Why Does Internal Innovation Often Fail? ‘Entrepreneur’ Is Not The Same As ‘Innovator’

1 March, 2018 / Articles

Big, established legacy businesses seem to enjoy finding ways to characterize themselves as current and ahead of the curve. Executives pat themselves on the back for launching incubators within their operations. They tout these so-called entrepreneurial teams as doing work that is unencumbered by corporate structure and, often, internal regulations.

The problem is that, by thinking of these groups as entrepreneurial and their leaders as entrepreneurs, they do them a disservice. They miss the point that these teams are really charged with being internal innovators whose work and product must ultimately be adopted by and supported by the enterprise itself in order to succeed. I have found in my practice that, while companies love their “incubators,” they often stop short when the call for investment in these endeavors hits $1 million or more (aka, becomes significant). It is ironic that they hesitate just at the moment when jumping in with full support really matters to the success or failure of the initiative.

They also may be hiring the wrong people. True entrepreneurs, in my experience, are laser-focused on the results they want to achieve. Locked in on realizing their vision for their business or initiative, they stop at nothing in order to get there and acquire all of the resources they need to get to the end goal. They spend all of their time thinking about their own business. They are not encumbered by someone else’s rules or limited by someone else’s budget. When large, established companies hire entrepreneurs to lead internal innovation, these leaders often fail to thrive.

I advise my clients to hire for expertise, not entrepreneurship, then be entrepreneurial in supporting the expertise within. And, I caution, that will likely mean taking risks.

So, how do we identify internal innovation in a way that actually allows people to see it for what it is? I pose that, by calling these endeavors entrepreneurial and expecting them to play by some implicit, unarticulated rules, we do these emerging businesses within a business a disservice.

It matters what you name it.

Identity matters. Names invoke images in our mind’s eye. Advertisers, marketers and brand managers know this, yet we spend far less time thinking about how we name the things we do every day because we expect there to be a common language and a shared understanding among colleagues. We use language and nomenclature loosely and, in doing so, miss some significant opportunities to communicate with impact. Is “internal startup” an oxymoron?

It matters how you frame it.

CEOs seeking new assets have the choice of building or buying them. If this internal asset were instead an acquisition target, how valuable and how autonomous would it be? What would that be worth? Why would you be willing to pay?

So, what if we called internal innovation what it was? We start by considering how such a business within a business may be distinct. Use these questions as a starting point:

  • Does it follow corporate rules?
  • Does it tap into enterprise-level systems?
  • Does it have its own revenue stream and profit goals? Does the enterprise benefit?
  • What sustains it during the incubation phase?
  • What are the interdependent relationships between the incubator and internal stakeholders or sponsors?

Who is the client? Are they internal or external?

  • If this business were a completely independent entity, what would the end goal be? Is that end goal supported or encumbered by the current structure?

Many organizations stop short of creating the necessary internal structures to support new or untested business models/experiments. It is key to ensure that the enterprise and all enterprise-level and line teams have an incentive to support the new initiative. Work perceived as extra and unrewarded is often deprioritized — it’s just extra work. Innovation needs a compensation plan.

Often, the best answers are found by framing the best questions and being brave and honest in how you assess your outcomes. I advise my clients to begin by imagining the outcomes they want to see and then asking, “What did we have to do to get there?” That is harder than you think because the tendency is to start with what we know. And that is the antithesis of innovation.

The science man and innovator, Fernando Fischmann, founder of Crystal Lagoons, recommends this article.



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