Why Startups Are The Best Way To Manage Innovation31 May, 2018 / Articles
Innovation has become an imperative for corporations. The importance of having an innovative culture is something leaders no longer debate. In most surveys of corporate leaders, innovation is ranked among the top organizational priorities. For example, in their 2017 CEO survey, PWC found that innovation was ranked as the number one priority among CEOs.
While the aspiration to innovate is nearly universal, it is also clear that corporate leaders struggle with bringing this aspiration to life. In the same CEO survey, PWC also found that over 77% of CEOs struggle to get the creativity and innovation skills they need. Part of the challenge is a skills gap within businesses that are used to managing their existing product portfolio. This means most of their employees will need training and coaching before they become effective innovators.
While it is a challenge to train people to become more innovative, this challenge is exacerbated when there is a lack of clarity among leaders about exactly what they need. What exact skills are they looking for? How do they define innovation? How are they planning to use innovation in their company? What do they want innovators to do? Do leaders have the right processes in place to manage innovation?
A lot of leaders do not have very clear answers to the above questions. This lack of clarity means that leaders can end up investing in innovation theater instead of real innovation. The goals of this article is to help provide a lens through which leaders can create repeatable processes for turning ideas into profitable business models (i.e. an innovation ecosystem).
What Is A Startup?
The first issue to clarify concerns what we are referring to when we talk about startups. Most people tend to imagine young people in Silicon Valley working on some ground breaking technology. This perception has resulted in companies creating innovation labs packed with whiteboards and sticky notes. However, this innovation theatre does not represent startups. It is not even startup culture.
For executives to provide clear leadership in innovation, they have to understand startups from first principles. Unlike an established team or organization that executes on a know business model, a startup is a method for managing uncertainty. And since uncertainty is the defining characteristic of innovation, the startup is the best known business tool for managing innovation.
The whiteboards and sticky notes begin to make sense when leaders recognise that teams working under uncertainty cannot stick rigidly to long term plans. Instead, startup teams need flexible tools that allow them to sense and respond to the world. Startups are not just working on a cool idea, they are also searching for a profitable business model to sustain that idea.
The Innovation Puzzle
When startup teams are searching for a profitable business model, what exactly are they searching for? A profitable business model is found by systematically searching for answers to a hierarchy of questions.
Before we creating a solution, we want to know if there is a real customer need to be served and how strong that need is.
As we are working on our solution, we want to know if it is delivering value customers.
While we are delivering value to customers, we want to know if we can do so profitably.
And once we have profitability, we want to know if our business model is scalable.
Answering these questions, means that we have successful innovation. This is the startup way. This is true startup culture. The challenge for leaders is to create an internal ecosystem that supports this way of working within their organizations. Rather than asking for long business plans, leaders have to ask the right questions at the right time. Asking about revenue, before a team understands their customers needs, will stifle innovation – even if the team has a lab with sticky notes and canvases. Managing startups from first principles, will help leaders create and sustain innovation within their organizations.