Part 1: Corporations Are Not Startups
Instead, they adapt entrepreneurial methods to the corporate setting to speed up the pace of innovation. Part 1 is a discussion of the ways corporations innovate differently than startups; Part 2 will discuss their approaches should be similar; Part 3 will describe a framework for how to understand entrepreneurship within large corporations.
The search for “corporate startup” on Google has increased steadily over the past 10 years. As corporations seek to get leaner and faster in their innovation efforts, there is a push to borrow an entrepreneurial mindset from startups who are naturally lean and fast, and in many ways, outpacing large corporations in discovering and disseminating new innovation.
But to expect corporations to become like startups is both a impossibility and a disservice to the efforts made by corporations to get where they are today. Startups hope to become a corporation one day; corporations don’t want to nor need to go back to their startup days.
The following are just a few ways that corporations who may innovate like startups are actually quite different that startups themselves.
- Corporations Have Cash to Burn
- Corporations Manage a Portfolio of Possibilities, rather than pursuing just one idea
- Corporations Need Processes and Systems
Corporations Have Cash to Burn
“Burn Rate” may be one of the scariest startup metrics around. It is a ticking time bomb, a constant reminder of how little financial life a startup has left before it goes under or needs yet another round of investment. Cash in startups is precious, and should be tracked and hoarded.
Most corporations have no such fears. Their core business is churning out cash so they can throw some of it at various innovation efforts without much concern for the results.
This is both a blessing and a curse, both because it allows corporations to pursue multiple avenues of inquiry (see Portfolio of Possibilities below) without the pressure of impending bankruptcy but also because it allows corporations to go on with business-as-usual without the pressure of impending bankruptcy. Unless the company is already deep in the decline phase, there is little to no urgency to innovate. Meanwhile, startups that don’t deliver innovative new values to their customers will be dead in 6 months.
The plethora of cash also means that companies can throw money at problems, rather than trying to do everything by themselves on the cheap. Entrepreneurial corporations know when to spend money in order to speed up the pace innovation and they have the freedom to do so.
In their Four Models of Corporate Entrepreneurship Matrix, Wolcott and Lippitz describe “Producer” companies as those that provide dedicated resources for matched with focused ownership of innovation. Setting aside cash for continuous innovation is one of the key levers under management control and ensure that experiments and learning can happen.
The availability of cash is a clear advantage for corporations seeking success in continuous innovation, and if they can create an internal urgency beyond required financial returns, it can be an important catalyst in reaching that success.
Corporations Manage a Portfolio of Possibilities
Startups at the onset need to pursue one killer feature, one unique solution for one very defined market segment. That’s all they have money and time and resources for. On the other hand corporations, with money, time and resources, should be pursuing multiple innovation opportunities simultaneously. They can act like a diversified stock investor or even venture capitalist, putting bets on multiple projects, multiple technology areas and hoping that some of them will pan out.
This perspective of “three horizons” was first introduced in the 1999 by McKinsey consultants Baghai, Coley and White in their book, “The Alchemy of Growth”, and has been further refined by Steve Blank. Essentially, companies need to be able to innovate in the near, mid and long-term, diversifying their risk with multiple projects and experiments ongoing.
Startups don’t need to think this way because they are only working on one idea at a time, in fact they shouldn’t think this way at all. However, corporations need a much larger bucket of ideas and have the resources to try all of them. Thus, although the corporation may be trying to think entrepreneurial, they are actually managing the entire process more like an investor.
Corporations Need Processes and Systems
While startups, with teams of 5–10 people, can work without established corporate processes and procedures, corporations, with teams of 5,000–100,000 people need to have those rules to be able to operate effectively. Imagine the chaos of everyone across an organization trying to act like an entrepreneur without any rules or guidelines for how to go about it.
That is why corporations need to have a system for continuous innovation based on entrepreneurial principles but should not beholden to them. From a system perspective, roughly speaking,
- corporations need to have a place where new business ideas can be generated and debated
- those ideas need to be tested quickly against basic market and technical assumptions
- emerging innovation projects needs to be prioritized and provided funding/support
- projects need to be incubated, their business models developed and tested with prototypes and market experiments
- projects need to be either integrated into the current business model of the company or spun out into a separate entity
Such a system ensures that new initiatives are being developed and tracked, providing new “deal flow” for the company’s continuous innovation efforts. This not only helps management track how their resources are being spent, but also helps the innovation department communicate the pursuit of new innovation to the entire organization.
Systems, although bureaucratic and slow in nature, actually makes sure that innovation happens continuously and effectively.
Overall, yes, corporations can borrow a certain mindset, a lean approach from startups, but in the pursuit of continuous innovation, they shouldn’t try to turn into startups themselves.
In the next part of this series I will be dealing with how innovative corporations are actually similar to startups.
Make Innovation Work
Core Strateji is a strategy consulting firm that specializes in supporting leading companies to transform into ambidextrous organizations. Are you ready to move your innovation activities forward?
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