How Startups Are Transforming Corporate Innovation
It’s 9:30AM in Berlin and stylishly suited executives from one of the largest retail companies in the world are sitting in small clusters around the room surrounded by branded water bottles, half-filled notebooks, and a piles of Post-Its. Mixed in among them are startup entrepreneurs from across the world, renowned developers, and savvy venture capitalists — all toiling away to design a system where innovation and new ideas can flourish within their large enterprise.
Meanwhile Erica Smith is in Los Angeles, nervously preparing to pitch her app idea to a board of faux venture capitalists (who in reality are executives from her company). She’s a Managing Partner at a major insurance company who is participating in a mock “Shark Tank” event. Her company encourages employees to come up with new business ideas and plans which the “venture capitalists” will choose to invest in hoping of fund the next profit boosting piece of their company.
The Shark Tank model is just one of many that are fueling the new products and divisions of major companies worldwide who are seeking to innovate. This drive to innovate is not just in order to beat back an ever looming bottom line, but also an attempt to compete with the numerous startups eating large corporations’ lunches.
Watching many industries fall prey to the agile development, new business models, and rapid growth of startups, smart industry leaders are turning to the methods of those very same startups to foster new innovation within their own companies in unique and ingenious ways.
Employee sponsored innovation
The simulated investor pitch is one of the more common approaches to promote innovation. AT&T’s Foundry runs a similar program called The Innovation Pipeline (TIP) which touts itself as “a dynamic online crowd-sourcing platform that brings together the creative talent of AT&T employees.” It is reported that more than 130,000 workers have participated in TIP, a number that is equivalent to more than half of AT&T’s workforce.
By harnessing the knowledge and inspiration of their staff, AT&T is able to make more astute business decisions. Employees frequently have a more candid understanding of their customers’ needs than executives who are often too far removed from user feedback. This model of human-centered design and user feedback is a page right out of an early-stage startup’s product development playbook.
In a very startup-esque manner, the best ideas can come from unlikely places. With AT&T’s sales and marketing power, those ideas can become full-fledged, successful products rather than languish in the hands of less resource-rich startups. Over 37,000 ideas have been submitted to TIP since its inception in 2009 — with a number of them moving on to become staples among AT&T’s offerings.
The rise of enterprise startups
Alternatively, many organizations have chosen a different approach. Rather than detract focus from their employees’ day to day activities, establishments are starting labs divisions and innovation centers as entirely new business units — branded as independent startups with the power of enterprise.
Chief among these is the highly publicized FastWorks program commissioned by GE. Led by startup guru and acclaimed author of The Lean Startup, Eric Ries ran a division focused entirely on moving away from the slow and encumbered processes of large enterprise and instead employing the methods that successful startups are using to build, grow, and learn — quickly.
Rapid prototyping, agile development, and validated learning all play crucial roles in this approach. By separating their general workforce from their innovation centers, these labs are able to create entirely new startup-inspired processes which foster innovative products and technologies while mitigating potential risks for the parent company.
These innovation divisions build fast, test frequently, and pivot easily. The brainchild of Tony Hsieh, Zappos Labs has built numerous applications such as Glance (a product curation engine), PinPoint (a Pinterest-based recommendation engine), and Ask Zappos (on-demand mobile stylists).
This method of rapid iteration allows organizations to test new products and determine market viability before integrating them into traditional business units and appropriating added funds, time, and resources while additionally safeguarding any failure from affecting the company directly.
In the lab, failure is in many ways regarded as a success. Of the three above applications, all but the last have been retired. Had Zappos launched these products internally, their dissolution could mean layoffs, damage to their brand identity, and a discount of Zappos’ ability to launch new businesses. In the context of an innovation center, when a product doesn’t succeed, the organization is able to understand the needs of users quickly, retire the project, and pivot to a new product.
Investment as innovation
As companies continue to seek out new ways to keep risk from infiltrating their assets and brands, all while advancing innovation, some are turning to outside help. Rather than launch a startup within their own walls, a growing number of enterprises are launching and hosting accelerators as their innovation units — promoting and backing handfuls of small businesses to do the innovation for them.
Google is well-known for its investment and accelerator programs. GV, formerly Google Ventures, seeks out promising startups and provides investment as well as assistance with engineering, design, and marketing in exchange for equity in these companies.
Accelerators are a smart but risky move for companies with the resources to support them. This model provides multiple avenues for innovation with little work or risk to the managing company’s brand, with the potential for a big payout. In the past three years, 105 corporate accelerators have launched globally; 47 of those programs were launched in 2015.
However, while even the most well-run corporate accelerators have produced innovative new businesses and technologies, the process of integrating these external entities into core business units becomes a recurring challenge for all but the most resource-rich organizations. Without a consistent track record of successful M&A, many enterprises find themselves as the owner of a successful startup with no path toward having it contribute value to the larger organization.
While new innovation models are constantly popping up, large companies are doing their best to stay ahead of the curve. Many of them have long ignored the clamor of startups battling amongst themselves, however many more are watching the meteoric rise of these once small businesses and realizing that they too need to create an atmosphere of innovation.
Back in Los Angeles, Erica has finished her pitch. Better yet, her app idea has been chosen for funding. But this is just the beginning of the journey for her; in the coming months her company will allot her limited resources and test her ability to run as a lean startup — efficient, effective, and innovative.
