There are many inspiring startups that shook up industries and turn powerful companies into irrelevant businesses. This is why people believe in innovation at startups. Their lack of resources ignites their survival instinct. It drives them to quickly find a value proposition that’s going to make their customers tick and a business model that’s sound. The stakes are high and time is limited in the startup environment, so you better act fast if you want to survive. For those with bold ideas and no fear of failure, the possibilities of innovating seem endless. The lack of structure and the freedom to make up your own rules empower startups to evolve as fast as they can. Think about it: a startup can design a prototype in the morning and test it in the afternoon. This is how agile they are, and how quickly they learn. The way startups search for new value propositions and business models is quite spectacular.
But there are also clear reasons why 90% of startups fail every year. Only those that have put themselves in the entrepreneur's shoes really know about the hurdles to innovation at startups. Aside from internal causes of failure (e.g. building something nobody wants), all startups alike will lack the necessary resources to conduct tests and validate their hypotheses. The risk of running out of money before achieving the three kinds of fit is remarkably high and drives many startups to raise funds from investors.
Corporates don't face this shortage of resources. In fact, corporations have plenty of assets: an established infrastructure to leverage, funds, brand recognition, and a pool of customers within their hand's reach. Then, why do corporations still reject bold ideas, or diminish them to nice-to-have features that fit within their current business model? And when they try to innovate, why is it still so difficult for them to do it as fast as startups? It would take an entire series of posts to thoroughly answer these questions though we discern one root cause underlying these obstacles: corporations are shaped to execute on business models, not to search for new ones.
The focus is excessively put on improving the current cash-generating business model. Corporations should instead allocate an equal amount of resources to the search of new growth engines. Their excellence at optimisation and execution makes of corporations the ideal environment to scale up ideas, but not to explore and test unvalidated ones.
This optimisation mindset instills rigid processes all over an organisation’s layers that slowly make it averse to risk, innovation, and uncertainty. At the top, the leadership allocates resources to ideas that are clear wins for the company and moves away from ambiguity. At the bottom and throughout all layers, failure is punished in spite of the learnings it creates. Slowly, corporations have distanced themselves from a culture of exploration and are unable to handle the messy process of designing new value propositions and business models.
But imagine for a second that corporations were engaged in both the execution of their current business model, and the exploration of growth engines. Imagine that corporations were acting more like startups and seizing the opportunities of being established organisations.
- What if Kodak had spent more time developing its digital camera prototype into a marketable product, instead of only tapping in this technology when fil was dying?
- What if Nokia had a Chief Corporate Entrepreneur who would have convinced the leadership board of the potential of smarpthones back in the 2000's?
- And what if Blockbuster had been more receptive when Netflix's CEO proposed a partnership, and had leveraged its massive network of stores to offer video on demand subscriptions?
None of these companies would have got disrupted. And perhaps some of them would still be leaders on their respective markets.
The life of a business is about the simultaneous search and management of value propositions and business models. Both startups and corporates have built distinctive strengths to achieve growth but they must address the weaknesses of their current approaches before they the fate that many great companies have endured.
Can you solve the challenges of your innovation playground?