How Many Startups Have You Invested In?

By | March 25, 2010

Does this look familiar? Someone comes up with a new idea. That idea is shared and has promise. It is then sent up the “chain” where it increasingly meets resistance. More often than not, it is killed. Why?

  • It is too different from what we do today
  • We don’t have resources that can be taken off “approved” projects
  • It would take too much time and expense to prove that the idea could be profitable
  • It didn’t come from the group that is responsible for new ideas…
Is this how a company operates that has an effective innovation process? No? It turns out that most large companies struggle with innovation. There is little appetite to try new things, especially those that do not have a guaranteed return on investment. The problem is, that it is very difficult to predict which idea may become the game changer.
Companies that have proven innovation capabilities are those that operate more like a venture capitalist. They understand the logarithmic nature of ideas to those that change the game. Venture capitalist’s spread their bets across a wide range of options. Knowing that very few will be winners but those that are usually boggle your mind at how much revenue they can produce.
Is your company designed to support innovation? Have you created an environment that generates thousands of ideas so you can discover the true jewels? Do you have a program where resources can and will be applied to ideas so they can quickly be evaluated? Are you willing to release ideas to the market knowing they may fail?
Innovative companies rock the core of how an organization operates. Most companies resist investing resources to work on ideas that may fail – remember most will certainly not make the cut. Most companies want to spend months “proving” and idea is profitable before trying anything. Most companies limit investments to those pre-planned strategic bets that have already been made. Do you want to be like most companies? Is “your” company like most companies?
If you have thoughts about innovation then please comment. I have more to say about this but wanted to start the conversation with this post.
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2 thoughts on “How Many Startups Have You Invested In?

  1. James Higgins-Thomas

    I believe you are on the mark. It will always be hard for an established company to invest in innovation when this investment must, by definition, be taken from the core business. How do you tell your stakeholders that you're spending a $X on an generating or developing ideas, most of which will fail, rather than investing it in your core business? How do you justify choosing uncertainty over certainty?

    The need for security is a counter force to innovation. Innovation requires courage in the face of uncertainty, the embracing of the risk of failure. When a company is new, or small, this is easier. The possibility of failure is so real, that creating ideas to stave this off is essential. Companies are born from challenge of realizing an idea in the very fountain of risk. Having established a market beachhead, the drive continues to quickly drive forward, to push the boundaries and establish a firm presence, a fortification of reputation, recurring revenue, recognition and growth.

    But as the business grows, more and more of the energy will be directed to maintaining and nurturing this established presence – the core business. In fact, an early step taken by many companies that begin to plateau on their growth curve is defining the core business and a shedding of those efforts considered peripheral. As growth continues at a reduced pace, growth through pushing out from this anchorage is much easier to justify than diverting resources to risky, uncertain possibilities. The security of the core business is preferred to the risk of the uncertainty of radical change. Further, a truly revolutionary idea might even erode one's current business.

    None of this is to say larger companies can't or don't invest in innovation. Examples abound – the old AT&T (Bell Labs), IBM, Xerox (Palo Alto), Microsoft, GM, Honda, Toyota, Google … Some of these invest while growing rapidly – they have resources greater than their needs and can afford the risks – even losing leaves them making money faster than their competitors. Some are entrenched, unassailable – they control enough of their markets that maintaining their place doesn't require as much effort. Others are growing more modestly, but they are either forward thinking and believe the investment strategic or see value in both maintaining an edge in the market and/or in reputation and prestige. Security, though, resists even these efforts – consider Xerox and the Mac (not considered core business) or GM and the electric car (risked eroding the core business with uncertain benefit).

    In the end, it requires a serious willingness to accept uncertainty, to embrace and even encourage change, to recognize security for an illusion, and to back this will with the investment of energy, drive and resources in asking "what's next?", "what's possible?". It also requires courage – when times get tight (and they will), investment in the uncertain will almost always lose to the safety of the known.

  2. Rick Austin

    James, great points. For most companies, the need for security is in response to fear. As you rightly noted, once a company has created that core set of products they turn from focusing on ideas, many which will fail (fear), to maintaining the status quo. There is also built up a priesthood that is responsible for the care and feeding of the core products. Nothing wrong with that and it is a necessary function but, it also starts to shift idea generation from all company employees to this small subset. This eliminates a huge number of potential ideas and also constrains ideas to only those related to the core business.

    Being innovative is damn right hard in an established company. It can be done and you noted examples of those that do this. Creating that culture of trying new ideas, lots of them, is required for long term health and profitability. An oak tree spreads hundreds, maybe thousand, of acorns across the ground. Most will not germinate but it only take a few to take root that ensures survival of the species. I think we need to start sowing more seeds.

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