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Outside-In is the New Way to Win

Rather than trying to take on increasingly large and powerful companies, a better strategy is to make your firm essential by fusing with their infrastructure.

I have been talking for several years about the increasing power and economic value of building and aggressively deploying proprietary platforms. It has become clearer and clearer-; as we see the growing dominance of the major tech players-;that this oligopolistic trend will continue largely uninterrupted. That is, unless the government decides to interfere and possibly try to break up some of these businesses, which would be unwise, I would argue, given what happened after the attempted breakups of AT&T and Microsoft.

Whether you call them FAMGA or FANGA and regardless of which of the four, five or six tech giants you include in the current mix (does Google get a second slot for Alphabet? Do you prefer Netflix or Microsoft?), the impact that these monster entities are already having on our businesses and lives, especially going forward, is more than a little frightening. Frankly, our best hope is that the big guys are so competitive that they will keep each other in check and relatively honest-; although there is little evidence of that happy outcome to date. Right now, Google still owns search, Amazon dominates e-commerce, and Facebook and Google have pretty much split digital advertising down the middle.

Nonetheless, as an encouraging example, at least in the short term, you might take some solace from Amazon's immediate actions to reduce prices at its newly acquired Whole Foods division. Google's teaming with Walmart to help both compete more effectively with Amazon is another ray of hope. FedEx using Walgreen's stores as depots is a further instance of what I have called the PxP (platform to platform) program, which basically amounts to paying someone (in some form or other) who has already built a platform or other effective distribution channel to send your goods and services down the same pipeline.

Frankly, our best hope is that the big guys are so competitive that they will keep each other in check and relatively honest-; although there is little evidence of that happy outcome to date. Right now, Google still owns search, Amazon dominates e-commerce, and Facebook and Google have pretty much split digital advertising down the middle.

This shared channel strategy has extremely compelling economics. Players avoid the costs and risks of trying to reinvent the wheel; they're able to move into the market much more quickly than if they had to build it themselves; and the platform provider gets to amortize and offset some of the initial costs incurred in building out the system in the first place. A nice deal if you can get it and basically a win-win for both parties. Of course, if it's just the big guys partnering in cross-industry strategic alliances, it doesn't really help us peasants. As I like to say: when the elephants dance, the grass (that's us) takes a beating.

But the real question is, how does a startup play in this space?

The answer may be an interesting new development that offers some very exciting opportunities for smaller and newer companies that grows out of a different directional view and a new perspective on the platform theory. Instead of looking at a specific platform as an attractor-; extended by the creator/builder out to new potential users-; which I call the inside-outside approach, I'm seeing more and more small startups approaching bigger organizations with an outside-in pitch that seems to be gaining considerable traction in a number of areas.

As I like to say: when the elephants dance, the grass (that's us) takes a beating.

These new businesses almost all make the same pitch to the big, old, traditional firms: a) we built a clean, new system from scratch (no spaghetti code or hair on our baby) to solve specific, known problems; b) we move much faster than you can because you're lugging all that legacy load along with you; c) the people who built your systems won't break them or blow them up-; they're believers in Band-Aids and duct tape, not clean, new solutions; d) we have the talent and skills in critical new areas (machine learning, for one), which you can't buy, hire or otherwise afford to add to your already enormous IT departments; and e) solving this particular problem is No. 1 on our list. In fact, it's all we do while in your shop it's lost somewhere in the pile of problems that your CTO and CIO are trying to manage. I'd say these are all pretty accurate observations and very convincing arguments. So how does it work in practice?

Two recent examples that I've seen-; both in the human capital space-; are instances of taking the existing resources, skill sets, and technologies of a startup and extending them into a larger entity to expand, enhance and eventually replace existing and badly antiquated legacy systems. It's outside-in and eventually, in many industries, it's going to be the most effective way for startups to win.

The basic idea is to seamlessly integrate: (a) incremental gig economy resources that were previously thought of as being exclusively outside the big business, such as fresh creative talent or additional skilled and technical workers, callable on demand, with (b) the internal resources and talents of the big business which, as often as not, the big business itself does a lousy job of identifying, organizing and utilizing because its own HR systems don't have that capability.

In many respects, this situation is another version of the old problem of a company that doesn't know what it knows. (See How KnowledgeHound Sniffed Out a New Platform.) In these cases, the big businesses aren't able to marshal their internal resources quickly and effectively so they end up unnecessarily turning to third party vendors on a project basis. They also pay for services their own people could provide more cost-effectively if they had been "visible" within the organization.

In one case, the personnel need was literally bodies to staff events; in the other case it was creatives needed to execute and complete projects in a timely, professional fashion. In both instances, the costs to the big businesses were secondary, not because that made good economic sense, but because the immediate demands and absence of good information afforded them little choice but to pay up if they wanted the jobs done on time.

While the third-party startup vendors were happy to take their money, the far better strategy would be to suggest to these "buyers" that the same outside software solutions built by the startups to manage their workforces' descriptive data and scheduling could be used inside the larger companies to provide the same analytical and organizational capabilities for their own employees. By melding the internal and external workforces into a single, readily-accessible resource, each time there are specific personnel requirements the buyers could quickly look over all the available talent inside and outside the business. They can then optimize their selections to minimize incremental costs and utilize all of their own people first. Then they can seamlessly supplement any jobs with the outside talent available through the startups' own workforces.

Not only could this solution be implemented easily and quickly without disrupting the big companies' existing systems, the startups are happy to add the internal employees to their systems for free. Why would the startups do that? Because it sets up an easy and immediate way to demonstrate the superiority of their solutions. It's also a Trojan horse because it gives them access to thousands of additional (albeit currently employed) creatives and other skilled workers who might very well be interested in outside or incremental work. Or even in new employment opportunities. Obviously, there are some ethical issues, but the main objective is the first-; for the startups to quickly show how effective their systems could be in better allocating resources, reducing outside costs, and actually being more responsive to both internal and external customers.

These kinds of shifts and penetrations from the outside in won't happen overnight, but because they initially operate in parallel to the status quo systems, they are far more attractive to the change agents in these big businesses because they don't really require anyone's permission. They basically can't be effectively blocked or stymied by the IT or HR departments. Even more importantly, the financial results are immediately apparent and indisputable. Ready or not, another big change in workforce management is heading our way.

Topics: Insights