Tuesday, October 12, 2021

Why corporate innovation is harder than a startup

 Since innovation is a difficult and often misunderstood word, or perhaps just because it is used to mean different things in different contexts, it can be difficult to understand why innovation at an entrepreneurial company or a startup is different from innovation in a corporation.  I think the matter is obvious, but I wanted to explore the challenges and issues of innovating as an entrepreneur and contrast them with the challenges and opportunities of innovating in a larger corporation.

First, let's just get the record straight.  Both the entrepreneur and the corporate innovator have equal claim to the word "innovate".  Both, if they are doing their job well, are creating new products and services that have value for customers or stakeholders.  It's just that the conditions and context each faces is radically different.  Since I've had the opportunity to work for funded startups and for larger corporations, I've seen the differences, and, while I'd like to say it's getting better all the time (Modern English reference there), it's actually getting worse, for both parties.

Innovating as a startup

No one starts a business without a great idea.  The source of that idea may be frustration with the way things work today, or an insight about new products or feature, or observation of an emerging market that has new and unmet needs.  But every entrepreneur has an idea.  If they are doing their job well, they have exactly one idea, and they place everything they have behind that one idea and explore it until it wins, or until they need to pivot to a new idea or a new delivery model.  Note the emphasis on one idea.

Entrepreneurs are blessed with the fact that they need to focus everything - all mental time, all resources, all hopes and dreams - on one idea.  This focus is a blessing, since it allows the entrepreneur to ignore other opportunities or alternatives.  Since most entrepreneurs are building their businesses from scratch, and hope to have a significant impact on the status quo, they don't have past infrastructure or products to keep whole, and aren't worried about upsetting the existing market or infrastructure.  This is also a blessing for the entrepreneur when innovating - there are no existing investments or infrastructure or revenue streams that constraint you.

What has become more of a challenge lately for entrepreneurs is outrageous expectations.  In corporations, if you can create a new product, you are celebrated.  In startups, if you can't create a billion dollar unicorn in three years, people wonder why.  The unicorn phenomenon makes it exceptionally difficult to get good ideas funded, when everyone wants to see a "nine zero" or "ten zero" outcome.  

The recent shakeup in the workforce due to COVID, and due to a great rethink about how people want to work and live will create benefits for the entrepreneur.  I think good talent is going to be easier to obtain, since many people will leave their corporate jobs and start companies or join startups or smaller companies.

Innovating in a corporation

The corporate innovator can be just as much an innovation and an entrepreneur (or intrapreneur) as an external entrepreneur.  The internal innovator simply has to juggle different issues and priorities. 

First, within any company there are likely to be five to ten people who think they have a great idea that the company should fund and launch.  This means there are competing interests for an often limited set of innovation funds (assuming any funds are available for innovation).  Further, it's likely that each of these innovators have radically different ideas, making it hard to compare them and understand their value to the company.  Thus, an innovative company with multiple intrapreneurs or innovators should have a regularly evolving portfolio of ideas, which leads to selection and prioritization.

Not all the ideas in a company can get funded and resourced, so good internal innovators need to understand what is vital to the company and how their idea will be evaluated and prioritized.  A really great idea that can't get funded or resourced has no value.

Internal innovators also face the fact that many of their ideas will create great risk to existing operations, in one of several ways.  First, the idea may threaten an existing product or service which is already generating revenue.  This asks the company to bet on future earnings not yet proven over current predictable earnings, always a difficult choice.  Second, the idea may threaten not a product, but an entire opportunity or industry.  It may create a new business model or way of working that, while valuable to customers, the company cannot shift to meet, and threatens the company.  Third, good ideas may simply be beyond the reach or capability of a company, and while recognized as valuable, simply cannot be realized by the company except as a spin out.  There are more examples but you can see that corporate innovators have to confront the fact that the company is currently making money and has investments, and any new idea, no matter how good an idea it is, could threaten those existing revenue and profit streams.

There's another significant difference, but it is more subtle.  Entrepreneurs are naturally risk tolerant or even risk seeking, but corporations have been trained and refined over time to mitigate and minimize risk and uncertainty.  External entrepreneurs know and accept risk as part of their founding - many, many startups fail.  Failure in a funded project in a corporation is typically judged rather harshly, and over the last 3 to 4 decades with outsourcing, rightsizing, cost reductions, six sigma and more, we've trained a management cadre to dislike change, risk and uncertainty.  So any new idea is often called into question, and closely examined for risk.  Corporate cultures play a significant role in limiting innovation in large companies, but should not create nearly the same barriers for startups.

Funding is both a blessing and a curse for corporate innovators.  I've rarely worked in a large company that could not afford to conduct an innovation project - most innovation projects cost at most a few million dollars, from initial trend spotting and idea generation to launch of a new product.  This is a price tag that most companies can easily afford.  The funding is available, but hard to acquire.

Funding is hard to acquire for a couple of reasons.  First is the budgeting cycle.  Most firms plan and budget on an annual cycle, so if the product group or business unit did not budget for an innovation project, they either need to wait for a new round of budgeting or need to steal or borrow funds from another project.  Which means someone's ox is going to get gored in the process.  Funding is also difficult to acquire because it's easier to spend money on cost saving activities (which impact the bottom line quickly) rather than new product or service development ideas, which may generate future revenues, but not in the next few quarters.  Third, since most organizations don't have a lot of experience developing and running innovation projects, they don't have good frameworks or models about the costs of the projects.

Development and launch can be difficult for an internal innovator, because those can be different "departments".  Even if the innovator can develop and validate an idea, there are many competing priorities to get limited development and launch time, and often an innovator in a large company does not own or manage the development and marketing resources needed to complete the project.


The entrepreneur places all their emphasis on one idea, and has little concern about disrupting a market or industry.  In fact, many ideas hope to do just that.  The entrepreneur does not worry about existing products or revenue streams or competing internal products, because they don't exist.  What the entrepreneur does worry about is funding, and especially the expectations of the funders, in a time when unicorns and billion dollar valuations are possible.

The internal innovator worries about funding, market opportunities, competing projects, the risk associated with conducting innovation in a large corporation, decision making and timeliness.  Added to this the internal innovator worries about funding but in a very different way than an entrepreneur.

Both worry about the value of their ideas, their insight into market needs or emerging markets, and the impact or power of the culture of their organizations.  Both use the same set of tools and frameworks.

Hat tip to the corporate innovator

So, here's a tip of the hat to the corporate innovator, and an explanation for what draws me to want to work with them.  They have a tremendous opportunity, and a significant number of obstacles to overcome.  Not only must they find valuable ideas, they must run a gauntlet of competing interests, difficult funding mechanisms, development and launch programs they don't own or manage, and a culture that is at best neutral to what they are doing.  All the while realizing a new idea as a valuable new product or service for customers.  They are doing everything that an entrepreneur is attempting, but with many more intangible obstacles in the way.

The one really compelling factor for the external entrepreneur is job risk - an entrepreneur is betting everything on themselves, their small team and their idea.  If the idea fails, if the market shifts, if another company beats them to the punch, then the entrepreneur may have to start all over again from scratch, with no safety net.  While the obstacles for the external entrepreneur may be fewer, the results can be either much more beneficial (an IPO) or much worse (shutting down the startup).

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posted by Jeffrey Phillips at 6:20 AM


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