Big Companies Aren't Geared For Innovation
When my co-founder and I built the first version of Aisle50, we were eager to start marketing it to potential clients. In our case, those companies were large consumer packaged goods companies, such as General Mills and Procter & Gamble.
To help our cause, we made a little video that addressed some of the problems with existing marketing solutions for grocery-centric companies. The video was funny. We used figures made out of popsicle sticks and a sound-proof box for recording that we found in the parking lot behind Y Combinator. Within the industry, the video spread quickly. When we emailed or called people, they knew about our company and what we were doing.
During our summer at YC, in 2011, we took a road-trip around the Midwest, at one point meeting with the head of digital marketing for Kellogg's. He had seen the video and enjoyed it, and liked our concept (subscriptions to CPG products at brick and mortar stores such as Safeway). But he wasn't about to do it. Most people at big companies aren't incentivized to take risks—even calculated ones. Running a promotion with an unproven startup, like us, was a risk.
As our YC summer went on, we pitched company after company on our application, hoping to land one client, any client, before demo day, so we would have something to talk to investors about. We flew to trade shows all across the country, pitching and pitching. We coded in the mornings and at night and called and emailed people all day, hoping to break through and find a company that would give us the go-ahead.
We had a partner retailer who was ready to go, but we couldn't find a food brand. We offered to do things at no cost. We had second calls, we flew to offices and showed up unannounced.
Finally, on a day in late July, we met a company who was interested. The company was a startup itself at that point, and its growth story would go on to shake up the consumer packaged food industry unlike anything else during the last 20 years.
The company was Chobani.
So Aisle50's first real client was the Greek yogurt company whose product had swept through grocery stores, and proven so popular that shortages of it were common. After we ran our promotion with Chobani that August, a week before YC Demo Day, I had a conversation with its founder and CEO, Hamdi Ulukaya, who gave us great advice about building our company, and some interesting anecdotes about his own journey. He mentioned that he had received increasingly large buyout offers from nearly every single large food company in the United States, and had turned all of them down.
I wrote up my conversation my Ulukaya and put it up on Hacker News. It went to No. 1, and garnered our startup and Chobani a lot of attention.
Ulukaya is a billionaire now. He scaled yogurt—which requires cows, milk, trucks, processing, packaging, distribution and shipping, not simply lines in a database—at a pace that would challenge even the most nimble of software companies.
We later landed Kellogg's as a client, but it took a while. We also had business with General Mills, but it took an almost humorous number of meetings for that to happen, and we were established at that point.
All of these experiences came into clear focus this week when Fortune ran a 3,100-word story about how General Mills fell way behind in a space it once dominated: yogurt.
In short, General Mills has been pounded by Chobani, and the overall trend toward Greek-style yogurt that the company kindled. While yogurt has greatly expanded as a category in the grocery store during the last five years, General Mills has lost share. Not only that, but Mills, as industry folk refer to the company, has seen its yogurt revenue shrink as the category has greatly expanded. Yoplait's sales dropped 23% last year, Fortune reports, a jarring number.
“It’s no secret we were late,” Joe Moidl, the senior director of innovation for global dairy at General Mills, told Fortune.
The idea that General Mills even has a "director of innovation for global dairy" is striking. What, exactly, is General Mills innovating? Basically nothing. Innovation is not in the company's DNA. It's not in most large companies' makeup, for that matter.
Bias Against Creativity
Tomas Tunguz, the prolific blogging VC at Redpoint Ventures, recently wrote on this exact thing, that many companies, while espousing the values of innovation and creativity, in fact subvert it at every turn. "The cost of failure is real" Tunguz writes, "a manager who supports a creative idea bears some personal career risk."
That well sums up the effect we so often saw when running Aisle50. We'd pitch to executives and managers who loved our product, saw its virtues and then, without a second thought, turned us down. Too much personal risk. A manager at General Mills has zero reason to take a chance on a startup or on a product that's truly new to the market—something like thick yogurt that costs more money to make and tastes sour to American palettes who have grown used to products spiked with corn syrup from manufacturers such as General Mills.
A careerist in a big company such as Mills has been trained to show up, please managers and do what's asked. That's how promotions are earned.
Moidl, the head of innovation for global dairy at Mills—an actual position—has been at the company for 20 years. Taking a 20-year veteran of a staid company and expecting him to inject creativity and innovation into a category now dominated by a startup seems futile, at least to this outsider.
Go in the back door
As evinced by my short tale above, pitching to big companies is often hard. There are few managers who want to step up and take on the risk of putting faith in and sending cash to a startup.
That being said, there now exists a sprawling ecosystem of SaaS startups who pitch businesses incessantly. Their tactics invariably target small and medium-sized companies first, because those accounts can be won more quickly, but their ultimate success as software entities will be determined by their ability to land big companies.
Twilio got to an IPO because it had landed a critical mass of big companies. Its success going forward requires it to hold onto those clients, and innovate enough that it's not commoditized by other vendors such as AWS. Slack (an FC portfolio company) has reached its multi-billion-dollar valuation by also getting into big companies. But Slack found its way in through the back door in many of those cases, which can be the most effective way to get major accounts.
Slack teams can be as small as two people. Oftentimes, small teams at companies would collaborate on Slack, using the free version, which is rather robust in itself, and, as those small projects expand and more people in the company get folded in, more people end up on Slack. Sooner or later, the CIO finds out and makes the company a paying client.
Gitlab founder Sid Sijbrandij has talked about how his company has benefited from the same kind of evolution: smaller teams of engineers use Gitlab for a specific project and the software gains steam inside the organization from there, finally ending up, again, at the desk of the CTO or the CIO, who isn't likely to purge a tool that his team has started using organically.
One of the more successful ways our sales team at Aisle50 got early footholds with big consumer packaged good companies was by converting regional salespeople. These employees have a lot more independent latitude on how to increase sales in their region, or at particular retailer chains. More important, if these people in sales do something that doesn't work well, nobody up the chain ever knows much about it.
Our salespeople would sometimes work with people at this level of a big company, and then take these smaller successes and say, "this thing is already working for you," into the offices of VPs at corporate. It was a way for us as a startup to mitigate risks for executives ahead of time.
Big tech companies are often different
Many of the executives at places such as Google, Facebook, Amazon and even Microsoft still have the spirit of innovation pumping in their blood. The founders are still in place, in some cases, and the genealogy of the company reflects the success of innovation and new products that live in the memory banks of many of its employees.
Microsoft or Apple will certainly behave in a far more risk-averse manner than a startup, but they know what innovation looks like, and they're willing to put risk-takers in strategic positions. Innovation is a strategy that's core to their mission.
It's also why these companies are constantly acquiring startups who have mastered newer methods and technology frameworks. A social media platform can lose momentum a lot quicker than Cheerios will ever lose its diehard customers.
Christopher Steiner is the founder of ZRankings, and Aisle50, YCS11, which was acquired by Groupon in 2015.