Monday, August 19, 2013

Separating entrepreneurs from corporate innovators

It's probably a distinction without a significant difference, but I try to distinguish very carefully between entrepreneurs, inventors and corporate innovators.  While there are some significant overlaps in goals, purpose and intent, there are also some very significant differences which I'd like to explore.  Entrepreneurs play a vital role in creating new technologies and forming new companies, and corporate innovators play an important role as well, revitalizing and refocusing the energy of larger corporations.  But what they face in doing their work is very different, and both should be considered in isolation - in context of their environment.  While it seems counter-intuitive, I'll make the case that the corporate innovator, by and large, has the most difficult job.

What's common

Both innovators, entrepreneurs creating a new business or technology, and corporate innovators trying to disrupt an adjacent market or entice a new customer segment, face a daunting challenge.  Creating interesting, vital and relevant new products and services is not easy.  The vast majority of new products or services fail to achieve internal goals set by the innovation teams, much less create the hoped-for profits and revenue growth.  Developing a new technology or product is difficult, challenging work regardless of the team environment and structure.  Risk, uncertainty and doubt plague anyone who starts down the path.  Entrepreneurs and corporate innovators share the desire to create meaningful change, the ability to spot unmet needs and a passion for delivering value to customers.

What's different

Entrepreneurs are innovators who have bet everything on one idea.  Their business, their structures and processes (such as they are), their passions and their resources are all fully behind that one idea.  Nothing should deter or distract the team from their aggressive pursuit of their idea, and everything about the company should support the success of the idea.  All decisions about resources, funding, messaging and strategy should be made in support of the main idea.

Further, the idea needs to be disruptive to the status quo.  Entrepreneurs, especially entrepreneurs who seek VC funding must demonstrate a business that will grow quickly.  This means creating a completely new market or service, or significantly disrupting an existing market or service.  Few entrepreneurs will be successful pursuing incremental ideas or ideas that are "me too" in nature.  Entrepreneurs can't afford to spend a lot of time evaluating a significant range of options.

Corporate innovators, on the other hand, face a very different landscape.  They have choices - either to create incremental products in existing markets, disruptive products that may cannibalize existing products, or to enter adjacent or entirely new markets.  The risk factors associated with the latter two options often doom those approaches from the start.  While an entrepreneur faces significant risk in any decision, corporations are more comfortable avoiding or at least minimizing risk.  Corporate innovators often have to re-introduce the risk balance of risk and reward.  Further, corporate innovators can claim only a tiny portion of their organization's budget, time, resources and focus.  While entrepreneurs are "all in" on one idea, corporate innovators must understand the range of options and alternatives that any business can encounter, and understand that the idea they are pursuing is but one of many ideas that the organization can fund, along with the demands for funding by existing teams and products.  Corporate innovators face resource allocation issues, prioritization issues and tolerance of risk that entrepreneurs acknowledge but to a great extent escape.

Further, corporate innovators are rarely "all in".  Most corporate innovators have "day jobs" - that is, they have a regular 9 to 5 job in marketing or finance or engineering, and they double up by taking on an innovation activity temporarily.  While an entrepreneur eats, sleeps and breathes his or her one idea 24/7, a corporate innovator pays attention to his innovation task several hours a week at best.  Corporate innovators are frequently distracted and asked to balance a number of urgent, competing priorities.

Both face uncertain funding, but even here the differences are stark.  Entrepreneurs, especially those who are funded, face questions from their investors, but more stark is the question of burn rate.  Will the entrepreneur have enough money and time to bring the idea to market before the money runs out?  This creates a sense of urgency that is often missing in corporate innovators, where innovation activities run at the pace of business as usual.  Corporate innovators face funding issues as well - often receiving far less in available funds to do the work they need to do, and encountering the whims and demands of firms that report results quarterly.  Funds can be quickly shifted and projects halted with a minimum of explanation.

Who has the tougher job?

In my opinion, and in my experience, speaking as someone who as 1) been on the management team of a VC backed company 2) run innovation for a company and 3) been an innovation consultant, the corporate innovator has the more difficult job.  He or she has much of the same expectation as an entrepreneur in terms of challenge and growth, but often works with one hand tied behind his back, limited by the pace of the corporate behemoth and distracted by a day job.  While the cost of "failure" isn't as high as it is for an entrepreneur, the upside is often very limited and the experience can be frustrating. 

An entrepreneur knows the risks and can commit all of his or her efforts behind the idea.  There are few people to reduce or constrain the breadth and scope of the idea, and no existing investments to protect.  All focus and energy is placed behind the idea.  The entrepreneur has a far greater sense of scope and control.

How can you incorporate the best of both?

Corporations need to emphasize much of what's right about an entrepreneur in their innovation programs.  Innovation needs to be more disruptive, more creative, more passionate.  Innovation needs to move at speeds dictated by the ideas, not by funding or approval cycles geared toward business as usual.  Innovators need opportunities to introduce more risk and have more time and control over their work.  They should be allowed to take greater risks and face both the potential upside of those risks and perhaps some of the negative aspects of the risks they create, as long as they also control the resources and direction of the innovation projects.

Further, organizations must be clear about how much innovation they want, the risks they'll tolerate or embrace and what they'll fund.  Corporate innovators work in the gray areas far too often, living on hints of funding and suggestions of scope.  These need to be more definitive for long term success.  Finally, corporations should encourage competition between good ideas, and stop thinking about innovation as a zero sum game with only one winner.  Every idea that is beneficial and expands valuable relevant offerings that customers want should get a voice.

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posted by Jeffrey Phillips at 6:56 AM


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