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Advantage, Smaller Companies

Small and midsize outfits are nimbler and faster than lumbering giants. To compete, the giants must learn to think small

When it comes to innovation, David almost always beats Goliath. We know you don't want to hear it, but it is true.

That's why while the rest of us are dreaming of the missed final exam, you keep having nightmares about the maverick company that is about to put you out of business with the industry-changing product or service that makes your beloved Goliath Inc. obsolete.

History shows you have the right to be worried. Whoever thought that GM (GM) would be struggling for its very existence while Japanese car companies thrived or a once tiny regional institution known as North Carolina National Bank would end up owning Merrill Lynch (MER)?

To allow you to sleep easier at night, let's examine three strategies that small and midsize company constantly employ against you, and talk about what you can do to counter.

David Strategy #1: Being Just Right Enough

There is an old axiom about business leaders needing to be right only 51% of the time. The practice of constant experimentation is as fundamental to research as it is to innovation; Try, fail, learn; Try, fail; learn; Try, succeed, repeat.

Ask most honest entrepreneurs, and they will tell you that even their business plan followed this pattern. When you are small, you benefit from a quick cycle of experimentation and learning. When you are big, the budgets, culture, and shareholders all stand in your way of following this pattern.

Small and smart companies understand the value of trial and error. If you are a Goliath, you may look at your innovation team and notice that nothing revolutionary is hitting the market. If that is the case, chances are they are afraid of failing. After all if nothing launches, nothing can fail, and therefore they can't be blamed. From a personal survival point of view, within a corporation it is better to kill an idea than to launch it.

You must demand small, controlled launches that allow your teams to learn, build courage, and taste success.

Imagine what would happen if you told your team that it was O.K. to break even, or (gasp) lose money in the short term (if they were reasonably sure they would learn enough from the failure to increase the chances of succeeding next time around?) Rather than imagining it, look down the street. That $100 million company is doing this to you right now.

David Strategy #2: Attack Tradition

Show us a mature business, and we will show you either a superannuated management team that wants to freeze time or an entrenched union keeping the company from doing what is necessary.

The fact is that if you are in a mature industry, you are surrounded by: inertia, habit, tradition, complacency, and "expertise," people who know the best way something should be done (i.e. it's the way THEY have always done it.) You've been in the room with these people. From their experience, they can give you 10 reasons why any new idea won't work.

This produces amazing opportunities for upstart companies to beat you with innovation. You need to look no further than insurance (all the Web-based firms), advertising (new media models), and airlines (examples too numerous to mention.) What do you do? The obvious answer is to slash bureaucracy; fire the people who are hindering progress, and beef up your innovation efforts. The less obvious course? Think like an entrepreneur and create a new company of your own.

David Strategy #3: The Approval of the King

Nothing maintains momentum like C-Level support. Unlike giant companies, midsize and small companies benefit from the involvement of the CEO. When the CEO sponsors an idea, you can bet it is approved in record time. Remember, the cycle: try, fail, learn. CEO support allows you to run this cycle quickly and often.

Most Goliath CEOs talk about innovation, but they simply can't be involved with the day-to-day innovation initiatives. If you are the CEO, you need to be involved. If you aren't the big boss, you need to garner as much upper-level management support for your new idea as possible. If you don't, the odds of nothing happening increase dramatically.

A final thought about strategies 1, 2, and 3: In the Old Testament, David picks up a stone and with his sling hurls it at Goliath, toppling an opponent thought to be invincible. There has never been a better metaphor for innovation. Which reminds us of a saying we heard the other day: Those who live by the sword will be shot by those who don't.

G. Michael Maddock is founding partner, and Raphael Louis Vit?n is president, of Maddock Douglas, a company that invents, brands, and markets products "for companies driven by innovation." .

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