Chalk and cheese innovation
In the recent months I have met numerous start-ups and enterprises trying to make an innovation engagement successful. I have seen goodwill on both parts and an honest intent to achieve a successful outcome. Yet many engagements do not come to fruition and generate more frustration than positive results. The start-up and the mature enterprise do not speak the same language and do not work on the same clock.
I have captured some key observations and suggestions to overcome the obstacles.
Why do they need to work together ?
The enterprise needs to have a clear objective to engage a start-up and set the expectations right, the most generic reasons are :
- pilot an innovative product/service quickly squeezing the internal lengthy R&D processes
- solve a business pain point
- test new markets with limited risks and contained budget
- develop an internal entrepreneurial culture
The start-up very often in its early stage is desperate to :
- validate an MVP with a larger number of users
- prove its business model
- win its first paying customers to raise capital
These are crucial steps to continue its growth and attract VCs funding. It is very often a matter of survival.
The criticality of the engagement can already initiate friction. The future of the startup may depend on the successful engagement whereas the enterprise future will rarely be at risk short term. Yet, I have seen executives in large enterprises betting their future on the outcome of the engagement. It is important to understand right at the beginning what is at stake for both.
On the enterprise side
Regardless of what they claim many enterprises do not operate in an agile mode. Their organizations are still silo’d and cannot work transversally. Even with a culture of collaboration, each department has its own KPIs and employees even empowered and autonomous are rarely rewarded for contributing to other departments success. There are several options to succeed :
The enterprise creates a sandbox for innovative engagements. It takes a C-level function such as Chief Innovation Officer, a Marketing executive, a Digital Officer to sponsor the initiative and establish the governance. It has to be a board level initiative where each head of function circumscribes the risks he/she is willing to take and the budget assigned. It is a painful process but it needs to happen only once and then can be replicated enabling agility to work with a start-up. A framework is designed with a pre-formatted contract that will require one or two signatures with pre-allocated budget. Some companies chose to have a review board which can also be part of the regular board meeting to monitor progress and compliance. The framework defines how the projects are picked-up. In this initial phase some large companies entrust an innovation team to research and select the start-ups. We are not speaking business as usual here, an innovation engagement has to produce breakthrough results based on inspirational goals hence units that do not depend from the regular operations are preferred.
Other enterprises engage incubators that scout relevant start-ups, present them for selection and even manage the whole programme in an “innovation as a service mode”. Enterprises who chose to use incubators services plan to import innovation techniques, bypass the internal politics. They still need a framework to work with the start-ups who cannot wait six months for a budget sign-off. Incubators, often regional, open up innovation programmes to mid-size companies that cannot afford running them in-house.
The execution phase should always require an operational involvement from the enterprise. This constitutes a tricky phase as you want to include knowledgeable professionals who are willing to challenge the status quo and feel safe to fail.
On the start-up side
By definition a start-up is a lean and agile organization, in its early phase chasing cash and in its later phase at risk with its cash flow. Start-up founders feel a sense of urgency, the future of their young companies often depend on the outcome of the co-innovation with the enterprise. It will enable them to raise funds, scale and generate sufficient revenues to prove the business model. For these reasons start-ups tend to accept and agree to many asks without proper due diligence. They perform all activities in an agile mode, crisis and surprises often make their daily routine. This is the reason why the initial step of expectation setting is critical. A key to success is to document clearly (a one pager should be enough) what is at stake for all parties and how they will work together. For example, if a start-up needs to increase its number of paying customers and the enterprise focuses on spreading an entrepreneurial culture internally by providing mentorship, this is clearly not a match. Likewise, if a young start-up has only 3 months cash left, the innovation sponsor in the enterprise needs to know and consider the necessary funding to achieve his/her goals.
The start-up also needs to keep in mind its initial innovation idea and not dilute it too soon under the enterprise pressure that organically tends to absorb new idea, digest it and map it to the existing processes rather than disrupt. A third party involvement like an incubator, an innovation centre ensures the innovation stays the top priority. Nonetheless the start-up, confronted with market reality, needs to validate its assumptions, business model and may come to this crucial point of “pivoting”. “Pivoting” can be a difficult phase for the founders who may feel they betray a dream for which they have dedicated so many hours of their life. “Pivoting” can also occur almost transparently in the iteration phases of the co-innovation program.
What is a successful outcome ?
A pilot that fails should be a positive outcome for the enterprise providing it integrates the lessons learned in its strategy. For the start-up if it manages to “pivot” and survive then it is also a positive outcome. I personally believe a start-up walks on thin ice and takes bigger risks.
If the pilot succeeds and validates the innovation, the good problems arise :
-how will the enterprise scale the innovation and make it sustainable across the organization ?
-how will the start-up benefit from the success to scale quickly and/or perform its exit strategy ?
Veronique G Boudaud - Follow me @2VERO