Friday, October 16, 2015

Why entrepreneurs should be the most logical innovation source for corporations

I've had this kind of Venn Diagram rattling around in my head for a while, because the question keeps coming up over and over. Why can't corporations innovate like entrepreneurs?  And, conversely, what do corporations have that sustain them and that entrepreneurs want to copy?  If we could document and understand both the overlapping characteristics and the differences, then perhaps we could illustrate what they can do for each other, and what that could mean for innovation.

This is admittedly inexact science.  I started out by asking myself what were the issues, characteristics or features that enabled or blocked innovation for entrepreneurs and corporations.
Here is my thinking - feel free to send me your comments or what I may have missed:


What "aren't barriers"
  • Not risk
  • Not commitment
  • Not passion
  • Not focus
  • Not ideas
  • Not existing infrastructure or business models
  • Not prioritization
What "are barriers"
  • Poor understanding of customer needs
  • Lack of market access
  • Lack of branding / awareness
  • Inability to scale
  • Legal barriers
  • Lack of resources
  • No/poor business experience
Let's look at the same analysis.  What "aren't barriers" to innovation:
  • Not ideas
  • Not market access
  • Not branding / awareness
  • Not scalability
  • Not legal barriers
  • Not money 
  • Not business experience
What "are barriers"
  • Passion
  • Commitment
  • Risk/Compliance
  • Poor/no understanding of customer needs
  • Few/no people with innovation skills
  • Priorities
  • Existing business models / existing infrastructure
What do the two share in common?
Ideas aren't an issue, customer insight or customer needs are consistently lacking or overlooked, and both lack good people with requisite innovation experience.

Now, think about this another way.  What capabilities, traits and features does each have that the other needs?  In fact it's almost a perfect match.
Entrepreneurs have passion, commitment, risk taking and the ability to prioritize and focus that many corporate innovators lack.  Corporations have market access, branding, easy access to money and legal resources that innovators and entrepreneurs lack.

So why aren't these two working more effectively together?

If corporations have what innovators and entrepreneurs need to scale an idea, and entrepreneurs have the risk taking and passion that corporations lack, why don't we see more relationships that allow corporations to reap more innovation and entrepreneurs to more quickly scale ideas?  I believe there are at least five reasons that keep these natural partners from coming together more frequently:
  • Entrepreneurs have outsized views of the value of their innovations
  • We lack good networks and meeting spaces for the two potential partners
  • We need better signalling by larger firms as to their needs so entrepreneurs know which ideas might have more market potential and financial viability
  • Everyone is worried about identifying, valuing and managing intellectual property.
  • Mutual suspicion and to some extent, contempt for the other
Let's take these one at a time to analyze and seek potential solutions.

Outsized view of the value of an idea

 One of the biggest complaints about university tech transfer offices by corporations is that the professors or tech transfer officers don't understand the market value of their ideas or intellectual property.  Even really good ideas require a lot of work to commercialize, and there can be hidden costs or traps with the intellectual property or the market.  Clearly both sides want to achieve the best financial outcome and have fiduciary responsibilities to shareholders, but I think many more innovations could come to market through larger firms if entrepreneurs were more realistic in their valuations.

Lack good marketplaces
And yes, I know all about NineSigma and Innocentive and a host of other markets, communities and meeting places.  The problem is that these simply aren't sufficient.  Client who have used these communities have been somewhat satisfied, but feel like there are too many hoops to jump through, too much overhead or infrastructure.  We need bazaars, not filtered communication.  These interactions should look more like buying spices in a middle Eastern souk than acquiring IP in a New York law office.

Few signalling mechanisms
If an entrepreneur wanted to create a new technology or grow a small business that could be scaled by a larger one, how would they know which technologies or businesses or products larger firms are interested in?  Larger firms have a difficult time communicating their strategy to their own employees, let alone outsiders, and strategy and direction frequently change.  Some companies do a good job of signalling where they are going and what they'll need, and thus are better at hinting to their potential partners about the technologies to develop or products to create.  Most, however, live in terror that other large competitors will receive the signals and parse the data.  What they don't know is that most large organizations couldn't interpret Morse Code sent in the clear with a guidebook, and wouldn't know what to do with the data even if they decoded it.

Identifying, validating, valuing and managing intellectual property

 As noted earlier, if professional tech transfer folks get the value proposition wrong, can we hope to improve the valuation, management and transfer of intellectual property?  Only as the number of transactions increase and experience grows.  Again, we lack a true marketplace, where scarcity and bidding will establish a closer valuation of the property.  And, that may be one of the complaints of the walled garden that open innovation communities create - there's little price signalling or learning and little learning curve experience, so every market encounter is almost a completely new experience.  The more we can make the exchange of intellectual property, ideas and emerging products into an open marketplace, the faster the exchange of ideas will occur.

Mutual suspicion or even contempt
Small companies and entrepreneurs sneer at larger companies, thinking of them as slow dinosaurs, unable to adapt to the new realities that are being created by nimble competitors.  They disdain the procedures and policies, the slow, careful consideration, the compliance and legalese of corporations.  But they'd love to lay their hands on the larger firm's access to capital, to markets and customer awareness.  Conversely, larger firms look down on small firms or entrepreneurs, thinking that they operate in a cloud, with few controls and high variability.  Entrepreneurs often make promises their companies and products can't keep, and many fail in just a few months.  Credibility and follow through are often lacking.  But what the larger firms wouldn't give for more passion, more disruptive thinking, more experimentation and the speed and agility of a smaller firm.

I cannot imagine why every corporation over $100M in revenue doesn't have a business development person actively looking to acquire intellectual property from entrepreneurs, or seeking to make capital investments in smaller firms in exchange for first rights to new products or technologies.  For a few hundred thousand dollars of investment (about the cost of two or three good middle managers) corporations could invest in a handful of nascent upstarts and claim some ownership and perhaps even signal key needs. 

Moving from contempt to mutual success

The time is right, and right now, for the distance and suspicion between entrepreneurs and corporations to diminish.  Both players have real needs that the other can fill.  Corporations need more innovation, newer and better products and more agility.  Entrepreneurs can provide those, and more.  Entrepreneurs need scalability, reach, market access and most importantly, capital.  Large corporations can provide these, and more. 

What we lack is a true marketplace - a virtual bazaar that allows open communication, price signalling and the other characteristics of a true market while ensuring the viability and value of every participant's intellectual property portfolio.  What few understand, however, is that intellectual property, ideas, patents and other factors are increasingly time based.  Good innovators will find another way to solve the problem, so simply sitting on patents and suing other firms isn't a winning strategy, and doesn't grow opportunity.  It's probably better to get into this market and exchange ideas and information more rapidly, and speed up your ability to commercialize good IP, than it is to build more protection around your intellectual property and slow your ability to negotiate and commercialize what you have or what you can acquire.

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posted by Jeffrey Phillips at 5:49 AM


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