quarter. Your are on the quarterly clock and you need to be totally consistent. Your pay is linked to the health of the whole company, but with personal management achievements. Now if you are even allowed to stick your neck out and try to innovate. What changes in that reward system. "Oh we offer bonuses for best innovative idea of the month competition." WTF!? There is an annual bonus and we put a line in there for innovative ideas. Oh come on!

If that innovation flops (as so many do in big companies) the failure is smoothed out as a rounding error. A few people may get shuffled around and a couple of people that really goofed may be retired, or put on garden leave. But the vast majority of people in that company keep their job, keep their salary, sales continue to roll in and life continues. Very rarely does a big MedTech company go under because an innovation project failed. The company is not utterly punished with death due to failure of the innovation.

So now we have perfect storms brewing - the type of people in a big company and how that company rewards them (ad for what) And the lack of terminal punishment for failure to innovate. But they get fired if they miss the 3% sales growth number though. You are what you reward and motivated by the sword that you die on.

"But if a competitor innovates and takes a big piece of the market share." Then the big companies do what they are great at - they go buy a competing startup when most of the risk is gone. They are often better to spend more later when the innovation is proven out, than to put less money into their own innovation programs that they are incapable to make work. I think they should just stop trying to be innovators; take that money and put it to M&A.

But we have a skunk works (Startup)

I won't assume everyone knows what a skunk works is. So briefly it's a covert R&D team set off as a small group to innovate into white space. Left alone with less rules, less oversight and they are allowed to even think about disrupting the mothership's main business. (In theory until they come to the quarterly business reviews to report on progress.)

And then a bad quarter rolls in for the franchise and finance takes out the red pen and ..... who goes first? The innovators and their projects that bring no cash in for the next five years, or the sales team that will drive more sales next quarter?

or worse... this team innovates and enthusiastically comes to the company saying. We have something that will wipe out our current $3 billion cash cow. Now it's gonna cost the company a fortune to move the market to this way (way more than we spend on milking the current business), it's gonna be very high risk, it's gonna maybe put many of you out of a job because you won't be able to deal with this shift - you don't even have the skillsets to deal with this. It has a 50/50 chance that it could bomb and not meet the expectations - and by then we will have (of course) screwed the current business. But hey... who's for green lighting this?

Those skunk work teams are often the disillusioned innovators that then come out into startup land.

I would advise any big company to outsource (as they do through their venture arms) innovation projects. Do it more, and don't try and do skunk works in house. Two different cultures.

Protecting the cash cow or killing it off 

So this above is the nub for me of why the big companies cannot or often will not innovate. The skunk work example may seem over exaggerated - but there are deep grains of truth in the protectionism of the current business. Which is often the right thing to do! (Today). I think Kodak, Nokia, Blackberry (RIM) in another sector may now think differently.

The big companies must protect their current business and share holder value - on a quarterly clock. And that is their primary goal.

The start up must innovate a future business or die. That is their only goal.

These two opposing philosophies cannot exist within the same organisation. But what about Apple?... they innovate. Not in my mind. They buy in much of their innovation. They are often second or third to market but with great iteration and ecosystem integration. They have brilliant engineers for taking ideas - combining them, and putting those innovations or ideas from outside into well made packages through their channel. And that is where I'm pointing this symbiosis to - Between startups in MedTech and big companies in MedTech. It's started but the clear division between the two roles is still way too blurry inside the big companies. And the startups are not thinking enough to the commercialisation.

The problems gets amplified when big companies do take innovation inside their company and framework via M&A. And if that product is not quite at its peak - they can easily crush it. The startup is the people. And too many times the big companies take that flame of innovation and immediately try to fit it (and the team) into their iteration models and company processes. The talent leaves because the reward changes - the day to day changes - the rules change - the constraints change to fit the big company excel sheets. It is not who they are.

Protecting a multi billion $ cash cow is at odds with letting the innovation flourish. 

Some recent deals I've seen give me a glimmer of hope that the big companies are understanding this (Of course they inherently do.) Some are even starting to live this. They are taking in the innovation... but then leaving them alone with their own rules.

Which comes to this. A more positive slant. 

(Damn I'm getting grouchy as I get older)

Both are great - but at different things

These two worlds can coexist and be symbiotic not adversarial. Because of all of the above, startups are amazing at doing what they do. Big companies for all of the above are amazing at what they do (but could focus on that even more).

The startups should be helped and supported by the big companies. Because they don't have critical mass, channel, and infrastructure that is massively expensive to build. They often struggle for cash. But they have innovation in their DNA.

On the other hand the big companies have channel, mass, money, resources but have big company thinking, rules, excel sheets and reward systems that cut across innovation at 90'.

The two worlds need each other and should work out more and more business models (M&A) where the two get mutual benefit without hard integration - without crashing the two worlds together. Startups need to be thought of like the black boxes in AI. The mystery of how the innovation gets through needs to be just that to the big company. But when the product plops out of the other end... the big company can finalise it and make it a great solid product, help with mass production and cost reduction. They can market the shit out of it and pump it through their vast and established channel machine. They can then do the iteration and bring out the sport models...

I don't believe that big companies can genuinely do startups. I also don't think they should try to do startups... it's not their bag. On the other hand I think most startups fail because they can't do the serial production at cost, and can't do the hardest part - commercialisation at scale.

If both sides get this symbiosis right - more innovation will get through, faster and survive the infant mortality stage of product launch. Big companies will get a pipe of innovation, and some of those cash cows they own will get killed... but by them and not by the competition. 

If you're interested in MedTech startups then take on the full 100 video course (in the menu above) that gives a super deep dive into how to start up in MedTech.

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