Corporate Innovation Structure: Techstars Has It Right
The Better Alternative to Skunkworks, Intrapreneur Programs, and Innovation Labs
Disclosure: Techstars is an investor in my company, Javelin. My arguments below focus on the mechanics of their corporate innovation program.
There are three primary innovation structures used in corporations today: skunk works, intrapreneur programs, and innovation labs. History has shown that none of them work for disruptive, new product development. Luckily, new structures are emerging and starting to show success. Let’s talk about one such example.
In November 2011, Techstars partnered with Microsoft to run the first Techstars Corporate Accelerator, and created a structure that’s proven to be a model for early-stage innovation success.
Techstars and Microsoft chose eleven teams among hundreds of entrepreneurs, who applied from around the world and within Microsoft. The teams were tasked to build new products under the theme of anything that could interface with Microsoft’s XBOX Kinect technology. They were each given $20,000 and three months of mentorship provided by Techstars’s network.
The teams retained 94% ownership of their work and products. Microsoft didn’t take any IP rights but owned equity in the companies through a Limited Partnership (LP) relationship with Techstars. At the end of the program, the teams participated in Demo Day, a private event that brings outside investors to hear pitches of what the teams were working on and allowed the companies to announce an opportunity to purchase shares in the company.
Corporations might find it strange the teams were not required to take follow-on funding exclusively from Microsoft or Techstars, but that’s part of the secret sauce. Without the marketplace for shares of new products, they wouldn’t be valued properly. Case in point, Microsoft acquired one of the teams (composed of ex-employees) immediately after the three-month program for $5M. Instead of feeling swindled, they realized something profound: they couldn’t have identified the tremendous value of that team on their own.
Since 2011, Techstars has done three additional programs with Microsoft, plus programs for Nike, Sprint, R/GA, and Kaplan. The corporate innovation model of the future looks more like Techstars and less like intrapreneur programs or innovation labs.
The model is ideal for three reasons: it attracts and incentivizes entrepreneurial talent, teams are valued by the outside market for venture capital, and the model facilitates a large sample size which could result in a big hit. While Techstars has a great model, it’s not the only one that works. We will continue to delve into others in future posts.
I’m writing a book with my co-author, Obie Fernandez, on corporate entrepreneurship called The Lean Enterprise.
Learn more on our book’s website:http://LeanEnterpriseBook.com
You can also follow The Lean Enterprise collection on Medium for regular updates and ideas on the subject.
If you found any value in this piece, it would mean a lot to me for you to hit that recommend button.
