Visiting Silicon Valley is not just about getting the latest information on artificial intelligence, blockchain or any of the other technologies now making waves. The real reason for corporate executives to make the trip is an abstract one: the poor historical record of big companies when it comes to responding to disruption.

Disruption is now a normal part of the business environment. This phenomenon goes under many names; Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, calls it the Fourth Industrial Revolution. American entrepreneur and multi-millionaire Steve Case has described it as the Third Wave of Innovation. Whatever the label, the idea at the heart of these theses is that new technologies are rapidly reshaping the physical, digital and biological worlds.

Big companies need to respond to these changes and most have started. But generally, they have always been inefficient at doing so. The problem is that they are designed by their very nature to satisfy the needs of their current customers. This leaves them open to being blindsided by new markets and new customer demands made possible by new technologies. The upshot is that if they are not careful, they will be outmanoeuvred by competitors or new entrants.

Where does Silicon Valley come in? The only way for corporations to respond to the disruption now taking place is through entrepreneurship. They must adopt the methods of the entrepreneur who is not afraid to make something new, take it to market, listen to customer feedback and then iterate on the product until it meets the needs of the consumer. Silicon Valley is the capital of the world when it comes to putting this thinking in to practice. It is the only place on the map where corporates can see up-close and in real-time how entrepreneurial thinking works when it is applied on a daily basis to the running of an entire company.

These companies are called startups when they are at an early stage, but even Silicon Valley’s biggest names like Facebook and Google are highly entrepreneurial in the way they operate. In the tech hub what links the giants and the minnows is that they were all forged under conditions of uncertainty, innovation and disruption; exactly the same circumstances now being faced by the world’s legacy businesses. Thus big, established companies must come to Silicon Valley to learn not just how to withstand these pressures, but flourish when subject to them.

The Silicon Valley way

The principles of working according to an entrepreneurial mindset are so well known as to be practically clich?. Most corporate executives will have read about them in books like Eric Ries’ 2011 The Lean Startup. To recap, they include things like:

• experimentation
• iteration
• failing fast
• pivoting

In 1995, well before Ries’ work appeared, Clayton Christensen and Joseph Bower argued that corporations should take this approach when confronted with disruptive technologies even though doing so is challenging. They explained how corporations need to experiment with the technologies in order to understand their potential customers and markets. This is market information which, without experimentation, would not exist.

The academics wrote:

Managers can create this kind of information only by experimenting rapidly, iteratively, and inexpensively with both the product and the market. For established companies to undertake such experiments is very difficult.

According to Christensen and Bower, one of the best ways to overcome this difficulty is to leave experimentation to startups but keep abreast of their progress. This is where visits to Silicon Valley come in, as they allow for the kind of contact with the world of innovation which is vital if big companies are not to be overtaken by new entrants. As Christensen and Bower put it:

“To avoid allowing small, pioneering companies to dominate new markets, executives must personally monitor the available intelligence on the progress of pioneering companies through monthly meetings with technologists, academics, venture capitalists, and other nontraditional sources of information. They cannot rely on the company’s traditional channels for gauging markets because those channels were not designed for that purpose.”

These days, corporates are not satisfied by simply farming out experimentation to startups. Instead, they actively invest and partner with them. Others have taken things step further by setting up their own innovation labs. Whatever the approach, regular contact with Silicon Valley is an essential ingredient.

New, possibly improved

Thus it is only by visiting the world’s tech hub that big company executives can really understand what it means in practice to apply the principles of entrepreneurship. This is essential knowledge because entrepreneurship is the only way to respond not only to the challenges businesses face today – in the form of digital transformation and technological change – but also to the ones they will face tomorrow which are as yet unknown.

This lesson was quickly assimilated by executives from International Vitamin Corporation (IVC) when they took an immersion tour with SVIC. The group’s program included meetings at both startups and well-established businesses. The executives saw not only high technology solutions to IVC’s pain points; they also experienced the culture of Silicon Valley and discovered opportunities they never  knew existed: 

“For IVC, getting a first-hand look at the work being done in fields like precision medicine by newly-minted companies was both a wake-up call and an inspiration. It provided a timely reminder that new competitors are always appearing, but also threw up unexpected avenues for potential mergers and acquisitions which could secure the future market position of the vitamin manufacturer.”

What IVC found is that being a part of the Silicon Valley ecosystem produces advantages impossible to emulate from afar. Only in person can a company cultivate contacts, take meetings and get to know the startups and entrepreneurs experimenting with what could be the next Uber or Airbnb. When disruptive technologies are accelerating the pace of change as they are now, it is crucial to have a grasp of these “facts on the ground”.  

Change is perhaps the only constant organizations can be sure of. The very notion of entrepreneurship is itself fluid and subject to constant redefinition. What does it mean to run a company today? Nowhere more than in Silicon Valley is that question being asked, and then answered in countless ways. Corporations must see for themselves what those answers are and what they can learn from them. Otherwise they risk having those answers destroy their business.