Innovation is the new competitive advantage, and large companies are realising that it's 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 …).
Acquiring external innovations and merging them into a larger company is an approach that often fails. This is because the dynamics that drive a corporate for things like risk reduction and cost optimisation are totally at odds with the dynamics that have allowed the startup to thrive in the first place. Applying key practices to create the right environment could significantly increase the odds of success.
Firstly, startups are small autonomous teams that work under conditions of extreme uncertainty, searching for a repeatable, scalable business model by being laser-focused on the value that they provide to their customers. There are also many dynamics at play in a startup and an important number of constraints. For example, time and money, and the type of funding startups raise needs constant validation and proof that they're on a winning track to encourage them to keep experimenting until they are sure (in theory, but 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 so far:
1. Create a safe-to-fail environment.Running lots of small experiments is a great way to achieve a safe-to-fail environment, but an extra effort should be made to celebrate the failures as these indicate the 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 the money you would have previously spent trying to launch it. Fail fast and early.
2. Create cross-functional teams.Use multi-disciplinary teams from many different areas of expertise and various levels of management. Diverse teams not only bring very unique perspectives 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.
3. 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.
4. 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 organisation 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.
5. Have clear incentives for winners.Startups are hard. The risk, pressure and energy required to make them work need 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 compensation could be in bonuses, recognition, profit share or something similar.
The bottom line is that in a corporate environment that optimises 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 optimise to come up with new innovations fastest. And we believe that creating startups is just a more reliable way to do this.
Roger Norton is the CEO at Startup Studio Playlogix.com.