These days it’s hard to find a big company that doesn’t have some form of innovation unit.
The “incubator”, “growth team”, “ventures team”, “garage” or whatever else will be held up as the showcase for the innovativeness and agility of the corporate sponsor.
Having worked in a few of these and had contact with many more, I have made a few observations that I hope will make sense to anyone reading this and any subsequent pieces I might write on the topic.
In this first instalment, I will take a look at the fundamental “why” of the corporate innovation unit by talking about some of the wrong reasons companies decide to embrace this type of setup.
What is a corporate startup division anyway?
As noted above these entities have a variety of names, but they are all independent or semi-independent units tasked with coming up with new ideas and executing on them while ignoring the red tape and sluggish processes of the parent organisation.
These units very explicitly embrace agile practices, entrepreneurship, rapid prototyping, disrupting, pivoting and lots of other buzz words (more on this in a future instalment). In terms of staffing there will often be an ambition to onboard more entrepreneurial people that come from radically different backgrounds.
Wrong reason #1: Everybody else is doing it
While few senior managers would admit it, this is in fact a key reason why innovation units get setup. Nobody wants to be seen as a laggard or a dinosaur to the outside world and “fear of missing out” is as strong in the power brokers of the C-suite as it is in my six year old.
This demonstrates our continued position as a key innovator in our industry.
The obvious absurdity of doing innovation by replicating what everybody else is doing and following the stream is reminiscent of the classic “we are all individuals” chant from “Life of Brian” and the desire to simply tick the box with investors and journalists will very often lead to an incredibly unfocused, half-assed approach, where nothing ever gets of the ground.
Wrong reason #2: The mothership is too slow
While the CEO may seem all powerful from the outside, the reality is that they are sitting on top of massive organisations that often resist change and move slowly. Any bold plan laid out by the leadership team will often get tamed and weighed down by reality as it moves down the ranks towards actual implementation.
The Trump-like frustration of having all the power in the world and still feeling powerless can make the separate innovation unit seem like a magic ticket.
These guys will move fast, ignoring the red tape and drag everyone else with them.
However, moving fast becomes a lot harder when the innovation team is asked to go fix the core business. Suddenly the complexities of the legacy business turn out to be very real and the outsiders brought in are often ill prepared for it. As the mothership fights the intruders to regain control and as the innovation team attempts to grapple with the complexities and myriad of stakeholders, everything quickly turns to mush.
Wrong reason #3: Gap filling the forecast
Corporates are constantly asked to divine the future and explain where the growth in revenue will come from in two years time. With stable businesses and limited scope for explosive growth in their core areas, it is very tempting to add the X-factor growth into the model.
By 2020 we expect to make X amount of money from ventures setup by our new innovation team.
While this can certainly bridge the gap in the forecasts and pushes the growth issue downstream for future managers to deal with, it is closer to my sons wishing list than any serious revenue projection for a business. Planning to start a business and see a considerable income from it in any planning period is beyond ambitious, it is naive. This goes double for a big company, for whom considerable income will often be massive figures with no grounding in reality.
For most startups and ventures break even is a distant dream. The path to massive profitability for even the most succesful business is long. While corporate ventures won’t need to bootstrap and scrounge for every penny in the early days, they are far to often saddled with crazy expectations in the medium run. This leads to nothing but dissappointment for everybody involved.
These were three of the bad reasons for setting up corporate startup units. In real life the decision will obviously be based on a combination of these, other bad reasons and good reasons. Next time I will take a look at some of the good reasons for doing it of which there are also plenty.
Hopefully you have enjoyed my initial ramble on the corporate innovation unit. Reach out with comments and feedback and do share it if you found it interesting.