Being long on innovation – part 2: Thriving under the shadows of giants

By ssyc1
September 14, 2018
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[Addition on 24 Oct: adding a link to an a16z blog-post published not long after on the same topic highlighted in point 5 below, that selling in the early stages of creating a market “isn’t just selling”].

[This post is part 2 to our earlier “Thoughts from the trenches: being long on innovation”]

We often get the question: can we be long on innovation (or more specifically can young and small disruptors survive with their disruptive innovations) in the shadow of the big guys?

As venture investors, we are acutely aware of the dominance of the FAANGs and the BAT in the US and China tech scenes respectively. Indeed, a report published earlier this year by Itjuzi estimated that among China’s 124 “unicorns”, 50.8% are controlled or backed by BAT (English write-up here and Chinese original in full here).

A most enjoyable summer re-reading of the very popular Chinese wuxia novels has been instructive with a few “refresher lessons” on how to live and thrive and emerge and disrupt under the shadows of giants …*

If the “universe” is large enough and growing fast enough, there should be room for the emergence of new players.
Be super aware of what your strengths are, cultivate and build personal or company “brands” around these. There are advantages of being small and the underdog: we all have our weapons, and wulin (aka the world) is filled with all types with a wide range of (sometimes very specialist) weapons (whether it’s wheels, knives, staffs, swords, whips, rulers, ribbons, rings, sabers, needles, or something else). One must know oneself and one must know one’s opponent too (and sometimes avoid direct confrontation – see 3).
Step up in areas or situations where you may have or find allies but avoid direct fights where you are outnumbered or unlikely to win. Try to conserve your “chips” and avoid situations where you may win the battle but lose war. Be super-focused on the vision while adapting all the time on the tactics and execution.
Advantages of being small and the underdog part 2: you can find areas to serve all 3 giants or where appropriate play one against the other. Be resourceful and nimble (which is a big part of what “entrepreneurial” means afterall!).
These 3 final “wuxia lessons” are irrespective of whether there are giants and shadows cast by them or not: create the “institutional infrastructure” or “soft infrastructure” and help build the industry and support collaborative initiatives (e.g. education and training, industry associations that reduce “externalities” like “information costs”) at the same time you are building your company, as the wuxia masters who had a lasting legacy did. We will delve into this with a range of examples in a next post.
“Training” comes from “learning by doing”: having a good teacher is great, having a good advisor is also good, but nothing beats practicing and training and diligence and discipline (i.e. do, do again, do better). There are no short-cuts.
Your cofounders are so very important – wow, so many betrayals that make for dramas in the stories but while the storyteller and historian never dies, a sect’s success can be put back by many years after a big internal fight – make sure you have the right partner.

Every successful disruptive company has posed a threat to existing larger companies; the rise of every new industry have taken place in the shadows of an existing established industry or industries**. It is all about how to win as a small underdog (often with fewer resources, though not always).

Come to think about it, this is probably what venture investing is about too. Almost all of the above points are relevant to us: certainly 1, 2, 5, 6, and 7 are, while 5 is also very important if you are pioneering a new asset class or are a more “specialist” fund funding young companies creating a new industry or group of industries. A collective failure will be a step back for you too.

As a final point, we do not wish to minimise the effect of having giants or the need to think about the changing landscape. What matters is that data do show many markets having become more concentrated in recent years (at least that’s the case of the US markets while the effects are less strong in the EU, for example). There is one positive factor: the decline in the cost of starting a company (due to the internet and its enabling tools and technologies). Scale-up, however, is another matter.

* The comparison is actually quite an apt one: the wulin is somewhat an “underground” world and is certainly not part of the “establishment” of the official world of empires and palaces and rulers and officials who are the “authorities”, and its heroes are often considered ordinary folks, mere “mortals” who are driven to leave a legacy and become “immortal”.

** A recent IPO reminds us of this once again: Dropbox’s success and a well-known VC’s admission of his thoughts that Google will kill them is instructive, and the company even managed to take a few turns before finding “product-market fit”, all while working under that shadow of the big guys.