This year, Microsoft purchased LinkedIn for $US26.2bn and Uber was valued at $US62.5bn. How is it that a handful of founders, starting out with little more than an idea, are managing to create multi-billion dollar businesses, when our largest companies with far greater resources, are struggling to replicate that performance?
When it comes to enterprise, a poorly-defined innovation focus is the main road-block to company growth. Whilst successful start-ups are continuously innovating – their survival depends on it – too many of Australia’s largest businesses are simply running experiments on their innovation efforts.
The harsh reality is the survival of large enterprise also depends on a well-run, continuous innovation practice. As CEO of Commonwealth Bank Ian Narev put it recently – unless we innovate in the next ten years “we are toast.”
Innovation is not a box to be ticked, and it cannot succeed when it is parked in a siloed department with no real decision-making power. Market-making innovation must engage a business at all levels – it involves staying across world-best practice (which is rapidly changing) and implementing a version of that practice which fits the organisation’s unique culture, history, organisational structure, people and business model.
After preparing an innovation roadmap, there are ten lessons big businesses can learn from start-ups and entrepreneurs to boost their innovation proficiency. We’ve heard all of the usual ones like “get out of the building”; these are not not-so-common lessons:
One: Crazy Quilt (Partnerships) Principle
Given the immense resources available and the mutually beneficial synergies, many entrepreneurs are successfully partnering with long-standing corporates who have the means to make startup dreams a reality. One such example is small business lender Prospa who last year partnered with Westpac to create a referrals platform from a Westpac-hosted website to Prospa’s loan application site. Before approaching a corporate, do your homework – it’s important to understand the business, their problems, and ensure your offering aligns with their needs.
Two: Experiment with your new business model
Entrepreneurs usually know a few elements of their business model really, really well. They don’t know it all though and they admit it. This manifests in an experimentation mindset. The best entrepreneurs are testing three or four business models at one time to see which gets the best traction and then they naturally invest more energy, time and resources into that. They are fuelled by a few key metrics which drive their decision making often in daily or weekly team meetings.
Three: Ensure you can feed your project team on two pizzas
When considering team size, more is not always better. Sometimes having too many team members hinders effective team performance. Instead, consider the mix of skills each individual possesses and ensure they cover technical skills, political clout, and communication – these will help create a well-rounded and productive project team.
Four: Fund incrementally based on results
Entrepreneurs want to raise as much money as possible to get the next set of results, but no more. They raise funds in series (Seed, Angel, Series A-Z) so as to retain as much equity as possible. This evidence based funding model is incredibly important as it forces resourcefulness and a focus on evidence.
Five: Be a PIRATE
Pirate metrics were made famous by Dave McClure’s AARRR (Acquisition, Activation, Retention, Revenue, Referral). Don’t scale too early. Concept, Validate, Optimise and then Scale. Just because you can, it certainly doesn’t mean that you should.
Six: Give a form of equity ownership
David Thodey increased the proportion of Telstra staff who owned the company’s shares from below 70 per cent to 90 per cent while he ran the telco. If equity is off the table, consider phantom equity which is an equity derivative based payment that many entrepreneurs use to reward their key staff without giving away control.
Seven: FLEARN (Fail Learn):
A word made popular by Telstra Muru D’s Mick Liubinskas. The aim of failing fast, isn’t to fail by itself, it’s to learn. Failure is simply working out what doesn’t work, so you can find out what does. Failing fast means working out the path to success fast.
Eight: World-best practice
Use world-best practice methodologies of Human Centred Design,The Lean Startup approach and Agile development.
Nine: Employ an Entrepreneur in Residence
An outside perspective from a proven entrepreneur, who is available to coach on every innovation project, is essential for big business innovation to gain momentum. It helps keep the big business history, politics and cultural issues in check. The right ones bring deep experience in world best practice methodologies and extensive knowledge of business models and large networks. This person is not full time, but one or two days per week.
Ten: Increase your surface area of luck
Ideas come from all places; customer needs (human centred design) an internal visionary (lean startup) or from outside your business model (open innovation). Make sure you’re searching for problems worth solving with a multi-dimensional approach.
About the author
Peter Bradd is the CEO of The Beanstalk Factory. He was Founding Director and initial CEO of ScribblePics, Fishburners and StartupAUS.