Lean Startup Week 2017 has just wrapped up in San Francisco. It was a great week of workshops and keynote speeches. The week was themed around The Startup Way, which is the latest book by Eric Ries. Conversations during the week were focused on how large established companies can effectively adopt and apply startup methods. With the rapid pace of technological changes and disruption from startups, large corporations are under increasing pressure to respond with innovation.
This challenge is exacerbated by the fact large corporates have legacy businesses that are still generating revenues and profits. The traditional management methods that are used to run these legacy businesses do not work as well when they are applied to innovation. According to Eric Ries, startups are the atomic unit of work for doing continuous innovation and unlocking new business models. This means that large companies need to create a number of internal startups to test and develop new business ideas. The challenge is that these startups need distinct management structures and processes to support them.
The Missing Function
For me, the key takeaway from Lean Startup Week (and from Eric’s new book) is the idea of entrepreneurship as an organizational function. Contemporary business demands continuous innovation; large corporates can no longer treat innovation as a nice-to-have that is done using one-off projects. The goal is to create and support internal startup teams on an ongoing basis. But whose job is it to do that?
In the majority of companies, there is no function that is responsible for entrepreneurship. As such, developing entrepreneurship as a management function is our aspiration. This is not as lofty as it sounds. As Eric Ries observes, it is easy to imagine a time when marketing, HR and finance were not official functions within large companies. The management challenges of the 20th century drove the creation of these functions within companies. It is clear that the most important management challenge of the 21st century is sustaining entrepreneurship within large established companies.
The Entrepreneurship Function
At it’s core, the entrepreneurship function is responsible for ensuring that the company innovates on a continuous basis. More specifically they are responsible for the following:
• Innovation Strategy: This is working within the organization to help leadership take a point of view on where the world is going and how the company will use innovation to respond. We must constantly analyse important trends, competitors and emerging startups; and use these inputs to develop a strategy about what types of innovation projects the company will invest in (i.e. an innovation thesis). The work also involves managing our portfolio of products and services to ensure that we have balance and are delivering on our innovation strategy. It is the role of the entrepreneurship function to manage the process for developing our innovation strategy and creating the right portfolio management tools.
• Innovation Management: This involves infusing the company with entrepreneurial management practices. Startup teams cannot be managed using the same tools and processes we use to manage our core products. Innovation management is about making investment decisions on startup ideas when we don’t have a business plan and all the market information upfront. It’s about making small investments at the beginning, tracking progress and then making further investment decisions based on learnings. It is up to the entrepreneurial function to create and evolve the frameworks via which startup teams get funded, progress is tracked using innovation accounting and decisions on further investments are made.
• Innovation Practice: As Eric Ries notes, one of the primary roles of the entrepreneurship function is to oversee the work of the company’s internal startups. Innovation is a nonlinear process that involves experimentation and iteration. As such, each startup must be viewed as an ongoing R&D project on the business model until the team finds sustainable traction. It is the role of the entrepreneurship function to develop the tools and playbooks that support startup teams as they do their work. It is also the role of the entrepreneurship function to ensure that there is innovation training and coaching available for the internal startup teams.
A company’s culture is determined by what leadership celebrates, rewards and/or punishes. For example, a key part of innovation is the ability to celebrate failure as learning when it inevitably happens. Creating such a culture is the job of the entrepreneurship function. However, startup teams succeeding can also be a challenge within large companies. I have worked with several innovation labs that have developed great products with fantastic business models. Their main challenge is finding any business leader within their company willing to invest the resources to take their new products to scale.
According to Ries, managing this problem of success is one of the key roles of the entrepreneurship function. Aligning innovation strategy with the work that the startup teams are doing is part of managing success. The entrepreneurship function needs to create tools that help leaders to make decisions about what to do with successful startups. Do we scale them internally? Do we create new divisions? Do we spin them out? Do we sell them or shut them down? Do we build, buy or partner?
It is important to note here that startup methods can be applied to more than just new product innovation. Lean startup methods can be used to improve products and services that are currently successful in the market. Startup methods can also be used to implement process changes within the company (e.g. a new accounting system). Indeed, transforming the company itself can be done using lean startup methods and tools. As such, the company can leverage the entrepreneurship function to support several different types of initiatives beyond innovation.
Into The Future
And so we have work to do. Innovation can no longer be seen as a novelty sideshow. It is the work of every CEO and their top executive team to lead their companies in the creation of an entrepreneurship function. Our business schools and top management thinkers have work to do as well. We have several questions to answer with best practice and Eric Ries does a great job outline these:
How do we create the space for experiments with appropriate constraints? How do we fund projects without knowing the return on investment in advance? How do we create appropriate milestones for startup teams that are working autonomously? How do we provide professional development and coaching to help people get better at entrepreneurship? How do we create cross-functional teams with the right people in them? How do we create the right incentives and advancement systems? How do we manage and transition successful startup teams?
I am confident that there are more questions to answer, but our task is clear. It is time to create the missing function for sustaining innovation in large companies. We owe it to our companies to make them more responsive and resilient to a rapidly changing world. Looking forward to sharing progress on this work at next year’s Lean Startup Week.
Tendayi Viki is the author of The Corporate Startup, a book on how large companies can build their internal ecosystems to innovate like startups.