Small Firm vs. Large Firm Innovation

Posted on September 1, 2010

Does innovation fundamentally differ when you’re talking small firms vs. big firms? Lisa Noble, CEO of Farmhouse Foods, provides some insights into what makes a company successful for more than a century.

My interview with Lisa Noble, CEO of Farmhouse Foods really began two nights earlier as I ran out to Lucky Supermarkets to bring home some of her rice and pasta selections to taste them. This brand predates us all (founded 1890), and was MJB Rice Company for many years. My son agreed to help me eat the White Cheddar Pasta, but my wife said, “I don’t need to taste the rice: I grew up eating it”.

But this isn’t your mother’s rice. Lisa, first as a member of the management team and now as a co-owner, credits the success of this regional brand with steady, persistent changes in product quality over the years. It is true that there have been a couple of big steps forward: In 1990, they were the first on their shelf to move to all natural products and expanded to an adjacent category (pasta). But as I listened to this CEO, it was clear that the firm prides itself on steady incremental product improvement over the years, superior customer care for their grocery customers, and excellence in execution—a focus on block and tackling.

What? No creative leaps forward? No big wins on the Bobby Flay Throwdown on national TV? I talked with Lisa about her years leading product development efforts at Del Monte and how that differed from the plays that Farmhouse Foods is running. It led to this thought:

Hypothesis:  Innovation is fundamentally different for large firms versus small firms. Large firms leverage massive capital investments and huge marketing budgets to change consumer mindsets and expand categories, while small firms must block and tackle well to grow by expanding their market share through steady, incremental innovation.

It is in fact true that one of the fundamental differences between small and large businesses is that big firms can own expensive assets that act as barriers to entry (think Michael Porter’s five forces) and have the staying power to insure those assets are highly utilized over long periods of time. In contrast, small firms rent or borrow assets preserving maximum flexibility to find and exploit small opportunities that big firms can’t see or don’t find interesting.

But a far cry from an oil refinery, many big capital investments today can be modified on the fly to produce different packaging and product variations, creating a platform for innovation that might allow them to compete in smaller markets. Small firms often face selling to big powerhouse retailers who can make the cost of entry prohibitive, if entry is even allowed. Is Goliath starting to gain an advantage over David?

Wait a minute. Maybe it’s not so simple. The food and beverage business is quite broad, so how might this apply to a new brand in a newer category than prepared rice and pasta? What about in a direct to consumer model? Or in a premium brand of Tequila? Is big versus small even a useful framework for thinking about innovation? Not every company wants to use innovation to become a massive, multi-billion dollar firm. Maybe innovation has a lot to do with the owner/stockholders ambitions than big vs. small. What about sustainability and consumer health?

I’m not jumping to any conclusions. One thing I learned as a CEO is to avoid snap judgments and to keep learning, synthesizing observations and perspectives until the decision deadline arrives.