Enterprise innovation doesn’t have to be an oxymoron

Leverage the benefits of scale to innovate with the B.E.S.T. framework

There is a natural inverse relationship between scale and innovation. This primarily stems from opportunity cost differences between startups and enterprises.

Here’s why:

Standard startup equity agreements give founders and early employees multiyear vested stock options, making decisions focused on long-term payoffs with near-term flexibility in how to get there. Startups also have less short-term pressure to get innovations right the first time because — without a preexisting profitable line of business — they don’t have the opportunity cost of pulling people off profitable work to explore new ideas.

Enterprises, in contrast, have a very quantifiable and immediate opportunity cost from directing resources away from the profitable current business model to work on something new. Enterprises also have the near-term opportunity cost of reputation risk from trying something new that doesn’t work instead of preserving the current proven business model.

Essentially, the more successful a company becomes — the more it scales and optimizes its profitability on the current business model — the more expensive the opportunity cost becomes to focus on anything other than what is currently making money. This isn’t a bad thing, it’s just math.

Having led both startup and enterprise innovation teams, I’ve experienced different constraints across both organizational environments when it comes to innovation. For example, enterprises will never be able to pivot as quickly as startups, but startups will never be able to access as many enterprise customers as quickly as a preexisting enterprise.

The following framework isn’t designed to help enterprises be more like startups. Rather, the B.E.S.T. framework is meant to help inform enterprises’ innovation strategies by leveraging the benefits — and mitigating the challenges — of scale.

Here’s how:

B.E.S.T. framework

• Bureaucratic sponsorship
• Engagement with customers
• Staffing model for permanent innovation team members
• Tool set to engage the whole organization in innovation

Let’s explore each component.

1. Bureaucratic sponsorship

It’s easy to vilify the corporate layers of approval that seemingly hinder innovation, but they exist for a good reason. An enterprise has built a valuable brand worth protecting, and a single significant failure could cost millions in lost customer and investor brand confidence.

Corporate challenge to avoid:

Unchecked, bureaucracy considers anything new a danger to the current business model without considering that everything it currently protects was once an insurgent new idea disrupting the old way of operating. While a bureaucratic layer of oversight often isn’t present within startups, it’s not realistic to completely separate a corporation from its bureaucracy. However, having an executive sponsor who can help streamline approvals and remove blockers from those who define different as bad is critical for enterprise innovation.

Startups can focus 100% of their time on building a great product, and figure out legal, staffing, finance, HR, IT, enterprise architecture, et cetera, as they go. For enterprise teams to operate at startup levels of innovation and productivity, they need someone else with the authority and capacity to manage bureaucratic pushback and enforce collaboration with corporate protectionist teams. The sponsor doesn’t need to be part of the daily operations, but regular progress updates support their representation of whatever new initiative is underway.

Corporate benefit to leverage:

Bureaucracy provides institutional, pre-negotiated deals in a variety of fields that a startup doesn’t have access to. If the bureaucracy is aligned to support a new innovation through the influence of an executive sponsor, corporate innovators can unlock access to enterprise pricing, early releases of new technology, and security infrastructure. Startups likely don’t have the time, connections, or scale to establish such enterprise partnerships and architecture, which are critical components for winning enterprise customers.

2. Engagement with customers

From a financial perspective, innovation is worth what someone is willing to pay for it. So talking with potential customers early and often during the development of innovation can help ensure what is built aligns with what will be bought.

Corporate challenge to avoid:

A common enterprise pitfall preventing early and frequent engagement with customers is fear of tainting its image as an established and trusted brand by sharing an incomplete idea or the humble beginnings of a new product. The vulnerability to admit something is still a work in progress is not a natural conversation for many corporate sellers, and many will default to only bringing concepts to clients that are already proved from multiple stories of past successes with other clients.

However, framing is everything when introducing new concepts to enterprise contacts. Every corporation struggles to innovate, so an invitation to co-create new things can be mutually beneficial. Plus, sharing cutting-edge innovations not yet available with clients can build trust, establish credibility as an innovative partner, and lead to conversations around innovations the client is working on. If every client conversation is around selling a solution, the relationship becomes transactional. If client relationship leaders intersperse innovation conversations with business development discussions, the relationship can elevate to a true partnership.

Corporate benefit to leverage:

One of the— if not the — greatest advantages an enterprise has over a startup is existing relationships with enterprise clients. While a startup founder will send hundreds of LinkedIn messages and cold emails to try to get to a meeting with an enterprise buyer, enterprises have long-standing relationships and credibility with enterprise buyers who will answer the phone when they call.

Access is a superpower, and what enterprises lack in startup speed and flexibility, they have the potential to make up for in connections and existing enterprise client insights.

And not just client insights … corporations can and should leverage their relationships with cross-company peers, vendors, and internal stakeholders to get feedback on innovative ideas and even co-create new solutions before scaling them publicly.

While startups can much more quickly build a variety of ideas to see what enterprise clients will resonate with, enterprises can much more easily understand what will resonate with their peers (both through connections and through introspection as an enterprise) before putting forth the effort to build something.

3. Staffing model for permanent innovation team members

Venture capitalists don’t invest in startups whose founders are building their business in the evenings and weekends; they expect full commitment. This is because a startup idea is like a baby. Ideas require an outsized amount of time at their earliest stages — specifically from their founders. As both ideas and children develop, they can be entrusted to others for more part-time and specialized investment (teachers or coaches for kids, product teams for ideas). But successfully nurturing a nascent idea requires full focus. Also like raising children, developing an innovation from its initial founding stage until it matures requires a heavy, sustained focus over not just weeks but likely years.

Corporate challenge to avoid:

Since corporations have already achieved success at generating profit, they subsequently have staffing models, KPIs, performance reviews, and annual budgets around directly driving that profitable thing — as they should.

Therefore, investing in team members to build something new, something not directly tied to the familiar path toward monetization, requires different measures of success.

This is more than just the aforementioned bureaucratic sponsorship to let a few people fly under the radar of standard measurement temporarily; it requires an institutional and long-term amendment to how success is measured for those working on driving innovation. Of course, innovation projects still must have a revenue generation responsibility, but revenue can take the form of cost savings or new revenue models, not just helping to accelerate the legacy business model, and it will likely take multiple quarters to reach a critical mass of value to monetize.

Without an institutional investment of full-time innovation-focused individuals unrestrained by the standard business model, enterprising team members may still try to build new things off the side of their desks. But innovation is incredibly difficult, and doing it part-time isn’t a long-term competitive strategy on par with hungry startups solely focused on creating a single innovation. Corporations have more money than startups to invest, and they know startups are working to disrupt them, but many still don’t make the budget investment for full-time innovation teams.

Corporate benefit to leverage:

Once budgets are allocated for a corporate innovation team, the full-time team members can scale their impact and unlock the innovative potential of their organization by galvanizing a large and wide-ranging network of experts likely willing to support innovation initiatives as good corporate citizens. Without funding to pay salaries, startups struggle to recruit quality talent even part-time, and startups require their early team members to wear a variety of hats they’re likely not qualified for. Full-time corporate innovation teams can create opportunities for temporary, part-time, or at least advisory colleagues to contribute to innovation without having to haggle about payment or equity as startups must often do.

As a startup co-founder, I invested over a third of my time trying to get in front of the right target audience for candid user interviews. As an enterprise product owner, I have sent out a single invite for user interviews via a large internal communication chat and had interviews lined up for a week. The enterprise’s opportunity, then, is making colleagues aware that they can be part of enterprise innovation efforts and making it easy for them to do so, which is our next topic …

4. Tool set to engage the whole organization in innovation

At scale, it’s easiest to hire people for specific roles and incentivize them to stay in their lane. Besides, not everyone can focus full-time on creating the next big thing; the business needs people to keep the current operating model afloat. Despite having a full-time team in place to run with the most promising innovations, everyone can and should be an innovation contributor.

Corporate challenge to avoid:

With a full-time innovation team in place, it’s natural to place the impetus for innovation solely on those measured against it. While innovation teams are accountable for the hard work of testing and scaling new concepts, every team member is responsible for identifying and supporting innovation opportunities within their unique area of expertise. The best ideas come from people experiencing problems, and innovation team members cannot experience firsthand every problem across the organization. If a corporation lacks a culture that champions innovation, employees with specialized skills to navigate existing problems or inefficiencies may view those issues as a form of job security. As a result, they are unlikely to voice problems as potential opportunities for innovative solutions.

Even if only a small percentage of enterprise team members contribute new ideas, in a large enough organization employee ideas can still result in tens of thousands of concepts to review. When a team member shares an important problem worth solving based on their view of the organization, and the idea isn’t acted upon, the experience can be deflating and limit the future innovation contributions from that individual and those in their sphere of influence.

To create an enterprise-wide culture of innovation, the innovation team must democratize access to identify, curate, and test new ideas.

Here are examples of enterprise tools to do so:

• Identify ideas: The Brainstorm software combines facilitating techniques with generative AI prompts to unlock 40% more creative ideas from teams.
• Curate ideas: Idea management systems like Brightidea help organize, prioritize, and manage a workflow for large datasets of ideas.
• Test ideas: ARC Labs helps corporate teams conduct rapid prototyping of new ideas with minimal risk.

Of course, simply providing tools without context rarely creates change. Innovation teams must train (and even certify) colleagues across their organization to participate in the innovation process and recognize those who do.

Corporate benefit to leverage:

When innovation teams create a cross-functional culture of innovation, economies of scale unavailable to startups can be leveraged to drive efficiencies.

Scale reveals trends in data, helping to avoid the recency bias and the universal attribution error (more on those concepts here) to inform better decision-making. Building a database of internal innovation ideas helps to not only prioritize the most frequently presented concepts, but a large and maintained idea database can also identify synergy opportunities from complementary innovations. For example, understanding common customer call center complaints, paired with why major recent sales deals are lost, and taking into consideration the type of companies talent is leaving to go work for, can all help inform what and how to build next.

An enterprise commitment to innovation across business functions also improves employee retention, improving upon the enterprise average employee churn of 9.9%. In contrast, pursuing innovation at a high-growth startup is much more likely to lead to burnout, as evidenced by startups’ 25% average churn rate. The stability of an enterprise to incubate new ideas, paired with the passion and excitement derived from creating something new, seems to be a formula for employee engagement.

Summary

Neither startups nor corporations should pretend to be each other. Each has unique strengths to capitalize on and leverage in competing with each other. For enterprises, remembering the B.E.S.T. framework will help unlock their innovative potential and avoid common blockers. When implementing B.E.S.T. principles, it can be tempting to give up if an initial innovation is not profitable — or not profitable quickly enough.

Remember, though, that innovation often comes through iteration, not just initial inspiration, and corporate innovation must be a cornerstone of any organization’s long-term strategy to maintain relevance in an ever-changing business landscape.

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