Developing a Culture of Innovation

As startups grow from small teams to established market leaders, they often focus too little on culture. Capital helps its partners establish a culture that promotes innovation at scale. Few companies do this better than Google.

Google is known for its culture of innovation. With a near monopoly on search revenue, Google spends a tremendous amount of money on what it calls “moonshots” — far-fetched ideas that could, one day, disrupt entire industries.

The Google division in charge of these moonshots is X, a quasi-research laboratory. But X is nothing like its predecessors:

There are two main differences between X and the corporate research arms of the past. While operations like Bell Labs and Xerox PARC worked on problems that were at least nominally related to their parent companies’ core businesses, X employees can work on anything they like. In fact, they are discouraged from straying into Google’s main business because Google has its own research group that focuses on machine learning and other computer science topics.

And while Bell Labs and others made huge contributions to basic, university-style research, X projects are conceived as moneymaking enterprises, or things that at least seem as if they could make money sometime in the next few years.

In many ways, Google’s most important long-term advantage is its tolerance for risk — and how it rewards employees for pursuing high-risk, high-reward projects.

The idea of celebrating failure is a Silicon Valley cliché, but Mr. Teller talks about it in the practical terms of a management consultant. Say you have a team of 20 people working on a project that is not going anywhere, he said in a recent interview. In a year those 20 people will be 30 people. The company has to pay their salaries and health insurance, and the team will inevitably hire a few consultants. Worse, they will have wasted a year.

Failure bonuses are also an example of how X, which was set up independent of Google from the outset, is a leading indicator of sorts for how the autonomous Alphabet could work. In Alphabet, employees who do not work for Mother Google are supposed to have their financial futures tied to their own company instead of Google’s search ads. At X, that means killing things before they become too expensive.

As your team grows, work to establish the right balance of long- and short-term risk-and-reward. This is easy to say but hard to do.

Originally published on July 23, 2016.