WHAT IS MANAGEMENT

When I first started my company, I hit the business plan competition circuit for funding and feedback. At each event, I encountered the same question from a judge or a member of the audience: "This seems pretty simple, why doesn't [insert large competitor] just do this?" My response was always the same: "I don't know­--they just don't." The answer was always oddly sufficient, probably because the asker had no idea either.

That question ultimately became rhetorical, in the eventual sale of my company and in general observations on how big companies and startups act. Why do large companies more successfully acquire instead of innovate? They certainly have the talent, the money and the existing market share to launch startups with ease, yet they don't do it very well. What's clearly missing is something in their DNA, but also something in the numbers. As big companies look at growing internally or via a shopping spree, it's important to consider the underlying motivations and math.

People and culture: Startups require innovative entrepreneurs, and that typically isn't in a job description for a large company. Big companies hire people when the workload demands it, not when they can come up for air and think about innovation.

By the same token, people work for big companies when they want a stable paycheck, an eight-hour workday and projects lined up on their desk. Mechanically, the ability to break away from a billable workload to pursue something innovative requires significant buy-in and resources from managers. Those managers are likely evaluated by their higher-ups on the profitability of existing, not future, business.

Cost and organizational structure: Large companies simply can't compete with startups on a cost and execution basis. Organizational hierarchies slow decisions that could be made over lunch or beers in a startup, and established salaries and service providers create costs that would bury almost any early stage company. While startups beg, borrow and barter, large companies follow established processes, protocol and prices to accomplish the same things at a much slower speed and a heavy multiple of the cost.

Risk: Unfortunately, all of those extra dollars and time spent do little to mitigate the risks of the actual concepts and, unlike startups, big companies have a lot to lose. Failed internal ventures not only hurt the balance sheet, but the corporate brand companies invest significant resources in building and protecting. The only risk in acquiring established and derisked companies is overpaying. That premium debatably trumps the risk of having several internal failures to get something right. Like everything else in business, it boils down to math--mainly probability and statistics.