It Takes Money to Make Money
Before even setting out on the journey to introducing a new product, a small business has some concerns that a large organization doesn't. Venture capital, or the money used to begin developing a product or service, is harder to raise when you're a small business because the investors are betting on your idea, not a product with established sales. In contrast, an organization like Apple or Samsung can absorb or offset significant losses associated with developing something new. If you're a small business, securing this initial investment (and enough of it) isn't a challenge faced by larger organizations. To succeed, product development should begin only when the start-up capital is sufficient to see the project through to profitability.
When it comes to funding, it's not all bad news for small companies who are ready to innovate. Although large organizations have a large development budget in a gross sense, as a percentage of revenue, it's usually far less than a smaller organization. Small organizations are therefore able to pivot faster.
Capturing and Keeping Talent
If your smaller organization is preparing to embark on the development of a new product, you should already know where the talent is currently distributed and how. For example, let's say you want to release a new, high-tech smartphone. Bringing a new smartphone to the market would require a lot of expertise, and this expertise is almost certainly concentrated in the larger organizations that already exist. The limited start-up capital available and the inability to offer long-term job stability may become barriers in attracting the highest level of talent. When the best talent is already employed with competitors, joining the development team of a start-up might be complicated even further by the fact that many engineering and technical professionals working for large competitors may be subject to a non-compete clause - a restriction from seeking employment with competitors for a specified period - in their current employment contract.
What You Don't Know Will Hurt You
Large, established players often have a better knowledge of the development process in a generic sense and in a specific product sense as well. Companies like Samsung or Apple have developed multiple products from the ground up, and they have also developed highly sought-after smartphones over a period of two decades. To be competitive, a start-up would have to go toe-to-toe with a competitor who already has this real-world experience under their belt. Small businesses developing products must endeavor to learn everything they possibly can about their industry and about product development in general.
Losing the Brain Trust
No matter how hard an organization works to prevent it, knowledge silos abound. Knowledge silos occur when a single individual or very small group possesses critical knowledge or skills that don't exist elsewhere in the company. Larger organizations have few silos because a larger workforce necessitates more human interaction in all departments. In smaller organizations, the most critical knowledge in the company may rest in only one or two people. Smaller organizations must take extra care to create and enforce high-quality documentation standards to minimize the impact of knowledge silos.
Like everything in business, product development is a process that leverages the completion of multiple tasks to culminate in an excellent product that makes customers delighted.
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Lesson Summary
Small organizations face some unique challenges with regard to the process of introducing a new good or service into the marketplace, a process known as product development. While larger organizations may be able to self-fund their product development efforts, smaller organizations often require initial investments in a product or service that's only an idea. Cash invested before a product is fully functional is often called venture capital.
Larger organizations find it easier to attract and retain the best talent because they can pay more and offer better opportunities. Luring this talent away can be tricky because non-compete clauses often restrict highly technical talent from immediately working for a competitor after they resign. Finally, product development requires a fair amount of knowledge sharing. In large companies, knowledge is often spread out over several individuals. At smaller organizations, product development can be slowed or stopped by the existence of knowledge silos, characterized by critical knowledge being held by one or two people.
