As a start-up you can do two things. Create a digital service which falls in the wow category of social mobile app, cool gadget, another cryptocurrency, or similar. Nothing that will make this world a better place. Alternatively, you can try to solve a really hard problem with some really clever technology and try to sell your new product or service.
Brave high-tech innovators that opt for the second category are struggling months or even years to resolve complex technical issues. When they finally solve the technical issues, start-ups think they will become insanely rich overnight just to find that larger companies at most want to do a pilot to get in the news. Alternatively, they decide to be disruptive and sell directly to customers. Most after some months run out of funding.
Large companies spend billions on R&D, venture arms, hackathons, incubators, and more. Most of the outcome, if any, is more of the same.
Why are innovators suffering?
So how come an amazing technology company with extremely beautiful and intuitive products can't beat an incumbent, powered by a 30-year-old legacy system, which sells products with very average customer satisfaction?
The main answer is barriers of entry. Most industries that have not been disrupted today have high barriers of entry. These can be legal barriers, cost of sales barriers, customer trust/intimacy/privacy barriers, high capital intensity barriers and others.
You can't just become a bank, insurer, healthcare provider, railway, telecom operator or similar overnight and roll-out an amazing service to millions of customers. Google Fibre is a great example of how it is non-trivial to get permission to lay fibre to millions of people’s homes even if your product offers exponentially better service and customers want it.
The last wave of Silicon Valley innovations has been around 140 characters, emojis, snaps and likes. Although many people are addicted now to their mobile, and smartphones have transformed industries, we have seen few life-changing innovations. We still have traffic jams, housing shortages, pollution, average if not bad public health systems, under capitalised pension schemes, unemployment, racism, loneliness, sexism, violence, corruption, tax avoidance and more.
What should innovators do?
It is time to bring real change and improve people's lives. Innovators should bring #improvation, innovation that improves the world we live in. Unlike before, this is best done together with corporate leaders instead of going it alone.
To quickly launch amazing products together with large corporations, innovators will need to make some changes.
The reason why top executives in large companies can't work with start-ups is that start-ups make basic assumptions that aren't correct. A start-up assumes an executive understands technology but often basic terms like APIs aren't understood, let alone available. So if you have a great mobile or SaaS service that can exponentially improve customer satisfaction or efficiency, don’t assume an enterprise executive has a budget, can just sign a contract, provide you with data, integrate your APIs and launch the solution in weeks. They just can’t because they internally lack APIs, data is locked inside legacy systems, procurement wants 3 providers to run through an RFP and so on.
How should enterprises organise themselves differently?
Large enterprises are organised around efficiently getting economies of scale. 5,000 customer agents used to sell 100 times more than competitors with 50 agents. Offices in each city allow selling locally. One finance department for 5 business units. Digital innovation has made this way of working irrelevant but unless the Harvard Business Review talks about a new #improvation organisational trend, McKinsey has organised their first global #improvation summit and Gartner has crowned a leader in their #improvation magic quadrant, most companies will not kick-off large multi-year #improvation change programmes ;-)
In the new world of #improvation large companies need to learn to launch new revenue-generating products in weeks. Most corporations only know how to do product evolution, not product revolution. They have optimised a business that was founded decades ago and have had no need to learn how to be lean and fail fast because they have been milking their cash cows ever since. Enterprise innovators that want to be successful should focus on demonstrating the advantages of failing fast and cheaply. Showing the improvements of reorganizing into product-focused squads, not departments and projects. Introducing continuous deployment. The cash-cow farmers need to be separated from the new business creators and the new business growers. All are separate disciplines. Creators are lean and agile. Farmers are six sigma. Innovators should focus on short-term wins to build internal credibility to then talk about bigger and bolder innovations.
Startups and enterprises need to collaborate
Start-up innovators often lack a deep business understanding. They need to learn how industries work before they can improve them. Innovators need to learn that sexy and cool technology is often slowing down adoption because it generates talent, governance, operational, security and a lot of other issues when working with enterprises.
The focus should be on “boring but expensive problems” first because those stop enterprises from innovating. Machine learning is not the priority if data entry is still a manual task. Automate data entry first and provoke a big data problem that you now know how to solve!
To any innovator that wants to do #improvation but does not know a specific industry, why not change jobs and try from the inside. You will learn so much more than trying to disrupt from the outside.
The easiest path forward is for enterprises to become start-up creators and accelerators. Give internal talent the possibility to create a demo of a new #improvation product in weeks. Validate there is a market for it, e.g. organise a crowdfunding? Provide employees with an initial investment that covers one year salary and a bit more; spin them off in a separate company but keep assisting them with operational, financial, legal and sales help; all in exchange for a modest part of the company. Most importantly if after one or two years things don't work out, welcome them back as employees. If things go as planned, invest in exchange for more company share. This will be a lot cheaper than seeing disgruntled employees go to VCs, make a company to solve a problem the enterprise had and force the enterprise to buy it back in for millions. Cisco and others spend real fortunes doing this.
To work with small start-ups the best thing is to create competitions. Share an important problem you want to see solved and put a large investment price for anybody that solves it. Alternatively, create a marketplace for smaller companies to sell innovative products to your existing customers.
It is time we move away from multi-year change programmes without results and disruptive social start-ups that make us waste time to sell more ads. We need real innovations that improve our lives. We need #improvation.
Maarten Ectors is a strategic innovator who exchanged working with the who is who of high tech to apply disruptive technology and business innovation from the inside in the top UK insurance and investment management company. In less than a year they won the best claim technology solution of the year award and that is just the start...