Sample Size and Early-Stage Innovation Returns

The Challenge of Turning Ideas Into New Businesses

For corporate entrepreneurship to work, teams must be autonomous and given both upside and guaranteed runway. But this merely establishes a playing field for success. For executives to have a hit, they need to take enough swings at the ball.

How many swings are enough?

It’s well documented that for venture capital portfolios, one out of every ten investments earn a disproportionate majority of the returns. The other outcomes are considered the cost of doing business. Venture capitalists invest in roughly one out of every fifty companies that pitch them, so the prototypical big winner comes from a sample of about five hundred companies.

Yet venture capitalists invest after an entrepreneur has developed a product and found a market. Corporate innovation labs are more like angel investors or accelerators, they’re investing based on an idea or prototype.

Data from Y Combinator (YC), a Silicon Valley-based accelerator, shows the necessary sample size increases dramatically in the earlier stage. YC has funded 438 companies and had just two hits, Dropbox and Airbnb. That’s from a total of 10,000 startups that applied to the program.

Unthinkable.

The early stage game is about finding the needle in the haystack. Angel investors and accelerators who understand the need to find big hits focus their efforts on attracting entrepreneurs from around the world. It’s time corporations do as well. And if established accelerators need a sample of 10,000, corporations will need as many or more.

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.

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