How Corporations Can Innovate Like Startups

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mickey-and-the-beanstalk-giantThe following is excerpted with permission from The Lean Enterprise: How Corporations Can Innovate Like Startups, by Trevor Owens and Obie Fernandez.

Enterprises are in Peril. 

The need for enterprises to innovate has never been more acute. Many established brands are on the ropes.

American Airlines was valued at just $ 5.5 billion at the time it merged with US Airways in 2013. Kodak, a name synonymous with photography for more than a century, retreated into bankruptcy in 2012, with its arch competitor Olympus close behind. Suzuki’s automotive division fled the United States the same year, and Volvo appears to be approaching the off ramp. Two cornerstones of the PC industry, HP and Dell (which sold itself for $ 24 billion in early 2013), are struggling to build a bridge to the post-PC future. BlackBerry’s worth has slid to a few billion since it tripped over the very smartphone market it pioneered. Blockbuster has shut down its storefronts and DVD-by-mail services. The death rattles of Radio Shack and JCPenney speak volumes about the challenges in retailing.

The threat to established firms across different industries is pervasive. Of the names listed in the Fortune 500 in 1955, nearly 87 percent have either gone bankrupt, merged, reverted to private ownership, or lost enough gross revenue to fall off the list. A study of the S&P 500, which ranks companies by market capitalization, found that its constituents averaged 61 years on the list in 1958 but only 18 years in 2012.

Contrast the turmoil in the enterprise world with value creation among the world’s most valuable companies as of January 2014. Apple is worth $ 436.55 billion after three and a half decades in business, a beacon of market-disrupting prowess. Google, less than half that age, is valued at $ 395.42 billion. Amazon has a market cap of $ 165.79 billion. Facebook’s initial public offering (IPO) was a notorious fiasco, but the 10-year-old company is still worth $ 164.00 billion and rising. Twitter, founded eight years ago, is already worth $ 29.60 billion.

Alternatively, consider the fastest-growing companies coming out of the startup crucibles of Silicon Valley and New York. Dropbox, Pinterest, Snapchat, and Uber have accrued valuations approaching $ 14 billion in a few short years. Newer arrivals such as Airbnb, Evernote, MobileIron, PureStorage, Marketo, Spotify, SurveyMonkey, Violin Memory, and Zscaler are worth more than $ 1 billion each. In fact, the number of billion-dollar startups is estimated to be as high as 40. These companies are creating value at an unprecedented rate and on a historic scale.

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The difference between stagnant enterprises and their fast-growing counterparts is no secret: These emblems of growth have an uncanny ability to bring to market exciting products and services and open vast new markets. High-flying corporations like Amazon and Facebook have proven that big companies can do it. But for lessons in how, the best place to look is startups.

Startups Ascendant

If the present is a dark time for established companies, it’s a golden age for new ventures.

Entrepreneurs number 380 million worldwide, according to foundersandfunders.com, a number that’s expected to grow exponentially. Superstar entrepreneurs like Steve Jobs and Mark Zuckerberg have become cultural icons, spawning best-selling books and blockbuster movies.

All of which has dulled the appeal of even the biggest enterprise brand names. For bright business- and technology-minded college grads, it’s no longer cool to work for a blue-chip corporation. In general, millennials reject the traditional comforts of management hierarchy, financial stability, risk aversion, and buttoned-down culture. They want to work at Airbnb, Dropbox, FourSquare, or Tumblr—or launch their own bid to rule the infosphere.

And, for the first time, it’s clear how to do it. Over the past decade, what was a wilderness trail to starting a high-growth business has become a well-worn path. Students can study entrepreneurship in school, read up on the scene in TechCrunch, VentureBeat, or Xconomy, attend meetups for like-minded aspirants, get a job at a hot startup, draw up a business plan, and start pitching VCs.

More important, the cost of starting a company has fallen through the floor. Many fixed costs have evaporated, replaced by variable costs. For instance, Amazon Web Services gives aspiring entrepreneurs access to data center infrastructure, and it costs nothing until customers start showing up en masse. Freelance communities such as Crowdspring, Mechanical Turk, Odesk, and Elance can handle odd jobs from programming to design to writing press releases. Coworking spaces provide cost-effective offices where startup founders can congregate and support one another until they have sufficient revenue to rent a proper office. Capital has become more accessible as well, thanks to crowdfunding sites such as Kickstarter, seed-funding communities like AngelList, and new laws that allow almost anyone to buy and sell equity.

All these trends boost the level of competition with an enterprise’s established business units as well as the possibility that they’ll be blindsided by unforeseen market shifts. A new generation of highly empowered entrepreneurs is coming up fast. They have the means, motive, and opportunity to disrupt your business, and they’re out to do just that.

The Enterprise’s Dilemma

Hidebound enterprises don’t start out that way. As Clayton Christensen pointed out in his classic 1997 business manual, The Innovator’s Dilemma, most large companies begin as innovators who unseat powerful incumbents by leveraging cheap technology to deliver good-enough capabilities at a lower price. The dilemma arises once they’ve ascended to dominance.

At this point, they have a market to protect, and their original focus on disruptive innovation shifts to sustaining innovation that bolsters their legacy business. Now exploiting a mature market, they can look forward to decreasing growth. Ultimately, a new competitor emerges that undermines their business with a cheaper alternative. By failing to develop disruptive technologies first, they leave themselves vulnerable.

Indeed, overcoming inertia has become a do-or-die priority for large organizations. Enterprise CEOs must fend off ever more rapid technological shifts and ever more aggressive competitors. Christensen’s manual was the first of what has become a flood of books, conferences, workshops, and blogs devoted to the topic, and executives have embraced them in search of a solution. Corporate innovation has become a rallying cry and a budget line item.

Intrapreneurship programs have become commonplace. Internal incubators and accelerators are de rigueur. Corporate development funds invest millions in emerging markets. Yet few enterprises escape the innovator’s dilemma. Instead, they remain mired in the swamp of inertia, lassitude, bureaucracy, and misaligned incentives that afflict virtually every large company.

The key challenge is resource dependence: the fact that organizations rely on external parties for their survival. Securing these resources implicitly becomes the enterprise’s highest priority, regardless of explicit mandates handed down by management. Their suppliers, investors, and especially customers exert a magnetic pull toward established lines of business. This tendency to stay on familiar territory is a strong barrier to innovation.

We see the influence of resource dependence frequently in our work. Would-be enterprise innovators are staring a substantial opportunity in the face but feel compelled to ask themselves, “How does this fit into our business model? Does it suit our brand? Are we good at it?” These questions are deadly to innovation. The company’s values, competencies, and processes are huge advantages in continuing to do what it already does, but they make it nearly impossible to open new territory.

Dawn of the Lean Enterprise

Enterprises are in a tough bind, but our lean enterprise approach offers powerful new tools that can turn companies focused on protecting old markets into masters of discovering and mining new ones.

Innovative companies gain fringe benefits as well. Being perceived as a leader generates a halo effect that can raise the company’s public profile and internal morale. This can be a boon to employee retention and recruiting. Establishing an entrepreneurial path within the enterprise attracts not only internal candidates who have ambitions beyond their current job but also outside talent that appreciates the strengths an established company can bring to a new venture; they can live the dream in a more comfortable and stable environment. And developing contacts in the world of startups and seed-stage investors gives the company early warning of emerging trends and business models.

And the impact extends well beyond the company’s walls. Today, people who feel an entrepreneurial urge must choose between holding a conventional job and putting their livelihood on the line, subsisting on ramen, and sleeping on the couches of indulgent friends. The lean enterprise offers a third way: They can share the risk with an organization that has been architected to maximize their chance of success. This approach provides a path for would-be entrepreneurs who don’t have the means or personality to found a startup on their own, but who may have valuable ideas, talents, and skills. It makes far more efficient use of the entrepreneurial spirit that permeates society at large.

Every company must face the reality that the departure of a single employee can cost the company billions in lost opportunity. There’s a better way: Recognize the new rules that govern innovation in this era of pervasive networks, develop a strategy that respects those rules, and build an organization that can execute the strategy in a way that enables the autonomy, incentive, and focus required to innovate. Put entrepreneurs in a special environment that enables the autonomy, incentive, and focus required to innovate.

Excerpted with permission of the publisher, Wiley, from The Lean Enterprise: How Corporations Can Innovate Like Startups, by Trevor Owens and Obie Fernandez. Copyright (c) 2014 by Trevor Owens and Obie Fernandez.

[Note: The “Dancing Giants” series is being sponsored by Atlassian, so you’ll only see their ads around these pieces. But the series was conceived, commissioned and edited entirely by Pando. Atlassian had no input whatsoever in the editorial. For more on our policy towards single sponsor series like this one, see here.]

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Five Life Lessons You Can Learn from Successful Corporations

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Five Life Lessons You Can Learn from Successful CorporationsS

When you think of good role models, businesses probably aren’t your first thought but you may be surprised by the wisdom they have to offer. After all, we often learn a lot from their leaders. A select few can teach us quite a bit about how to have fruitful, happy, and successful lives.

Google: Experiment Often

Five Life Lessons You Can Learn from Successful CorporationsS

Google has a reputation for working a little differently than other companies. They keep their teams to smaller, more manageable sizes. They create workplaces full of amenities. They’ve also been known to encourage experimentation through something called 20% time. What does that mean and what have people accomplished with it? The New York Times offers an explanation in their profile of the privilege:

Google engineers are encouraged to take 20 percent of their time to work on something company-related that interests them personally. This means that if you have a great idea, you always have time to run with it.

It sounds obvious, but people work better when they’re involved in something they’re passionate about, and many cool technologies have their origins in 20 percent time, including Gmail, Google News and even the Google shuttle buses that bring people to work at the company’s headquarters in Mountain View, Calif.

Last year Google unfortunately decided to place limitations on 20% time, but it seems that didn’t kill the practice like everyone thought it would. They inspired their employees to continue experimenting, and many technology corporations adopted the same idea in their workplaces. The idea of 20% continues to thrive because experimentation is important and it leads to great, new things.

No matter how mundane and regimented your life, you need to take time to experiment and try different things. This doesn’t mean developing the next Gmail on your time off, but rather trying something new, strange, or uncomfortable. Give yourself the privilege of having an idea and following through on it. It may not become a worldwide phenomenon, but you’ll end up a lot happier if you continue to learn and show yourself new possibilities.

Voodoo Doughnut: Find Confidence in Who You Are and Embrace Your Weird Side

Five Life Lessons You Can Learn from Successful CorporationsS

Naturally, a life lesson about being weird comes from a company in Portland, Oregon. Voodoo Doughnut offers one of the most extensive and strange selections of baked items you’ll ever find, ranging from the “orangatang doughnut” (with actual tang in it) and “triple chocolate penetration doughnut.” Until the FDA stepped in, they created a few that contained Robitussin, Nyquil, and Pepto-Bismol. You’d think something that awful would turn people away, but they found success because they were willing to accept their strangeness and put it out into the world.

In a look at Voodoo Doughnut’s success, Copyblogger it had little to do with the quality of their product but how memorable it was:

Do they taste better than other doughnuts? If you’ve been pining for bacon or breakfast cereal on your doughnuts, I guess so. Otherwise, they’re a lot like everyone else’s doughnuts: delicious for two bites, and then you start to hate yourself. But if you go to Voodoo once, you want to talk about it. It makes for a great story that their customers love to tell.

Furthermore, you become memorable because you know exactly who you are and who you aren’t:

Part of being memorable is knowing who you don’t serve. It’s not (necessarily) about being as offensive as your imagination can inspire. It’s about writing off the people who aren’t right for you and never will be.

It’s about more than weirdness. We’re all a little weird, but some of us show it more than others. To be weird and let people judge you for who you are, you need to be honest and confident. These qualities are at the core of why Voodoo Doughnut has success and why they make good qualities for individuals as well.

I’ve often been a topic of conversation in the same way as the doughnut shop because I do a lot of weird things. I make a habit of it, in fact, because—as previously noted—it’s important to experiment and learn more about the world around you. I believe if you try to be honest and forthcoming, you’ll attract the kinds of people who want to be around you. You’ll repel at least as many, but that’s the cost of meaningful relationships. You don’t have to be any stranger than you are. The goal is to find confidence in yourself and what matters to you, then be honest about it. If you happen to be really weird like a Robitussin-filled donut, people will still love you anyway.

Apple: Stay Positive

Five Life Lessons You Can Learn from Successful CorporationsS

You can love or hate Apple’s magical, revolutionary marketing tactics, but you can’t deny they’re effective. The incredibly successful company found its place at the top not just because it made some good gadgets, but because it shared its work with blinding optimism.

Apple is so well known for this, people openly mock them for overselling themselves or just sounding a little silly. Still, positivity has a massive effect on how we process information. We may know Apple likes to exaggerate, but just hearing their repeated positive language can actually improve our mood. (Of course, there are some of you out there that feel exactly the opposite way—nothing is perfect.) For example, watch this video simply parodying Apple’s marketing style and try not to want to eat a KitKat afterwards:

http://www.youtube.com/watch?v=OKOrkL…

While not everyone will want to go out and buy a KitKat immediately afterwards, positive communication breeds positive feelings. Many people are highly suggestible and will want some candy, but a positive effect is often planted regardless of the outcome. You can’t feel positive all of the time, but you can make an effort to see the upsides of everything and show gratitude. Both of these approaches can help you feel better and happier. Just don’t fake it. Like Apple, you have to believe in the positive things you say. Find those silver linings instead of fabricating a more ideal reality.

Panera Bread: Break the Rules for the Right Reasons

Five Life Lessons You Can Learn from Successful CorporationsS

Rules were written to be followed, but most of us know that you ought to break them when it’s the right thing to do. Most companies don’t feel that way, but Panera Bread has found success in making exceptions for good reasons.

You may remember a kindness Panera paid to Gail Cook when her Facebook post went viral. Here’s her story:

My grandmother is passing soon with cancer. I visited her the other day and she was telling me about how she really wanted soup, but not hospital soup because she said it tasted “awful” she went on about how she really would like some clam chowder from Panera. Unfortunately Panera only sells clam chowder on Friday. I called the manager Sue and told them the situation. I wasn’t looking for anything special just a bowl of clam chowder. Without hesitation she said absolutely she would make her some clam chowder. When I went to pick it up they wound up giving me a box of cookies as well. Its not that big of a deal to most, but to my grandma it meant a lot. I really want to thank Sue and the rest of the staff from Panera in Nashua NH just for making my grandmother happy. Thank you so much!

Articles were written about Panera Bread and what they did in this specific situation later on, explaining how this wasn’t out of the ordinary for the company. As a business, their rule isn’t give away food but they encourage their employees to make exceptions when it seems like the right thing to do. There’s no chain of command to consult. Instead, you’re empowered to make your own choices.

Sometimes, in life, the rules just don’t make sense. Sometimes you have to follow them anyway because the consequences of rebellion are worse than keeping quiet, but other times disobedience is necessary. When you can do a good thing and it doesn’t take much risk, don’t hesitate to break the rules. A small thing can make an enormous difference in someone’s life.

Tasty Brand and Amazon: Make Choices That Solve Problems

Five Life Lessons You Can Learn from Successful CorporationsS

It isn’t hard to jump on a trend and make a quick buck in the world. I’ve seen enough Bluetooth speakers and USB batteries to know how many replicate rather than create. While there aren’t many new ideas left in the world, it’s not necessary to reinvent the wheel. You just need to make something that actually solves a problem.

The founders of Tasty Brand looked at children’s food options and found they were either unhealthy or gustatorily unappealing. They decided to start a company to solve both problems and now offer healthy, naturally-sourced childrens foods that actually taste good.

When Amazon began, it set out to solve multiple problems. Online shopping was a somewhat new idea at the time, but their goal was bigger: to become the most customer-centric retailer in existence. They not only solved the problem of easier shopping, but have continued to find ways to make every aspect of buying almost anything less painful for the consumer.

Tasty Brand and Amazon are not the only companies to emerge as a solution to a problem—not by a long shot. Most successful companies, including the others in this post, started because they wanted to contribute something good to the world. While we can’t say that about every brand, we can about many. Of all the lessons to take away from successful businesses, this one proves itself more times than anything else: make choices to solve problems, not just to make choices.

In our personal lives, we’re confronted with decision making all the time. It’s stressful and we’re bad at it. We still have to make them, of course, but it helps to have some guidance for each one. When you consider your options, choose based on whether or not the outcome will solve a problem. This may seem obvious, but because of the stressful nature of the process we often don’t have the willpower to choose effectively. When you can’t decide, opt for the productive option. Even when things don’t work out perfectly, you’ll always know you made an effort to put something good into the world.

Images by Millisenta (Shutterstock), Oregon Live, Lorelyn Medina (Shutterstock), Pta Pta (Shutterstock), and Svinkin (Shutterstock).

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