Culture defines every company regardless of whether it is an early stage startup or a global enterprise. It influences behavior, and for this reason, culture is a very important issue for corporate innovation. Many corporate innovation initiatives failed because the corporations driving them lacked innovation culture or innovation DNA.
Based on my experience from the startups I built as an entrepreneur and the ones I funded over the past 15 years as a VC, I always claim that a company’s culture is defined by the first 10 employees, starting with the startup’s founders. Corporate culture is driven by leadership (and here); is based on performance management; and can only be achieved if there exists a common vocabulary among the individuals that live it.
Startups and large corporations with a strong innovation culture share 7 common values and practices:
- Hiring the best: Today, more than any other time in the past, there is a war for talent going on in every industry and among organizations of every size. But in addition to being great at identifying the best talent that will innovate without being rejected by the organization, corporations with strong innovation culture are able to pair these new hires with existing employees that embody the innovation culture, thus creating strong innovation cores; offering the right incentives to attract these individuals and keep them for the long term; and providing the right environment to keep their employees motivated, productive and appropriately compensated. One approach is to bring into the corporations entrepreneurs who have founded and run startups, or entrepreneurs who have the characteristics of startup founders. Corporations like Walmart and Home Depot have done exactly that by acquiring startups with strong founders and then establishing new business units these founders can operate. Walmart’s e-commerce unit has thrived as a result.
- Trusting: Employees, from the CEO down, accept the fact they need help in achieving their innovation goals (be it sustaining, disruptive or continuous), and all goals for that matter. These employees trust their colleagues regardless of rank and feel certain they will do what is appropriate for the company to achieve its goals rather than what is good for the individual. An innovation culture of one never succeeds.
- Embracing risk: Venture-backed startups embrace a variety of risks such as technology risk, market risk, and management risk. They raise capital in order to address these risks but, despite their best efforts, they may not be able to overcome the risks and ultimately fail. Corporations with strong innovation cultures accept similar risks and are always prepared and willing to deal with them. These corporations also understand which type of risk they are willing to take. And this understanding allows them to determine what innovation timeline to adopt. Embracing risk also implies looking at different areas and favoring outlier ideas in order to identify the disruptive opportunities.
- Accepting failures: Failures are a natural consequence of embracing risk and pursuing innovation. As such, corporations with strong innovation culture come to terms with the fact that in the same way that most startups fail, so too can their own innovation efforts. Innovation-related failures should be seen as opportunities to learn rather than as excuses to avoid trying something new or as times to criticize and assign blame. Consider the vast difference between concepts such as Minimum Viable Product that is embraced by startups, and Zero Defects used by large corporations in order to understand how much the typical corporate culture must change in order to be accepting to disruptive innovation. For this reason, it is important that corporations seek to understand and establish the failure rate they are comfortable with.
- Moving fast, experimenting with new ideas, iterating: Corporations embracing innovation understand the importance of experimenting with new ideas and pushing their boundaries. They also appreciate doing so with a sense of urgency. Startups thrive on experimentation, pioneering concepts and models, and moving fast. These characteristics impact their ability to disrupt. Learning how to set up an experiment is as important as the experiment itself. Sometimes the experiment is too ambitious and its results are not adequately beneficial. Innovation-driven corporations always try to understand how the strict adherence to corporate processes can negatively impact their ability to become disruptive innovators. Their innovation culture empowers them to make decisions and operate on partial information — they learn to work under uncertainty like all startups do. Finally they realize that innovations often come from the rapid iterative refinement of some breakthrough ideas, e.g., consider how Google went from its search algorithm to the monetization through advertising and how Apple moved from the iPod to the iPhone. This approach doesn’t mean lack of evaluating and measuring, which corporations like to do; however, it necessitates the use of innovation-KPIs rather than execution-KPIs.
- Assimilating fast: As part of their innovation culture, corporations also empower their employees to quickly assimilate the most promising of the ideas and innovations, even when they are not fully ready or run counter to existing practices. In addition to trusting each other, employees learn to collaborate in an effort to make up an innovation’s potential initial incompleteness.
- Celebrating success: In the same way innovation-driven corporations learn to accept failures as a normal step to seeking innovation, they celebrate success. On this front, much can be learned from the way startups celebrate even small successes, e.g., ringing a bell when a new sale is signed, and from the way their investors encourage them to do so.
CEOs such as Larry Page (and Eric Schmidt before him), Jeff Bezos, Marc Benioff, Mark Zuckerberg, and Paul Jacobs (now executive chairman at Qualcomm) all exhibited these traits and built innovation-driven cultures in their companies. Recognizing the importance of fostering the right innovation culture, corporations such as IBM and BMW are fencing off their new business units (IBM’s Watson unit, BMW’s iBrand unit, Walmart’s Labs) from the rest of their established business units. Other companies like Verizon and Samsung are establishing major operations in Silicon Valley and are in the process of trying to adopt the innovation culture pioneered by the likes of Google, Yahoo, Facebook and the myriad of startups.
© 2015 Evangelos Simoudis