It seems accepted wisdom that smaller software companies are better at innovation than larger firms! But, is this really true all the time?
It goes without saying that start-up firms produce breakthrough innovation. This is because they have no existing customers to worry about or existing markets to defend. They are free to start out on a clean slate, tap the latest technologies and drive innovation aggressively. Three things could happen now:
(A) The innovation is not successful, which means they are still free to tinker around with breakthrough ideas (until they succeed or close down)
(B) The innovation is successful and they get bought out by a larger firm.
Acquisitions like this catch the eye and contribute to our perception that small companies are the drivers of innovation.
(C) The third alternative is where the innovation trap lies. Let’s assume the innovation is successful and the market accepts the product. Suddenly, all those sharp engineers who built the product are stuck dealing with and satisfying all kinds of mundane customer requests. Before you know it, feature requests (and of course, bugs) flow in and there is no time for anything else. The same engineers who were at the cutting edge when building the product start to fall behind because their very success keeps them busy enhancing the existing product, but no longer innovating.