PODCAST: Innovate or Die: What Startups Can Teach Corporations
Amer Iqbal was recently interviewed on Tigerhall on the topic of why incumbent corporations need to innovate in order to survive and what they can learn from the world of startups. Listen to the podcast on Tigerhall >
The average age of a $1billion unicorn is just 6 years old – the S&P Top 10 is being taken over by startups and the incumbent corporates are falling over themselves to capture some of this startup magic.
Why is there such a sudden spike in demand for innovation in the industry now?
We’ve entered the age of exponentialWhile it used to take roughly 100 years for a new technology to disrupt an industry, this drastic shift can now happen in just 5. Look at the financial services industry for an example, with incumbents suddenly feeling under attach from all angles with digital wallets, crypto currency and virtual banking licenses. Their entire industry has suddenly been upended and they’re not quite sure what to do. Whether we like it or not, the platforms are already burning.The good news is it’s easier than ever to build startup-like capabilities. With the rise of digital, we’ve seen some large organisations really get it right. They’ve managed to hire the right talent, given them access to real business problems, and – just as importantly – gotten out of their way and given them the freedom required to innovate. When it is done right, organisations are much better equipped to navigate an economy that is in constant flux, rather than lurching from one re-org and re-platforming to the next.
What is the biggest challenge in this and how can people overcome it?
Executive engagementA lot has been written about “Executive buy-in”, which implies that the challenge is making a business case for seed funding to your C-Suite. Given the sheer number of innovation labs and corporate incubators that have sprung up, funding and buy-in is clearly no longer the challenge. So the absolute biggest challenge is getting the execs to care about your innovation initiative and get personally involved.The real job of an innovation leader is to create the space for their team to innovate without constraints – you don’t want innovation teams being pressured to deliver impact on quarterly revenue targets or other short-term business metrics. Once you’ve managed to get execs involved, the real work begins on keeping them engaged – as the old saying goes, the best way to get someone to believe in your idea is to make them feel it was their idea all along.
What are the top 3 most important things that someone should know about this?
If you’re not already innovating, you’re already behindWhy corporates should be innovating: the average age of a unicorn is now 6 years old. Companies younger than 30 generate 4x shareholder value as older companies. Spend 5 minutes Googling and you’ll find many different stats that all tell the same story: innovate or die. If you’re still questioning whether you should invest in innovation, it may already be too late.Corporates shouldn’t try to be a startup, just introduce some behaviours that are more startup likeThere’s a great book on the topic called “Dual Transformation” by Scott Anthony where they articulate a concept called the “Capabilities Link”. The idea is there’s actually a lot of strengths that can come from the parent company – instant market reach with an existing customer base, Intellectual property and patents, easy access to growth capital, etc. So the trick for large incumbents is to really marry the freedom and fluidity of a startup, with the built in advantages of the corporate – it’s a balancing act but with the right mix it can really make a big bang.If you’re working for a corporate that is not already acting on innovation, start looking for another jobAccording to Deloitte, the half-life of a skillset is now 5 years old, meaning you need to constantly be working on new business problems in order to remain relevant in the job market. If you’re not being given the opportunities to work on disruptive projects, the impact on your career is going to be increasingly tough.
What does it look like behind the scenes when big traditional corporations try to behave like a startup?
What can we learn from history that tells us something about the state of the industry today?100 years ago, at the height of the industrial revolution, factories used to be powered by steam – you’d burn coal to boil water, that generated steam to spin turbines and that’s how you powered your machines. Then along comes the invention of electricity – this great, powerful, transformative new technology comes along and is set to revolutionise the way business is done. But how did factories use it? They used electricity, to heat water, to create steam, to spin a turbine. They saw that electricity could transform their business, invested heavily, but they were too scared to break the existing model and so the investment was largely wasted – it gave them a 10% boost at best. It wasn’t until someone came up with the bright idea of hooking the machines up directly to the electricity that the industry accepted they didn’t need steam and turbines anymore – and the industry was transformed. The gains were 10x now, as they could run factories around the clock with little human interaction.As silly as this sounds in hindsight, we see the same pattern with today’s technology advances. Most corporates in Asia have exponentially increased their technology spend, building the Ferrari of tech stacks. But are they really getting 10x benefits from this technology investment? Everyone is buying the same technology, so there’s no competitive advantage gained; There is little investment in changing the operational processes to harness the power of this new tech – if you still have to go through lengthy business cases, operate in departmental siloes, and have many layers of management involved in every decision, it’s unlikely that your people are going to create any major industry disruptions. So the CTO continues to increase budgets, but everywhere else there is largely status quo – everything stays the same, just like the factories.Only when companies can accept that innovation may break their existing operations and business models will they truly move forward and extract returns from their innovation investment.
What is the step by step process that companies can use to innovate?
There is no playbook for innovationIt’s a natural human reaction to want to distil everything into a nice refence guide, something like a “Business transformation for dummies”.In his book “The Checklist Manifesto”, Atul Gawande puts forward a simple framework for deciding how to tackle a business problem: Is it Simple, Complicated, or Complex?An example of a simple problem is baking a cake – as long as you have the ingredients and the recipe, pretty much anyone can follow the instructions regardless of experience.A complicated problem is like launching a rocket ship – there’s a lot of very involved pieces to the solution, you need experts to work together to bring their teams expertise together… but once you’ve launched your first rocket into space, it becomes fairly routine to repeat the process again and again. You can build a playbook to how to launch a rocket.A complex problem on the other hand is like raising a child – even if you’ve raised other children before, each one is unique. They have their own personality and behave completely independently. No amount of past experience will give you a playbook. The only way to succeed is to have the right mindset, be willing to test & learn, and gradually come to grips with how to correctly raise this particular child.So – if you accept that transforming your business by nature will require you to innovate and move into the unknown, you probably shouldn’t approach it the same way you bake a cake. There are unique factors that will shape how you approach it based on the type of business you’re working in. You need to create a mindset of evolution and understand that failing forward will be the key element to eventually creating success – and much like raising a child, there is no finish line.
How long does this process take?
Innovation isn’t a project – it’s more like managing a portfolioMany failed innovation efforts have shared one thing in common – they used a traditional approach and treated it like a finite project. They assigned a fixed budget, a timeline a project team, and a steering committee. They demanded status reports and required business decisions to run through their existing layers of governance. What happened when they go to the end? The landscape around them had changed, whatever output they’d produced was based on an outdated business case and was irrelevant, and they had to start over again.One of the things we can observe from the startup world is that they don’t really look at it as a project at all – it’s closer to a state of constant fluidity. In fact the most successful companies are those who treat their innovation initiatives more like managing a stock portfolio: they have a diverse set of investments and bets, and they constantly measure and adjust – kill off the ones that aren’t working, but also doubling down on those that do, and are always be open to new opportunities as they arise. In this way, they’re able to plan for the unknown unknowns that will undoubtedly come up, successfully navigating an economic environment that’s in constant flux.
Once an organisation has successfully launched an innovation initiative, how can they improve further?
Continuous Improvement through test, learn and implementBorrowing from the Japanese concept of Kaizen, it’s a process of continuous improvement. They learn to embrace failure from a corporate standpoint as a way to quickly learn and adapt.For larger organisations, one of the most overlooked elements is the ability to formalise something that has led to success. Startups are good at this, identifying something that’s successful and locking it in place. However, they do it in a mostly informal way – with a workforce in the thousands, this can be difficult to achieve through mere culture shift.So from a corporate standpoint, this is where you can introduce a particular policy or method. In one example, we saw a HR department shift their performance management to a whole new set of success measures and overhauled their review and compensation processes. They may seem like dry things to deal with, but these small incremental changes help to solidify and harden organisational processes as they learn and flex, allowing experimentation to migrate into new areas without unnecessary constraints.To borrow from another ancient Japanese model, the concept of “Shu-Ha-Ri” has been described in the context of how corporates can implement agile adoption patterns over time. In the early stages, it requires adherence to formal processes in the early stages, gradually shifting to a flexing and customisation over time as the organisation moves towards mastery. This is an excellent example of how large organisations can adopt and adapt lean startup principles in way that lets them gradually get smarter over time.
If someone wants to help the corporation behave like a startup, what are 3 actionable steps this person can take within the next 24 hours to get closer to that goal?
“In order to create unusual results, you either need to do unusual things, or do usual things in an unusual way” – George Zeng, Product Manager at FacebookStart close to homeInnovation isn’t just something that happens in labs and at the fringes of a company. No one knows your role or area of expertise as well as you do so never feel like your ideas are any less valuable than anyone else's. If you can see a way that your team can work more effectively, or how you can create impact in other areas of the organisation, don’t be shy to put a point of view out there. If there’s a way you can prototype something and show even some small, measurable impact, you’re never going to go too far wrongAsk for forgiveness, not permissionMany years ago I used to work at a digital agency where we had a producer who strongly felt there needed to be a technical production department to work closely with the tech developers. So one day after arguing his point, he just picked up his laptop and went and sat down next to the developers. Within a few weeks he’d shown results and that was literally the birth of the technical production department. If he’d waited for a business case and formal approval it probably wouldn’t have happened. If you work at a very formal investment bank, it’s probably not going to work exactly the same – but don’t let perceived constraints hold you back. You’ll probably discover that many of the constraints disappear once you can show how things can be done differently.Find your championsLike Steve jobs when he took over a building for the Macintosh team and flew the pirate flag, you need to know who your co-conspirators will be. If you can get some senior allies on board with what you’re trying to do, you’ll be surprised at how quickly the barriers can melt away. Pay heed to the African proverb: If you want to go fast, go alone. If you want to go far, go together.