
The Startup Incentive Construct explains why startups often outperform established companies despite having fewer resources. The central idea is that older companies, while having advantages like money and experience, often misalign their incentives when addressing problems. They tend to adapt problems to fit their existing incentives, causing them to focus on the wrong issues and lose out to startups. Startups possess different incentives, giving them inherent advantages. Established companies often experience an “Innovation Hangover,” making it difficult for them to sacrifice current revenue for new opportunities.
In this piece, I explain why startups win, despite the efforts of older companies who challenge them in new areas they are pioneering. The older companies can come with money, experience and technology, but most times, they are solving problems, with the wrong incentives.
Consequently, they adjust the problems to accommodate their incentives and in the process, solve an entirely different problem, resulting to a loss. You read it from me: African and specifically Nigerian startups, you can win over the big players. Your incentives are different, and those are inherent advantages for you.
The established companies have what I have called Innovation Hangover which is an inertia to cannibalize existing revenue sources for new opportunities. See it this way: If you run a treasury operation in a bank which will yield $5,000 profit but your fintech unit (a subsidiary) can do the same for $200, would you dismantle that treasury unit, and allow the fintech unit to serve the public because one fintech startup has started offering the service for $200?
Register for Tekedia Mini-MBA edition 17 (June 9 – Sept 6, 2025) today for early bird discounts. Do annual for access to Blucera.com.
Tekedia AI in Business Masterclass opens registrations.
Join Tekedia Capital Syndicate and co-invest in great global startups.
Register to become a better CEO or Director with Tekedia CEO & Director Program.
That is not what we do most times because of the revenue/profit hangover. So, what happens is this: to fix that problem, the bank has to create a new market friction, and try to solve it. Possibly, that new problem can yield for the bank $1,000 profit, and it can feel that it has innovated, and has challenged the startup on pricing. Indeed, it could offer more features and services than what the fintech startup is offering for $200.
Yet, that is not the original friction which the standalone startup went for. Typically, over time, the startup can still win because the incumbent is hanging onto the established profits, and solving entirely new problems. I have called this Startup Incentive Construct.
Summary
- In a video, Ndubuisi Ekekwe discusses why startups often outperform older companies in new areas they pioneer, despite the latter having more resources and experience.
- Established companies can struggle with an “Innovation Hangover,” being hesitant to shift focus from existing revenue sources to new opportunities, leading them to solve different problems than startups.
- African and Nigerian startups have inherent advantages over larger players due to different incentives, allowing them to potentially succeed in competition.
- Ekekwe highlights a scenario where a bank’s treasury unit could make $5,000 profit, but a fintech subsidiary could do the same for $200, yet the bank may resist dismantling the treasury unit due to profit concerns.
- This reluctance to disrupt existing revenue streams can lead established companies to create new market frictions and solve different problems, ultimately diverging from the original focus of startups.
- Despite incumbents offering more features and services than startups at competitive prices, startups can still prevail over time due to their focus on original frictions and incentives, a concept termed the “Startup Incentive Construct” by Ekekwe.
---
Register for Tekedia Mini-MBA (June 9 – Sept 6, 2025), and join Prof Ndubuisi Ekekwe and our global faculty; click here.
Context
In video below by Ndubuisi Ekekwe, the discussion delved into the dynamic landscape of innovation and competition between startups and established companies. To grasp the essence of this dialogue, it is crucial to understand the startup ecosystem’s fundamentals and the challenges incumbents face in adapting to change.
Key themes explored include how startups leverage their agility and fresh perspectives to pioneer new frontiers, contrasting with established firms suffering from an “Innovation Hangover,” a reluctance to disrupt existing revenue streams hindering their ability to innovate effectively. The concept of a “Startup Incentive Construct” was introduced, emphasizing the unique incentives that drive success for startups in competitive environments.
Historical context plays a pivotal role in contextualizing this discourse, tracing the evolution of disruptive technologies and business models that have reshaped industries over time. Recent events showcasing startup successes against established players underscore the ongoing shift in power dynamics within various sectors.