It’s fair to observe that many big, established organisations tend not to think or act in a very entrepreneurial way.Of course, those of you who manage large organisations (or hold their stock in your portfolio) are probably thinking, “Yes, and it’s a good thing that executives don’t behave like crazy entrepreneurs.”
After all, managers of established enterprises are accountable to their shareholders, customers and employees first and foremost to successfully maintain and operate the going concern—and only secondarily to grow it and improve on it.
Indeed, Hippocrates’ famous dictum to physicians seems to apply equally well to big-company executives: “First, do no harm.”
But, fully accepting the corporation’s first priority of protecting and maintaining that which it already has, some useful wisdom is demonstrated by the behaviour of entrepreneurs—wisdom that can be successfully applied to large organisations. Not only can such entrepreneurial thinking help executives run their mainstream lines of business, but also help to instill greater creativity when planning and launching new businesses or market initiatives from under the corporate umbrella.
This post provides some thoughts as to how executives can work smarter and more effectively by emulating entrepreneurs. I call these “The Seven Principles of Entrepreneurship”:
• Ski with your knees bent.
• Refine the skill of falling down.
• Get comfortable with “close enough.”
• Be happy with a “conditional yes.”
• Remember that business model innovation is often as important as tech innovation.
• Think small.
• Strive to understand and mitigate risk.
Let’s examine these principles in detail:
Those of you who enjoy downhill skiing know that one of the first principles of survival is to keep your knees bent and flexible and your centre of gravity low. This style enables you to adjust to change – on the slope, in surface conditions or with obstacles or other skiers – and still achieve your goal of gracefully traversing the hill. Conversely, skiing with locked knees, a rigid posture and a fixed gaze is a formula for disaster.
It’s too easy, when working in an established organisation, to develop a certain rigidity in how one approaches decision-making and day-to-day operations. Most times, you can get away with it, standing upright, knees locked, eyes trained straight ahead. Why? Because established businesses necessarily develop standard operating procedures, and oftentimes little changes day-to-day. The rigidity can creep up on you. Sameness and predictability are comforting, and it’s human nature to embrace and standardize behaviour that succeeded in the past.
By contrast, entrepreneurship is, metaphorically, a bit like skiing moguls (big, scary, unpredictable bumps) … blindfolded. If you’re an entrepreneur, you have to keep your knees bent. You have to stay loose. You know full well that things will change, probably dramatically, and that you’ll experience dramatic shocks; you just don’t know exactly what those shocks will be, where they’ll come from or when they’ll occur.
Keeping loose and with a low centre of gravity helps business managers absorb change and keep the business on its feet. Entrepreneurs have always operated this way as a matter of course. And this sort of flexibility and adjustability can be a crucial advantage for corporate executives as well, whether in accommodating change in existing markets or tackling new business initiatives.
Refine the skill of falling down.
To continue the skiing metaphor, one of the first things a ski instructor teaches novices is how to fall. Why? Because it’s an inevitable part of the sport, and it’s the primary way of getting hurt, but good skiers fall gracefully and bounce back quickly.
Similarly, successful entrepreneurship requires getting comfortable with the idea of falling down repeatedly and springing back up each time. Startup business is all about expecting, gracefully accommodating and learning from failure. After all, even with the best-thought-through venture, it’s reasonable to expect that 50 per cent of the original business plan will prove to be wrong. Worse yet, you won’t know which 50 per cent until you get into it – until you point your skis down the hill and go.
Understanding this phenomenon is why venture investors often prefer to invest in entrepreneurs who’ve experienced failure. It’s also why many startups prefer to hire, as key managers, individuals who have experienced the good and the bad of a previous startup or two. A previous fall or two is not considered a scarlet letter of failure on a person’s career, but rather an indication of maturity and a willingness to take calculated risks.
For established organisations to successfully grow through innovation, they must delve into less certain and more ambiguous environments. Therefore, they need to take more calculated risks without being paralysed by fear of failure. They need to refine the skill of falling down.
Get comfortable with “close enough.”
The vast majority of corporate innovations never see the light of day because they’re “killed in committee.” Why do so many die that way? Because innovative ventures and business initiatives almost always have too many unknowns for many people’s comfort, and the powers that be in established companies – often groups or committees – possess the power to say “No” based on that uncertainty. Just as, in the old days, IT executives knew they’d never get fired by buying IBM, with corporate innovation it’s nearly always a safer bet to say “No” to something new.
But the perfect is often the enemy of the good. Remember, in entrepreneurship: The best decision is the perfect decision (which you’ll never have sufficient information or time to divine). The next best decision is “close enough” and get moving – you can always adjust course as you go (i.e., ski with your knees bent). And the worst decision of all is to continue to study, or form a committee (which so often translates to the “safe no,” and therefore doing nothing).
The entrepreneurial approach accepts “close enough”: Roll up your sleeves and work with customers from the start. Get something in customers’ hands, even if it’s not finished. Experiment, and don’t be afraid to adjust, occasionally fall down and get back up. Do it, try it, fix it … and repeat.
Be happy with a “conditional yes.”
The tendency in big organisations is to seek budget approval for an entire multiyear project upfront. After all, nobody wants to launch into building, say, a $275-million plant when they only have corporate funding approved for the first $30 million for planning and site prep.
The problem is when we see corporate new-business-development folks trying to apply this upfront approval formula to venturing.
In the entrepreneurial world, nobody expects to receive 100 per cent funding upfront; it just doesn’t work that way. With independent ventures, investors believe in “milestone investing,” progressively meting out capital sufficient to fund the next 9 to 18 months of activity and the achievement of the next crucial value-building milestones. For instance, it’s not uncommon for a venture requiring a total of $15 million in investment capital in order to reach self-sustaining profitability to seek seed funding of only a million dollars or less to build a prototype and do some preliminary testing. A subsequent “A” round may be for just a few million dollars to enable the venture to build a team, productize the technology and sign up the first few customers. And so on. Typically, early-stage investors are keenly interested in continuing to participate in subsequent rounds; they just like to see incremental progress along the way.
Internal corporate ventures – and here we’re referring to risky ones entailing new technologies, new business models and/or new markets, not capacity-expansion projects and the like – should approach funding with the same venture-funding mentality. Remember the principle we mentioned in our last issue: that 50 per cent of a new venture’s business plan will inevitably prove to be wrong, you just don’t know which 50. If that holds true, it only makes sense for the parent company (playing the role of venture capitalist) and the internal startup team to agree on funding increments and associated milestones rather than the all-in approach. Less capital is committed, inevitable mistakes or discoveries are less costly and more easily accommodated, and the new business remains nimble.
Remember that business model innovation is often as important as tech innovation.
We’ve never seen any statistics or studies in this regard, but it sure seems that the majority of shareholder value created over the last half century had a lot more to do with companies innovating around their business model than around technology. Think of eBay with online auctions. Store brands and generic drugs. Amazon cutting out the retail middleman. Manufacturers asking suppliers to co-locate. Dell building PCs to order. Social networking typified by sites such as MySpace and Facebook. The way HMOs and PPOs fused insurance and healthcare delivery. Sure, in many cases, technology was involved, but technology was not the strategic driver that created shareholder value. Instead, it was creativity applied to the business model (product/service mix, value proposition, channels, pricing) that made the difference. This kind of thinking needs to be applied not only by entrepreneurs but by corporate new-business professionals as well.
An executive in a tech startup, recently hired away from a Fortune 500 company, unfortunately brought his big-company thinking with him. Inheriting management responsibility for a professional services operation of about 50 people growing at over 50 per cent annually, he saw a crying need for more coherent project management. His solution? Call in the vendor who’d provided similar software and services to his last employer, and get a quote. The result? A half-million-dollar expense where cloud- or PC-based project management software and rigorous management communication would have sufficed nicely; worse yet, the expensive “solution” never worked. The manager was fired and the system scrapped for a simpler approach.
Too often, we see established organisations trying to innovate and getting caught in this big-company, go-big-or-go-home mentality. I observed one internal corporate venture of a multinational tech company spend millions on PR – because “That’s how we do things at XYZ Corp.” – before they’d even fully defined their product, value proposition, positioning and go-to-market strategy. Bizarre. Entrepreneurship, even if it’s taking place under the corporate umbrella, calls for small, inexpensive, rapid-turnaround experiments and trials. “Thinking small” doesn’t mean that you don’t have big aspirations for your new venture. (Indeed, I tend not to think of startup ventures as small businesses; we think of them as global enterprises that happen to be young.) But by iteratively discovering what works and what doesn’t, you’d be surprised how far you can get on how little capital.
Strive to understand and mitigate risk.
Contrary to popular belief, entrepreneurs and venture investors are not risk-seeking nuts, the business equivalent of helmet-free bungee jumpers. In fact, the best ones are remarkably risk-averse, skilled at identifying and mitigating venture risk. Whether they do it intuitively or explicitly, A-list venture folks are constantly working to wring risk – whether it’s product risk or risk of a market, financial or management nature – out of their startups. There’s a method to their madness that corporate startups need to apply.
“The Seven Principles of Entrepreneurship” are enumerated here to stimulate and challenge the thinking of corporate managers. In many cases, entrepreneurial behaviours that may, on the surface, seem to be inappropriately risky turn out, on closer examination, to be worth emulating if done in a thoughtful manner. And emulating certain entrepreneurial behaviour can help corporate executives excel, particularly when it comes to launching new initiatives or product lines, trying out new business models or entering new markets.
Jim Price is a serial entrepreneur and Adjunct Lecturer of Entrepreneurial Studies at the Zell Lurie Institute at The University of Michigan Ross School of Business. ©2012, James D. Price.
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