The enterprise as startup – some thoughts on innovation

I have not failed. I’ve just found 10,000 ways that won’t work.
– Thomas Edison

Innovation is a remarkably trendy and popular topic of late, but don’t let that deceive you. Companies have always needed to be responsive to their environment, regardless of whether that means process optimisation, new products, or new customers. The ones who were not responsive, or who responded in a way that adversely effected that environment (e.g. the customers hated the result), ultimately fail.

And at the same time, many of the disruptive ideas and businesses challenging the current leaders are lead from people previously within the company. Many would argue that the sense of disengagement felt by more and more employees is the cause, but I’d like to take that a step further. Ultimately one of the primary reasons that people are leaving businesses to create startups (beyond ‘more money’, although that isn’t always realised of course) is that they lose their sense of agency.

When employees feel that they no longer have their own capacity to control their domain, or execute ideas – particularly those they think will benefit the company – they inevitably end up leaving. Sometimes this is entirely predictable, as when Dave Duffield left Oracle after a $10.3bn hostile takeover only to start Workday, which currently has a market cap of $15.7bn. His cofounder Aneel Bhusri said in 2013:

Every time you see a new paradigm emerge, it’s always new vendors that lead it. I can’t think of one case where an incumbent led a paradigm shift.
Aneel Bhusri

Perhaps this was the motivation behind the change: after being acquired, the only option they saw was to start something new to be able to ‘disrupt’ the industry (again). That mentality is a pretty common one, and a core hypothesis in Clayton Christensen’s The Innovator’s Dilemma, which brings about the ideas of sustaining versus disruptive innovation.

But many companies are fine at sustaining innovation. Few would exist for many years without some kind of improvement cycles, regardless of whether they use ‘agile’ or ‘waterfall’ or any other type of project management framework, or whether it is confined to an R&D or M&A department.

It’s the lack of what Christensen calls disruptive innovation that ultimately gets them. Whether it’s the demise of MySpace, Christensen’s example of hard drive manufacturers, or Kodak’s decision to double down on silver halide film rather than embrace the digital technology they themselves built, these disruptions have toppled many leaders. We are currently celebrating the victory of Salesforce.com and ‘cloud software’ – but what will come next? I have little doubt that unless they play their cards well, Salesforce.com (or Facebook, another ‘unicorn’ startup of late) will be yet another Kodak in the future.


Where does disruptive innovation come from?

The core idea of disruptive innovation is a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors (source). And that sounds a lot like a startup. Indeed, this idea of a simple ‘thing’ providing better value (in the eyes of the customer) than the huge, complex, feature-complete (or more-than-feature-complete: over-delivering on features) solutions is what has always driven startups, particularly in the B2B/B2G/enterprise space.

Christensen’s book was published in 1997, but the idea of these simple and iterative applications has really taken off in recent years thanks to the idea of ‘lean’. While people often credit Eric Ries for the work in producing the ‘lean’ framework for startups, I like to think that older books raised the concept well before 2011. Jack Matson wrote in 1996 the following story about innovation:

The bird collects twigs and places them on a small ledge. The wind blows some of the twigs away. The bird sees this and brings in larger twigs. A rainstorm washes some twigs away. The bird replaces those with heavier twigs. Eventually the nest is built. For the bird, each failure provides a partial truth. When sufficient knowledge was acquired, the bird is able to build a lasting nest. Multiple failures contained the partial truths with which the bird is able to achieve its goal.
– Jack Matson in Innovate or Die

The bird’s process is remarkably like the iterative model championed by The Lean Startup (in 2011), albeit perhaps a bit less practical: where Matson covers the theory, Ries covers the step-by-step execution of bringing a new product or service to market.

And boy, is that process different to how most enterprises approach innovation.


 

Taking a brief departure from this story, some personal history.

I’ve worked broadly in ‘disruptive technology’ (most often social media) for some time now, initially as a consultant to many large and small businesses, and more recently internally in a large government entity. You could map the adoption of this technology almost against the size of the business: much like Amazon in eCommerce, the smaller, more nimble businesses would drop a line into the water early, and see if the fish would bite. This was the greatest thing about pureplay digital channels: the ability to track and measure how different channels contribute to returns.

But the larger businesses wait. They won’t go fishing in a space until there are already hundreds of giant trawlers on the horizon, showing that someone must be getting something, and it’s at that point that they will begin using the disruptive technology. That’s not a hard-and-fast rule, but certainly has held pretty consistent from my experiences.

It’s expensive to wait though. These businesses are entering into a space already filled with competitors doing the same thing – which means it becomes a situation of who can spend the most, in order to game a particular metric (the 2010/11 “Like wars” being a good example, where everyone fought to have the most Facebook Likes).

I don’t doubt that at one point, early on, some of these businesses’ employees will have suggested the idea. Maybe it was ‘too risky’, perhaps ‘unproven’, perhaps ‘no budget’, perhaps ‘no time’, or otherwise written off as ‘well you don’t have the skills to execute that’.

And that attitude is the thing that kills disruptive innovation. The ‘blocker’ attitude. Because ultimately in most industries, the cost of entry to many of these spaces is astronomically low. Technology industry commentator Ben Thompson wrote in a footnote of an article about open source technologies:

there are so many startups not because there is an inordinate amount of money available, but because it is so damn cheap to get off the ground
Ben Thompson

It is insanely cheap. The money available is certainly still pretty insane, but these days you won’t get far with an idea unless you have either a previous big exit, or demonstrated early success – usually a ‘minimum viable product’ and some potential customer feedback (or better, customers).

While we continue blocking employees from discovering and executing on ideas, we wreck internal employee engagement and satisfaction, and lose the capability to be a part of the innovation. Sometimes, businesses will lose the employee altogether – and I don’t need to write about the cost of high turnover.


 

I’ve written a lot of thoughts, but not (m)any answers.

There isn’t one single silver bullet to employee-driven disruptive innovation, no matter how much the “intrapreneurs” (I hate that term, an entrepreneur working within a business’ framework is no different to one working with a venture capitalist) might like people to believe otherwise.

The common barriers to improving the balance are:

  1. Culture
    It almost goes without saying that without a culture that empowers employees, you won’t see them contributing much back to the organisation outside their existing employment parameters (i.e. job description). Culture is hard to change, and change happens slowly – some won’t change at all. John Kotter’s 2007 HBR article, Leading change: Why transformation efforts fail is a great point of reference here. More on this later.
  2. ‘Cost’ driven work
    When the main thing your business cares about is cost, innovation becomes expensive. While it might pale in comparison to the cost of Ms&As or R&D departments, there is a strong perspective (and one without at least some valid points) that employees shouldn’t value-innovate: they should do what they are hired to do (and presumably experienced to do).
  3. Siloed innovation
    Following on from (2), putting innovation into a silo makes it hard for others outside the ‘function’ to contribute. Whether that’s an ‘innovation team’, an R&D department or a consulting firm, reliance and expectation from a third party isn’t a healthy way to innovate – it just shows desperation.

But what are the enablers?

  1. Culture and people
    Culture can also be an enabler. Businesses which already have an attitude that ‘all ideas are good ideas’, or invest in encouraging employees to test and iterate their ideas will see both an uptick in engagement, and value generated.
  2. Knowledge
    Employees need to know that they can innovate, but they also need to know how. Perhaps the role of the future ‘innovation team’ will be to teach others about ‘lean startup’ paradigms, or enable/facilitate people to test an early idea for viability, rather than do the work themselves.
  3. Money
    Money is important. While it’s cheap to enter the technology space, not all ideas are pureplay technology or digital, nor should you expect employees to be forking out their own money for your R&D. Again, difficult to get a balance – see my comments on equity below – but very important.
  4. Drive
    Passion and drive are two of the biggest hallmarks of entrepreneurs. The most common way to give someone drive is to give them a piece of the pie – equity in what they create. Now that’s legally complex and tax becomes difficult for everyone involved, but without the ‘skin in the game’ why should they try and reinvent your business, or produce something of potential massive value?

So what should businesses do? What should change?

I have a number of ideas about how innovation should be approached, although of course every organisation is unique, and what works for one will doubtless not work for another. I like to describe it as the “enterprise as startup” model of innovation, rather than a ‘lean enterprise’ or other buzzword combination, which will inevitably become outdated, and typically involves huge radical changes that are simply beyond the horizon for many existing enterprises. GE didn’t become the modern GE overnight by adopting a new framework.

  1. Invest in people.
    You need to invest in the people you have. Not just because it’s more costly to continually replace them, but I think that’s what businesses are for: to improve people (employees? customers? society?).
  2. Give your people a taste of the startup world.
    Enterprise and corporate paradigms are so far from startups it’s just not funny. My transition(s) between the two have been remarkably challenging, seeing the many inefficiencies with seemingly little desire to fix the underlying problem. Get your people to spend time with startups. Put them in one for a while full-time if you can – I think it should be for 6-8 weeks, so that they can see what it means to “ship something”.
  3. Give people (back) their agency.
    Adobe’s Kickbox program is an example of formally ‘giving employees agency’. The idea is that any employee can grab a ‘kickbox’ which contains the basic steps of validating an idea with potential customers/users/stakeholders, and a $1000 VISA card to spend on whatever they want. You don’t need to keep receipts, you don’t need to write business cases or justify your direction with bosses, you just get out and do it. A fantastic idea for the people itching to do something different – even if it won’t help the many disengaged.
  4. Set your risk tolerance to ‘high’.
    New ventures are risky, and you need to accept a significantly higher level of potential risk of failure. Of course, this doesn’t mean that you should change enterprise risk matrices to invest billions into high-risk ideas. But where an idea won’t impact on core business but produce value for the organisation, do it. “Chunk” a high-risk project into smaller projects, and test the waters first – the hallmark of a truly lean approach.
  5. Ship it fast, sink it quickly.
    It seems stupid to have this as a point. Iterating on an idea as quickly and simply as possible is almost a no-brainer, but it needs to be said. Similarly, don’t let your people fall into the trap many entrepreneurs and businesses do (myself included): flogging a dead horse. Let the idea fail, let it sink, and move onto the next one – or maybe wait for the next big one™ to appear. The faster you can ship and get feedback, the faster you can sink an idea that smells. But prepare your people for failure, and try to adopt a culture where failure is okay – the paradigm should embrace failure, where failure means something is learned, rather than fear it.
  6. Help, or get out of the way.
    Sometimes you just have to get out of the way. If you won’t help (for whatever reason), get out of the person’s way. For all you know, they might be about to create the next Facebook, Workday or Salesforce. And you’re much better off having that knowledge and expertise (let alone profit) internally than on the outside.

Something I haven’t really covered here is what to do when an idea looks good. A topic for another time, and another minefield to navigate, but just as important as having the idea.

Unlocking internally-driven disruptive innovation will be one of the things that separates the ‘good’ companies from the ‘great’ companies of the future. And it all revolves around people. Startups aren’t ideas, they aren’t execution, they are people. And for enterprises to gain value from their principles, they need to invest in that commodity.

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