How can larger organisations innovate better than start-ups?
On paper, it doesn’t seem like a fair fight. A large organisation, that is well-established in a market, has access to far more labour, experience, money, assets and customer contact than a bootstrapped start-up. Atlassian, our proudly Australian start-up, was founded in 2002 with a $10,000 credit card and didn’t receive any venture capital until 2010. How did they get to list on the US stock exchange in 2015 with a valuation just shy of US$8 billion?
Despite large development budgets, countless hours spent on change management and innovation, incumbents have been losing out to insurgents like Atlassian. Is this a numbers game, are there so many start-ups versus incumbent organisations that it is bound to happen? Or is it that we only see, and the media only reports, the most successful ones?
One of the standard ways we are viewing this is:
- large incumbent = slow to adapt
- small start-up = fast and innovative
But it’s not that simple. One of the most disruptive companies globally is Amazon, which now enjoys US$136 billion in revenue (2016). Others that have proven themselves to be high-growth companies over decades include Netflix, Apple and Google. These companies are no longer small and yet are innovating beyond products, they are changing the prevailing ways industries work. It’s too simplistic to view Amazon as an online retailer when it has an enormous service business (like ‘Fulfilment by Amazon’ and Amazon Web Services), creates its own products (Alexa, Kindle, Echo, Echo Look), has the super-scale asset footprints of its fulfilment centres and now owns the Whole Foods physical store chain in the US.
These companies have found a way to be innovative at scale, disruptive at scale and high growth at scale. And it’s got nothing to do with the fact they are ‘tech companies’. They are constantly building the futures their strategies have created. It’s the strategy and the innovation approaches that make their market leadership.
So, if it’s possible for some large organisations to stay highly innovative, highly disruptive and high growth then there is more work for us to do in Australia, with only Atlassian for us to crow about.
But the question is not just how do incumbents operate more like the nimble, hungry and innovative start-ups that are beating them to market disruption. A better question is how can we generate a hybrid that takes the best aspects of each into a superior way of operating.
Start-ups have speed and agility from their small size, immediate communication and no ‘core business’, and are desperate for customers and uptake. They need to find customers to test their theories. They need cash to prove their model. When they start to win, they need knowledge on how to run a business. An incumbent organisation has these. An established organisation and a start-up are the perfect complements. Each has what the other doesn’t.
Here are some principles to work from to ensure your own organisation can build a superior hybrid that fosters start-up-like activity, with intrapreneurial teams that can then tap into your strengths:
Start smaller – just as a food company doesn’t try to create a new product on the production line but starts first with chefs in a kitchen, so too do you want to start with small teams (of five to seven people), away from the ‘production line’ of your core business.
- Start lower – give far more ownership, responsibility and decision rights to the team irrespective of their level in your hierarchy. Hierarchies are necessary for the day-to-day work but pose a significant barrier to innovation.
- Start faster – you are better off experimenting and iterating than thinking and planning. We learn primarily by doing, and this creates progress.
- Start offsite – ‘get out of the building’ is some of the best advice ever.
- Finish faster – create slightly unreasonable goals and finish dates that will drive urgency. Google’s ‘design sprints’ run for five days.
- Give time – it is not possible for intrapreneur teams to do this on top of their usual role responsibilities – take some work off them to free them up.
- Give support – too many times fledgling teams get the message that management does not support this type of initiative because ‘Rome is burning’ in the real world.
Once you have something ready to launch, make sure the strengths of your organisation are brought to bear. This is where you can outperform a start-up. It’s getting to that point that is the challenge.
Much of the innovation efforts in businesses to date have not generated enough tangible results. The goal should be to launch a revenue-generating new business, not to adorn walls with post-it notes and feel like that has somehow magically made the organisation innovative. Innovation 1.0 was about idea generation. Innovation 2.0 is about traction. Start with a small team and move. This is something you can start this week. Find a way. Too much is at stake not to.