Why big companies keep losing to startups—and what you can do about it

Big companies aren’t losing to startups because they’re making big, obvious mistakes.

In fact, many of them are doing exactly what business experts say they should—listening to customers, refining products, and focusing on growth.

Yet, despite all their efforts, time and again, they find themselves outpaced by smaller, faster competitors.

Why are these startups, with far fewer resources and experience, managing to win where the big players falter?

It’s not magic. Startups don’t play by the same rules. They thrive on speed, flexibility, and an appetite for risk.

While large corporations focus on optimising existing processes, startups are free to experiment and push boundaries.

This difference in approach is at the core of the Innovator’s Dilemma, and it’s something every major company has to grapple with, even if they don't always know how to tackle it.

The innovator's dilemma

The Innovator’s Dilemma, coined by Clayton Christensen, explains how large companies that focus too heavily on maintaining their current success often miss out on future opportunities.

It's not that these companies aren’t innovating—they are.

But they’re often innovating in the wrong direction, doubling down on what already exists instead of looking ahead to what's next. At Stone & Chalk, we’ve seen this play out repeatedly.

Large corporations often find themselves playing catch-up with the startups we support, despite having every advantage.

Why? Because startups aren’t held back by the need to protect legacy products or serve existing customers. They can chase new opportunities, test emerging technologies, and take risks that would make a traditional company nervous.

While big companies are busy perfecting what already works, startups are out there building what’s going to work tomorrow.

Consider Blockbuster vs. Netflix. Blockbuster wasn’t unaware of the shift toward digital streaming; they saw it coming. But their business model was deeply tied to physical stores and rental fees, making it difficult to pivot quickly.

Netflix, unburdened by any such baggage, embraced the digital revolution and disrupted the entire industry. By the time Blockbuster tried to pivot, it was too late.

The innovation S-curve

To understand why this happens, it helps to look at how innovation typically unfolds. It rarely follows a straight line.

Instead, it moves along an S-curve: slow and steady at first, then speeding up dramatically before eventually levelling out.

Large companies often find themselves at the top of their S-curve, where further innovation brings diminishing returns.

They’re still making improvements, but those improvements are incremental, not revolutionary.

Startups, by contrast, often operate at the bottom of the curve, making small but meaningful gains that may seem unimpressive at first. But as they refine their product, those gains accumulate.

And when they hit the inflection point of the curve, their progress accelerates rapidly, allowing them to leapfrog their more established competitors before anyone realises what’s happening.

Kodak is a prime example. For decades, Kodak ruled the photography industry. But when digital photography came along, they stuck to what had always worked—film.

By the time they recognized the full potential of digital, companies like Canon and Nikon were already climbing the digital S-curve. Kodak’s window of opportunity had closed.

At Stone & Chalk, we regularly witness this phenomenon. Startups often go through tough, uncertain early stages where progress seems frustratingly slow.

But once they hit that critical point, their growth can skyrocket, leaving even the most established competitors scrambling to catch up.

Today’s customers vs. tomorrow’s markets

Big companies have a lot of pressure to keep their current customers happy.

They need to keep sales coming in, meet shareholder expectations, and maintain the smooth running of operations.

However, today’s customers often ask for incremental improvements to what they already have—not the kind of disruptive innovation that redefines the market.

And so, these companies pour resources into making what’s already working a little bit better.

Meanwhile, startups have the freedom to look further ahead. They’re not tied down by the demands of existing customers, so they can experiment with niche markets and new technologies, taking risks that bigger companies can’t or won’t.

Take the automotive industry as an example. For years, major car manufacturers focused on refining internal combustion engines—improving fuel efficiency, reducing emissions, and boosting performance.

Then along came Tesla, a company that wasn’t concerned with improving the status quo. They were focused on electric vehicles—something that seemed niche and futuristic at the time.

But fast forward to today, and Tesla has fundamentally shifted the industry, with governments and consumers pushing for carbon neutrality.

Now, traditional carmakers are in a race to catch up.

We see this play out in sectors like fintech and healthtech as well. Large companies, focused on improving their current offerings, often miss emerging trends.

Meanwhile, startups in the Stone & Chalk ecosystem are already working on solutions for markets that don’t even exist yet.

Going beyond incremental innovation

So what can big companies do about it?

The answer isn’t to abandon what’s already working or to stop serving current customers. You still need to keep your core business running smoothly.

But you also need to recognize when you’ve hit the top of your S-curve and begin preparing for the next one. This requires a shift in mindset.

Instead of focusing exclusively on incremental improvements, companies need to carve out space for disruptive innovation.

This might mean setting up internal teams to explore new ideas, or it could involve partnering with startups that are already pushing the boundaries.

At Stone & Chalk, we’ve seen that the most successful large companies are the ones that actively engage with the startup ecosystem.

These companies don’t wait for disruption to hit; they anticipate it. By forming partnerships with startups, they gain access to cutting-edge technology and fresh perspectives, which allows them to stay ahead of the curve.

Look at Microsoft. In the early 2000s, Microsoft was heavily invested in its Windows operating system and Office products. But they recognised that the future lay in cloud computing.

Instead of doubling down on their legacy products, they made a bold move into the cloud with Azure. They also acquired startups like LinkedIn and GitHub, further expanding their future offerings.

Today, Microsoft is a leader in cloud computing, and their proactive approach has paid off.

Start collaborating early

If there’s one takeaway for big companies, it’s this: start collaborating early.

The companies that wait until disruption is already happening are usually the ones that get left behind.

By identifying areas where disruption is likely and forming partnerships with startups before those changes become mainstream, you can position yourself to thrive in the future.

At Stone & Chalk, we specialise in fostering these collaborations. Whether it’s artificial intelligence, blockchain, or sustainable technology, we help large corporations connect with the startups that are shaping the future.

These partnerships benefit both sides—corporates gain access to agility and new ideas, while startups get the resources and market access they need to scale.

Embrace the future

The Innovator’s Dilemma doesn’t have to be a death sentence for big companies.

With the right approach, they can overcome it and continue to thrive.

By recognising the limitations of their current strategies and embracing a more proactive approach to innovation, large companies can stay relevant even as the market evolves.

At Stone & Chalk, we help companies make this shift—from focusing on incremental improvements to embracing disruptive growth.

The startups in our space are already working on the next big breakthroughs. The only question is whether you’ll be ready to join them.

Innovation is always moving forward. The companies that succeed are the ones that don’t just react to disruption—they anticipate it, embrace it, and ultimately drive it.

Let’s build the partnerships that will keep your company at the forefront of innovation—together.