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Management in Practice

Are the Startups Coming for Your Business?

We hear the most about the fast-growing tech ventures in Silicon Valley, but small startups are springing to life in nearly every sector of the economy. Internet entrepreneur Kevin Ryan YC ’85, CEO of Gilt, discusses the profound effect that new ventures are having on some of the world’s largest companies—and which industries are ripe for a challenge.

By Dylan Walsh

Fortune favors the startup.

Just over a decade after coming online, Facebook is valued at $200 billion. Uber launched in 2009 and is now worth $41 billion. If Silicon Valley were a country, its GDP would nearly equal Finland’s, according to numbers from the International Monetary Fund. Startups are unambiguously transforming the market.

Thirty years ago, when internet entrepreneur Kevin Ryan YC ’85 was an undergraduate at Yale College, his classmates weren’t talking about launching businesses. “Today, it’s very different,” he says. “A huge percentage of undergraduate and business school students are thinking of starting something.” Ryan has helped launch a number of startups that are now major players, including DoubleClick, Business Insider, and Gilt.

The effect of this cultural shift on the broader economy is clear. A recent report from the University of Virginia’s Miller Center emphasizes that some of the nation’s fastest-growing firms—so-called “gazelles”—account for about 40% of new jobs each year while comprising just 1% of businesses; 65% of new jobs created since 1995 have come from small enterprises.

And while startups are generally seen as having their biggest impact within certain high-tech markets, they are also challenging dominant companies in many sectors. “Every single large-company CEO I talk to is now concerned that startups will take away their business,” says Ryan.

Many see this threat to long-standing industry players rooted in the rise of the millennial generation, born between 1980 and 2000 and now constituting one-third of the global population. For instance, the Millennial Disruption Index, created by Viacom’s own internal startup, Scratch, found that the millennials’ views of banks put them among the companies at greatest risk of disruption: one-third of millennials are open to switching banks in the next 90 days and nearly half are looking to startups to overhaul the way banks work.

Startups often struggle in sectors like healthcare or education, where reputation is essential to success, according to Ryan. Regulation, too, can favor large incumbent firms by burdening small companies disproportionately. FlightCar, which offers free parking and a car wash to airport travelers in exchange for permission to rent their cars, has run aground on regulation surrounding the rental car industry. Likewise, home-rental companies Airbnb and VRBO are entangled in the regulatory structures of city governments around the world.

Nonetheless, the momentum of startups is making every CEO think hard about new competition. “Twenty years ago, J. P. Morgan didn’t worry about it, General Motors didn’t worry about it,” said Ryan. “Now they’re worried about Tesla, they’re worried about Lending Club—they’re worried about threats that have come to them in a relatively short period of time.”