Innovation

Think like a startup?

Should large companies be looking to act like a startup? Sure, but like everything in business, the simple idea carries important nuances.

January 18, 2017

There are three reasons for the “act like a startup” mantra now being so popular. Startups can create huge valuations at apparently low cost (a bit of a myth); startups are agile enough (i.e. can pivot easily) which makes them also quite cheap as a source of innovation; and startups are seen as they key factor in industry sector renewal – as in finance where banks are investing heavily in young upstarts.

Here’s a sobering thought, though. In general 50% of startups go out of business within five years, and another 40% fail to return their investors’ money.

That data is fairly historical by now. Newer data from the last five years shows a scarier picture still.   In fact in the tech community 92% of startups fail completely within three years, according to the Startup Genome Project.

74% of high growth internet startups fail due to “premature scaling” or, in other words, trying to grow too quickly.

We’ve seen similar evidence from the world’s best startup scene, Finland.  Growth kills the majority of companies. And what do we all want….? So where do startups provide the value that large companies need to copy?

The startup is the cradle of all kinds of promises in business today. If you want to use start-ups as a model you have to be very selective. Even so the popularity of incubators and accelerators is growing.

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Companies like Citrix in technology did just this with their new accelerator program (called, believe it or not Startup Accelerator!). Normally accelerators are external hubs that support startups as they scale. Citrix ran its accelerator inside its business lines. They found it stimulated new thinking in existing teams and exposed the workforce to new ways of working. So being around startups is definitely good.

Lean innovation methods have also been best exploited by startups. And that spurs large companies on even further to find out what it takes to be lean and agile, like the startup is mythically supposed to be.

Lean innovation actually arose in manufacturing where engineers use the principle of continuous small improvements in assembly processes. It is a close cousin of continuous improvement. And herein lies the clue to where startups really function well.

Continuous improvement helped the Japanese semiconductor industry to dominate areas like display production and computer subcomponents, against a supposedly superior US manufacturing industry.

Lean has been promoted in the United States as a startup method, and over recent years many large organisations are adopting it alongside agile.

Agile, lean, intrapreneurship! Will this combination give big companies what they need? The jury is still out on that.

Startups are surrounded by hype. Many companies that attract funding fail. VCs are no better at judging them then you or me. This chaotic environment is exhilarating BUT….

Continuous improvement on the other hand has proved its value over a sixty year period.

We are still learning, all the time, about what it takes to make a startup work. The reality is that most startups are not run professionally enough to survive.

So the average startup is a very poor model for how a large company can work.

If what we are talking about is the hyper-growth company, yes. These hold very valuable lessons.

The kind of startups companies we need to learn from are very rare. They will have these characteristics:

  • A desire to find problems to solve
  • Hence a period of consolidated discovery (maybe as long as two years) to be sure they have the right product or service before they can begin to grow
  • Be inherently curious, hypothesising all the time about what to do next
  • The ability to curate sufficient of the right resources (cash, goodwill, people, tech infrastructure) for very rapid growth
  • An unusual ability to listen and learn, so that they don’t get ahead of themselves
  • Be fungible, in the sense that roles become interchangeable and labor is not divided in traditional ways (in effect the division of labor has become a handicap)
  • Some tangible engagement with customers early on in the process (though not necessarily MVP and Lean)
  • Extraordinary adaptability in their approach to IT architecture, relying on their capacity to adopt edge technologies and concepts, as and when new ways of working evolve
  • A restless commitment to continuous innovation day-in, day-out
  • A workforce that is probably incentivised by significant share ownership

In order to replicate successful startup culture large companies need hugely ambitious goals and a sense of purpose.

They need a workflow that gives decision-making power to people close to the daily action of doing business.  

They need all the characteristics above.

But still, large companies often have to make very big decisions, often on the back of insufficient data. They are not just scaling a new idea. Nor can they iterate a minimum viable product (the goal of Lean). They will often need to turn a big ship in a small space.

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The idea of how to act like a high growth startup needs modulating. Every startup that gets to grow has to ask another question: How to balance risk with the responsibility that goes with having access to significant resources. That question lies behind many of the decisions a large company has to make.

At a certain point the hypotheses have very significant consequences. Large companies can mitigate those – as Google did with Google Glass (getting developers to pay $1500 for developer kit and glasses). But Glass still hurt Google’s reputation for getting good outcomes.

I’d suggest the startup qualities that matter at that stage are not the ones large companies are focused on. They are qualities like, having no silos, having people incentivised by personal wealth creation not salaries and bonuses, being fungible, tolerating doubt over long periods, being lucky but creating luck too. How many large organisations focus on those attributes?