10 Ways for Corporates to Innovate Like Startups
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* This article was written by Roger Norton, Product Lead at Founders Factory. [ Edited by Ighlaas Carlie ]
10 Ways for Corporates to Innovate Like Startups
Innovation is the new competitive advantage and large companies are realizing that its hard to do when culture, processes and mindset don’t support this new way of thinking.
Startups however, are increasingly proving to be great vehicles for creating innovative products as they continue to disrupt markets and outcompete the more entrenched larger and slower companies. (Until they get acquired at least…) We have been looking at lessons about innovation that corporates can learn from startups, and what can they do differently to better compete.
Acquiring external innovations and merging them into the larger company is an approach that often fails. This is because the dynamics that drive a corporate for things like risk reduction and cost optimization are totally at odds to the dynamics that have allowed the startup to thrive in the first place. Applying these 10 practices to create the right environment will significantly increase the odds of success.
Firstly, let’s look at some of the characteristics of startups: they are small autonomous teams that work in conditions of extreme uncertainty, searching for a repeatable scalable business model by being laser focused on the value that they provide to their customers.
“A startup is a temporary organization in search of a repeatable scalable business model.” — Steve Blank
There are many dynamics at play in a startup and an important number of constraints. They are constrained with time and money and the type of money that they do raise needs constant validation and proof that they are on a winning track and encourages them to keep experimenting until they are sure. (In theory. In practice, it’s a lot messier…)
To recreate these startup constraints, while removing the big corporate ones is no simple feat. Here are some tips on what helps that we’ve picked up along the way:
What to do
1) Run many small projects simultaneously, not a few large ones.
You’re not going to get the best ideas in the beginning (no matter how good you think it is now) and running lots of small experiments allows you to ‘learn how to learn’ faster and increases your odds of finding amazing opportunities. It's a numbers game - ask any venture capitalist. This also allows you to focus your energy and capital on what really matters and leave off the ‘nice to have’ features.
2) Create a safe to fail environment.
Running lots of small experiments is a great way to achieve this, but the extra effort should be made to celebrate the failures as those indicate things that you’ve learnt. It’s also important not to overhype small experiments and create high external expectations. Every project you invalidate early saves you all the money you would have spent trying to launch it previously. Fail fast and early.
3) Create cross-functional teams.
Use multi-disciplinary teams from many different areas of expertise and various levels of management. Diverse teams not only bring a unique perspective to each problem, but they also allow the space for the idea to morph into a bigger opportunity in an adjacent area. Hierarchy-bridging teams help allow decisions to be made fast and implemented faster. You need to keep the feedback loops tight.
4) Have a single driver for each project.
If you’re trying to build a startup you need an ‘entrepreneur’. One person that is involved in every aspect, has all the context and can make decisions really quickly. The buck needs to stop somewhere and at least one person needs to be 100% focused on making it work. This person also needs to document the project and decisions along the way, something that is critical when needing to report to the traditional business.
5) Have a clear validation path for each project with clear milestones that needs to be followed.
Mapping out clear objectives, what is expected at each stage, what support is available and what the team should be focusing on at any given time helps create the laser focus on what’s most important. It should also set out time and budget limitations throughout the process. (We’ve put together the Lean Iterator process under a Creative Commons license to help with that.)
6) Focus on solving a customers problem, not on a particular solution.
By trying to build a particular product, it’s not complete until it is and that means that you can’t learn anything until the end. By focusing on a customer's problem you will easily find ways to make improvements early on and you will learn your way to the best solution. It also means you’re more likely to build something people actually want. (This point I’ve covered in detail here.)
7) Identify the business unit that will be the custodian if it works and engage them early on.
If it works, then the project is going to need to move onto a departments balance sheet and keeping them in the loop of the project from early on will help you build something that makes that process much easier. Find out what their KPI’s are and how you might impact them. Understand the corporate governance restrictions that you’re going to have to navigate. This is one of the biggest failures of the “successful” projects that I’ve seen.
8) Define success before you run experiments and review regularly.
Every experiment needs a hypothesis. You need to know what you’re testing for before you start. Clear success criteria help you work out what is most important and is the easiest way to prevent getting distracted on things that don’t matter. It helps you hear the signal in the noise. Research competitors as early as possible to make sure you’re differentiated and keep testing for feasible revenue streams early.
9) Allow anyone in the company the opportunity to try something.
Innovation is not limited to an “innovation team” or a particular level of employee. To build an innovative culture and environment you need to allow anyone in the organization to try something, give them the time away from their normal responsibilities they need and not punish them when they go back to their role.
10) Have clear incentives for winners.
Startups are hard. The risk, pressure and energy required to make them work needs to be worth the reward. The type of reward will depend greatly on the project but there should be a rewards framework defined up front. This could be in bonuses, recognition, profit share or something similar.
To achieve great things, two things are needed: a plan, and not quite enough time. — Leonard Bernstein
The bottom line is that in a corporate environment that optimizes for cost reduction, failure is seen as a waste. But failure is inevitable when you are trying something that hasn’t been done before. It is better to optimise for “maximum learning”- which is how you come up with new innovations fastest. And we believe that creating startups is just a more reliable way to do this.