I was at my local bookstore this afternoon, looking at business books on how to get organizations to change. Change is hard. A lot of people sacrifice their jobs, and even their careers, in order to get their organizations to change. However, tens or hundreds of times more people are perfectly willing to go along with the status quo and let those who pursue change get their heads cut off.
Large companies have tremendous resources--big advertising budgets, R&D teams and salesforces--but they often have difficulty getting out of their own way. Many companies suffer from "not invented here" syndrome, where no matter how good an idea is, they won't implement it unless they either thought of it first or a competitor has already proven that it works. Others never seem to have enough information to make a decision. Still others need endless meetings in order to get consensus on a decision and then execute. All these approaches increase organizational inertia--a company in motion tends to stay in motion unless acted upon by a (major) outside force.
These problems become opportunities for smaller, more entrepreneurial companies. Startups (one would hope) don't have the same problems with decision-making and execution as big companies. There are usually far fewer people involved in both making and executing decisions at startups. If they need to change direction, they don't have an internal bureaucracy to dislodge. Startups can move faster and be more responsive to both customer needs and technological changes.
On the other hand, startups should never underestimate the power of established competitors. Netscape moved prematurely to position web browsers as application delivery platforms (and thus replacements for Windows,) and brought the full wrath of Microsoft down on itself. Microsoft eventually paid the price in court, but not before Netscape was eliminated as a competitive threat and forced to sell out to AOL.
Startups have to perform a delicate balancing in order to appear harmless to their entrenched competitors until they have the strength to attack those competitors' markets directly. Google pulled it off by building its search engine and search advertising businesses into entrenched market leaders before Microsoft recognized the threat that the company posed to its operating system and applications businesses. Microsoft's subsequent retaliatory efforts have had little effect on Google.
The key, then, is to take advantage of large companies' inherent inertia while keeping a low profile so as not to be perceived as an existential threat.