Can a company change its DNA?

Starting a business is a lot like setting the foundation of a house. Get the intangible assets right from the start, and everything else falls into place. If these assets are wrong, problems can become harder to fix as time goes on.

The first 90 days of a company’s founding are critical because this is when its “DNA” is formed – this is the fundamental structure, systems and behaviours that will shape how it operates, grows and deals with challenges. A company’s foundational DNA is a bit like a tiger and its stripes. Once a company’s DNA is written, it’s almost impossible to change course.

To see why, let’s look at a few examples of big tiger companies that tried to change their stripes – and struggled.

Procter & Gamble (P&G) has a long history of creating high-quality products that consumers can trust. If you’re in the US, you’ll probably know about Tide detergent. That’s a P&G-branded product. It’s been around for 50 years and is still a household name. Why? Because P&G’s brand power keeps its customers coming back, even as competition grows in the dishwasher space.

But then Wal-Mart came along with an entirely different kind of DNA.

Wal-Mart’s strategy was to sell lots of products at rock-bottom prices. And it worked. As the retailer turned into a massive behemoth, it realised something: with such an enormous volume of sales, it could create its own store-brand products — at a much lower price. Wal-Mart figured it didn’t need to rely on P&G’s brands anymore.

The corporate tiger Wal-Mart was only wearing its stripes. It made perfect sense for it to pursue a strategy of undercutting P&G brands because low prices are Wal-Mart’s speciality. But soon, customers who were once loyal to Tide started using Wal-Mart’s store brand instead. Tide’s intangible asset of brand power seemed to disappear when it was faced with a competitor that had lower prices.

Then Wal-Mart started doing the same with paper towels, dish soap and other common household items. And customers started shifting to those, as well.

This was becoming a big problem for P&G, but it had no way to counter Wal-Mart’s strategy. P&G’s valuable intangible assets were built around brand loyalty and premium products. That was its DNA. It wasn’t equipped to deal with this new kind of competition. P&G was big enough to survive the blow, but it had to lick its wounds and find new flexibility to lower its prices. That flexibility was counter to its DNA and P&G lost plenty of market share as it struggled to pivot.

Flexibility is key in technology, as well. Looking across the history of tech, it is painfully clear that having the best software isn’t always the deciding factor for success. It’s an excellent intangible asset, but often what matters more is whether a company can deliver that software efficiently to customers.

This question was the story of the battle between Oracle and Sun Microsystems on one side, and Microsoft on the other.

Oracle led the charge in manufacturing databases while Sun Microsystems was a powerhouse in the world of servers. Together, the two companies grew rapidly while Microsoft stayed at the edge, focusing on desktop operating systems. Microsoft’s database products – like SQL – were for a long time considered lower-end compared to Oracle’s and no one really expected Microsoft to enter that field seriously.

But Microsoft always had a knack for taking something that exists and cloning it – often woefully inferior at first – then, over time, improving it just enough to create a product that dominates the incumbents.

It could do this because when Microsoft’s Windows operating system joined with Intel, this allowed it to build cheaper and more accessible software. Once it decided to play in the database and server market, Microsoft’s versions quickly caught up in terms of performance and price.

While Oracle and Sun chased the high-end markets, Microsoft was gobbling up the low-end market. Microsoft’s sheer scale meant it could invest in R&D and spread those costs over a much larger customer base. Oracle and Sun couldn’t compete with that and slowly were squeezed out of the market they formally dominated.

Microsoft wasn’t an innovator. After all, it cloned its operating system from Apple. It also copied WordPerfect’s word processor, Lotus’s spreadsheet and even Netscape’s browser. Microsoft’s DNA was built around scaling up quickly. Microsoft understands its DNA and doesn’t bother trying to change its stripes. That’s why it has remained so strong for decades.

The big lesson here is that when starting a business, pay attention to your company’s DNA. How you structure a company, set its priorities and build the culture in the early days will determine how well it adapts to unforeseen changes later on. Most companies are forced to pivot in some way eventually. Your company should be the kind of business that can cope with a pivot.

Ultimately, your company’s DNA isn’t just about the products or services it sells. Success depends on deploying your unique intangible assets most efficiently. What kind of company is it? What is its DNA? If you get that right from the start, a tiger won’t need to change its stripes.