Great SMEs - Big Fish Eats the Small Fish

Introduction

I love working with SMEs. They are the life-blood of the economy, and, like it or not, for all the big companies spend on R&D and innovation, it is the SMEs who often are the ones who properly innovate. The universities too in the UK, in IT, do not have a strong record too in actually bringing forward new ideas ... and it is increasing being left to SMEs to provide innovation.

So this week, I've seen Barrachd being taken over by Capita (Figure 1). I'm lucky to be able to meet many of the great entrepreneurs as they grow their businesses, and I've observed how Barrachd were able to knock-the-socks of many of the so-called Big Data experts, especially in areas like risk analysis and threat intelligence.

How is it that a little company can do this, over companies with billions to spend? One reason is desire to succeed and the other reason is hunger. Along with this there is often one small opportunity that a small company will grasp, while the big company see it as too small for them. The inability to take risks is a founding part of most large companies, as they can have much to lose if it doesn't come off. 

Figure 1:

Recently, too, Capita bought another innovative Edinburgh-based company (G2G3) for their amazing simulation and gamification products:

Let's set-up an R&D department...

So companies grow to a certain size, and start to worry about their future product sets, so they set up large R&D teams, and locate them in some of the finest locations in the world - such as Palo Alto - home of one of the most infamous R&D incubators - Xerox PARC (Palo Alto Research Center).

At PARC, Steve Jobs saw the future, and where Xerox demo'ed Ethernet, the GUI and the mouse. For Xerox it was a hard-sell to actually convince the board that they would push a technology which would actually harm their core product - paper copying. It is perhaps strange too that one of the products that Apple took to the market was an innovative laser printer which accepted a new printer language called PostScript, and which further eroded Xerox's market.

If you go to 12:30, you'll find out what happened there ...

R&D time windows

So, there are probably many great ideas generated within R&D labs and within university teams, but the ability to spot the market (and the pain in the market) is something that many companies struggle with. I define three time windows for the research horizon:

• 1 year. Near horizon. Make it fast, smaller and take less of something.
• 3-5 years. Wide horizon. Address a major issue which is holding a certain product back.
• 5-10 years. Address a fundamental issue which will radically change everything - Blue Skies Research.

With blue skies research we have a high risk approach, which many companies would not risk. The Cisco router, fibre optics, the mobile phone, and the transistor are all good examples of completely disruptive technologies, which probably could have not been seen, but which change the landscape.

With 3-5 year horizon, we have the opportunity to start to develop products which will be fit for market and be innovative, but will require 3-5 years to develop. This one is less risky, and will pay off well if the company manages to match itself to solving the problems of a barrier, and gets the products to the market at the right time. In this space, the advances in antenna and battery design have shown how there can be major leaps forward against barriers. The first wave of mobile phones had large dipole antennas sticking out of them, and which have now been replaced with antennas integrated into the body of the phone.

Most companies, though, will focus on the one year time horizon, in order to make their products faster, cheaper, or lighter. This type of innovation works, but eventually everyone else catch-ups up, along with it not being worth while to make it faster, cheaper and lighter. So, it is important that companies also look to the 3-5 year horizon. Unfortunately many research labs have long process of approval, and then investments, and can often commit to something while the market changes, or the new technology doesn't take off in the right way. It is often difficult for a company to change tack in full-flow, whereas this comes natural to SMEs, who will spot a duff innovation a mile off, or while change take when a new opportunity arrives.

Large companies too forget about end-customer engagement, and keep everything secret, as they are so scared that their ideas will be stolen, thus the innovations never get a chance to be focused on strong use cases. For an SMEs, their innovations are often part of their engagements with customers, and it is there that they are formed. The skill is then to scale this innovation out, so that it is relevant to a wide range of stakeholders. Large companies often start from a large scope of stakeholders, and create a product which is too wide ranging and doesn't really address anyone's specific issue.

Large companies can't do software as well as small one?

I'm going to try and avoid too many examples here, as it is only feeling on this. In the UK there have been so many IT contract disasters, including spending over ￡10 billion of an IT system for the NHS, and which was never rolled-out. Overall it was littered with bad advice and legacy systems, with a lack of real software integration across teams.

What would a small company have done differently? They would have searched around for the best and most scaleable solution around, and select that. For the large companies involved, they already had off-the-shelf solutions which were filled with legacy software, and pushed these. The companies involved also spend must of their money on design and requirements analysis, and it was years down the line before anyone could see anything real, and by the time it goes to the people who really mattered ... clinical staff ... it had produced something that was a computer programmers dream and not theirs.  This approach would be too risky for an SME, so they would prototype and mock-up versions that would be used in real-life environments, and where they could observe who it worked, and then use that as their design.

From DNS to Secureworks to Dell Secureworks

Directly seeing companies evolve is one of the best parts of being an academic, and I've seen one company flourish, and stay true to its roots. Many small companies will be taken-over by large companies, where they can acquire key contracts and staff, and then shut the local company down. Along with this the acquired company can often lose its spark. This has not been the case of the development of dns onto Secureworks and now with Dell Secureworks.

Never have I seen such spirit from a company as it has evolved, and how it has matched its services to the market, but still stay dedicated to its core beliefs. A good part of this is due to the drive of one person - Don Smith, who has been there from the start and who has as much drive and passion for his business than he had when he first started out. Like it or not, it's people and not processes that often make the difference. The development of dns into Secureworks and onto Dell Secureworks has been a perfect example of how a company can grow within its existing base, but still keep driving forward. 

David v Goliath

Most of us love it when the little guy takes on the big guy and wins. In business, really this shouldn't happen. If I sell computers and I've got billions to spend on development, sales and marketing, and you have very little investment, then I should win. But it's often disruption in a market that allows small and agile companies to move faster and win against the larger ones. In the 1980s, Apple took on IBM for the PC market, and have since become one of the largest companies in the World!

We deal with many local SMEs ... including a great one that we profiled a while back ... in terms of impact on society there's few that can come close to this one ... meet Bright Red Publishing .. our heroes! : Link

If you make a name for yourself ...

It may have gone under the radar, but the great little Finnish company - Codenomicon who found, along with Google, one of the most severe bugs of all time - Heartbleed - was acquired by Synosys at the end of June 2015 (more that one year since they found the Heartbleed bug).

It followed a rollercoaster year for the company. In parallel to the activity around Google finding the bug and informing the OpenSSL team, Codenomicon, found it on2 April at 9:30am, and started a whole chain of things on their side. They ended up producing an amazing logo (and free to use) and a great name for the vulnerability. The name - Heartbleed - was inspired by the source of the flaw:  the Heartbeat data packet. They also took full advanced of the PR around the event, while informing all the right stakeholders before it went live, including their own centre for Cyber Security.

Codenomicon Oywas founded in 2001 as a spin-out from the Oulu University Secure Programming Group.  Oulu is a small city of only 190,000 people and is the unofficial capital of Northern Finland [Here] (Figure 2). It used to be known for the tar trade, but is now a key technology hub (and for the Air Guitar World Championships). Codenomicon's focus was on developing the PROTOS tools which are used for finding security flaws in software applications:

If you haven't innovated it ... buy it...

It is natural for those involved in an innovative SME to see some rewards for their effects, and sell-out the company. If the companies move so fast, such as a Skyscanner, then it's difficult for anyone to catch-up with them, but eventually someone will, as that is the laws of business ... the big companies will succeed in the long term.

It's interested that many of the major companies in the world are in the IT space ... Apple ... Microsoft ... IBM ... Cisco ... Google ... Dell ... HP all who know that when you get past a certain size, then acquisition is a smart way to buy-in innovation. For example in SIEM, which is a market that is growing fast, HP are now one of the leaders, but did not create their own product through R&D, they acquired Arcsight Inc for $1.5 billion and lead along with IBM QRadar which was acquired through Q1 labs. The new kid on the block - Splunk - is disrupting them all though!

Research Excellence Assessment can stiffle innovation

The UK universities have just been through a research assessment, and are now actively focusing on the next one in 2020. From what I can see, the focus is now  not on "thinking up the next great idea" but how can we publish something in a high-impact journal. This is disappointing, as innovation can start as a research paper, but is then drive through to actually being used to solve real problems. The innovation, as the research is funded by the UK taxpayers, should also aim to feed into UK companies, and contribute to the wealth creation of our society. 

Conclusions

In conclusion large companies need to integrate more with SMEs. For universities, I hate to say it, but the recent Research Assessment Exercise has done little for stimulating innovation that could become the next generation of products. In the US, this works well, such as with a continual stream of new products being born through research. In the UK, so much is now focused on creating the "high-impact" research paper, in order to boost rankings. It then all becomes a bit of a game, where the research does not have an end-product, and is not actually matched to something that actually addresses a problem.

So I think it is up to SMEs to provide the innovation for the future, and the best of luck to them!

What counts is people ... and it is people who create innovation ... and who spot opportunities ... and how have a good eye for "the next big thing".

If you are interested, we are profiling Don Smith, Richard Lewis and others as part of our showcase on Dell Secureworks... more details soon. We aim to show the route that these key people have taken in order to build long-lasting foundations, and how they have taken-on opportunities. [Here]