The Corporate Startup
A Market Risk R&D Lab
At Leancamp Stuttgart, we had a number of interesting sessions. One session in particular focused on corporate accelerators as a means to help large enterprises develop innovative new products. A corporate accelerator would be similar to other accelerator programmes such as Y-Combinator and Tech Stars. The difference would be that these programmes are run for internal innovation teams working on products or services, rather than standalone startup companies.
There are various challenges to developing such an accelerator programme successfully. There are differences to work out between a startup accelerator in the regular sense and a corporate accelerator:
1. In Techstars and Y-Combinator the startup teams own their companies. The accelerator takes only a small stake. This may not be easily practical in a large enterprise.
2. In Techstars and Y-Combinator the startups can take external investments. This may also not be easily practical in a large enterprise.
3. In a large company, if employees leave their main job to join the internal accelerator how is their current role going to be covered? It still important for the large company to keep the main core business going.
4. How are investments in the new product managed? Is it a stage-gate process? If so, what are the stages? What are the appropriate KPIs?
5. There are also challenges related to incentives for innovation and how the organization spins in or spins out the new products/services being developed.
All the above challenges, and many others have to be met head on and dealt with if a startup accelerator programme is to be successfully implemented in a large enterprise. Or is there another way? One model to look at is the R&D labs that large enterprise normally build. Depending on the company, these labs are usually well funded to develop new technology and related products. It is rare that these R&D labs are also expected to test the market viability of their inventions.
At this point, it might be useful to point out a distinction between product risk and market risk. Product risk (also known as invention risk), refers to whether or not a particular technology or product can ever be made to work. Most R&D labs are set up to tackle this question head on. In contrast, market risk concerns whether the company is developing products that customers want. The critical question concerns whether customers will buy, use or adopt the product.
While it is possible for products to fail in the market because they don’t work (and there are many examples of this), the majority of products fail because customers don’t want them. As such, what companies need, running along their regular R&D process, is an R&D lab for testing market risk. Before the advent of Lean Startup, there was no real way for large enterprise to set up such a lab. What tools or methodologies would members of this lab use to test market risk? The advent of the Lean Startup approach has led to the development of various tools that can be used to test and manage market risk.
A Market Risk R&D Lab would use Lean Startup methods such as business model design, customer development, hypothesis testing, interviews, observation, customer jobs to be done, experimentation, minimum viable products, lean UX and lean analytics. Such a lab would work in parallel with the main R&D lab, testing and reducing the market risk for the technologies that are being developed. This process would provide the main R&D teams with viable use cases and business models for the products under development. A parallel market risk R&D process would also provide ongoing data about the customers’ lives and needs, and this could be fed back to the main R&D team developing the product.
The processes used by the internal Market Risk R&D team would not be the same as normal market research. This team would be working on validating customer problems, finding early adopters, examining problem/solution fit and iterating towards product/market fit. The Market Risk R&D team would be focused on validating and testing the entire business model surrounding any technology that is being developed. This would not be customers determining a company’s vision, but rather the company’s vision being tested for viability with customers. There are usually many potential applications for any technology, and many potential business models for a product. The Market Risk R&D team would work collaboratively with the main R&D teams to evaluate and test these possibilities.
In fact, the ideal case would be that every R&D lab has embedded in its processes a team of people working on market risk using Lean Startup methods. This integration could be managed at the executive level. Any thoughts about whether this is practically implementable and how it might be done are welcome. Are there folks already working on this? Please join in the conversation.
