Entrepreneurship in big companies…100% failure?

Source: Scripting News ( Dave Winer)

Oh they wanna do it!  They want it so bad it haunts their dreams… “Innovate…before someone else takes your market away…be young and scrappy again…disrupt yourself before someone else does it to you….”.  Most heads of big companies want to foster internal innovation and entrepreneurship in the worst way.  They set up labs apart from the constant grinding need to feed the under staffed folks who are shipping the bread and butter projects, they spend big bucks hiring EIRs (Entrepreneurs in Residence), they put together VC funds, they set up internal entrepreneurial training, innovation prizes, and officially set aside time for people to work on projects outside their normal work.  They carefully read Christenson’s Innovation series of books looking for clues.  AND, WITH RARE EXCEPTIONS, THEY ALL FAIL!  What the hell?  None of these are stupid people.  Many of them have done the exact thing they are trying to get done within the bigger companies? So why doesn’t it work? 

The Land of Battle Scars: Trying to make entrepreneurship work in big companies 

A little background to set this up.  In my heart of hearts, I’m a small company guy.  I believe I the old mantra of the best work being done by teams you can take out to pizza in a VW Bug.  Every-time I’ve been in a larger company; I’ve tried to recreate that inside the belly of the beasts. I did it at Apple, tried at Microsoft and had an intense, although unintentional experience with it at Adobe.  I also got a chance to get up-close and personal with Yahoo’s Brickhouse group while they were in their prime.  At Adobe, when the Macromedia merger killed the project they hired me for and tossed me into the sea with instructions to find a job in the land of frozen rec’s I decided that if I couldn’t find a job, I’d have to make one.  And so began my year and a half as an unofficial EIR, and a very high-stakes indoctrination into what worked and failed in this endeavor.

The main tone for the internal entrepreneurial process at Adobe when I got their in ’04 had been set by Greg Gilley, who was at the time the VP in charge of what he termed the Digital labs.  He had laid out a pretty innovative and well thought out structure for the thing, including how to get ideas approved and funded and making sure that people would feel safe in leaving their known jobs to spend some time working on projects where it was known that most of them were likely to fail, much in the same way that VCs know that they will fund 20 startups knowing most will die and looking for the 1 or 2 that hit big.  This led to my first, painful lesson in this process:

The bungee boss problem:

When Greg was forced out of the company with a shift in the power structure at the top, the safety net he created through his force of will evaporated.  Projects scrambled for new patrons, and those at the top who had objected previously but been outvoted by the old boss now had a chance to kill what they didn’t like.  It’s important here to note that the motivations are not nearly as cartoon evil as those of us who’s projects get cut like to think. Instead, most companies have been operating for quite some time at way below appropriate staffing and resource levels.  Those pressures are felt at the top with people scrambling for resources and headcount.  When you kill an entrepreneurial project, it is often easy to redeploy what resources are needed from those groups as a shift in headcount, not a new headcount to be approved.  What sucks about that from the teams perspective is that those that are moved, usually are moving from an exciting project that gave them a chance to build something new and work in a new way, something that appealed enough to them to take the risk, to being jammed onto an existing project to pick up the overflow work, usually the stuff that the rest of the team didn’t want to do.  It is so demoralizing that many of the team members in that situation leave the company. 

For the execs, that’s not so bad because they’ve now done a magic trick to gain the headcount where they want it, but for the company it really sucks, because the type of people attracted to those projects are often the aces that you most want to keep around, particularly if you want to get innovative and agile.  For the rest of the team, and I fell straight into this group, there is a systemic disconnect that’s very bad.  At the top, it’s known that the type of people that are willing to take these risks are the type of folks you want to keep in the company, and the mandate goes out that they should be rehired.  But when you get to the individual hiring manager, they are motivated by the success of their particular project, and someone who is a good asset and can fit into a team, is less attractive then someone from the outside who brings specific domain expertise for that type of project.  (It didn’t matter that I’ve been doing PM for 25+ years and can learn pretty much any domain…the head of the Premiere group is going to be much more attracted to someone who’s just come out of the film industry.)  One Greg had gone, there was no one as committed to the principals he’d laid out, and we were left with the stress of 3 months to find jobs and a bitter taste in our mouths from having trusted they company.

What to do better:  Set the rules of the game in stone for the length of a project so changing of guard doesn’t change the rules.  Make sure to insure soft landings for people taking those risks.  If they didn’t produce..fine..off with their heads (this isn’t a place to go and take an internal vacation), but if they went for it, make sure they get back where they feel safe. And more importantly, let them know ahead of time that is what is going to be what happens.  They need to be more motivated to succeed then fail, but they can’t feel like failure out f their control will cost them their jobs.

Quarterly Mood Swings:

So here I was, no job, and no one hiring, but in a company I really liked.  So I did what I always do in that type of situation, try and think my way into a job.  I took advantage of a really crappy way that big companies work, and got a project from one of the execs to do some research on how Adobe should look at the intersection between photos and Blogs (this was a while ago, remember).  Every large company has this stupid economic incentive in place that if you end up with unused budget in your group at the end of the quarter, that indicates that you didn’t really need that much budget after all, and it should be trimmed down next quarter. This is something so antitypical to the entrepreneurial soul as to be almost incomprehensible.  But what I discovered was that by moving from patron to patron each quarter, I could get put under their unused consulting budget and could even get research and prototypes funded.  I still had to convince people that the projects were interesting and worth pursuing, but if they could rationalize it, I was actually doing them a favor.  The problem came when we eventually hit a bad enough quarter that everyone had been asked to trim big portions of budget and there was no extra lying around.  What was interesting was watching the same patterns play out for those who were the official EIRs.  As the quarters were doing well, they had a sense of independence and freedom to pursue their projects.  As the quarters were tougher, their patrons turned into hungry sharks, looking to seed of they could find a way to turn those projects into features of existing projects and get those resources and headcount back into the fold. The EIR’s were constantly looking to see which way the winds were blowing and if they were going to get to go on or get folded back in, which would usually mean their leaving the company.  They would need to come back for approval and funding each quarter, and hope their patrons or the companies’ circumstances had changed.  What’s worse, they become mini versions of the company budget nonsense and need to keep begging for more each quarter.  And finally, the nature of entrepreneurship is learning and adapting.  Very few start-ups end up doing what they initially thought they would in terms of either business models or implementation.  Good VC’s invest in the team because they know how likely that shift in direction will be, internal entrepreneurship needs the same things.

What to do better: Insulate funds for a project from the quarterly approvals. If milestones are needed, fine, but set aside a pot of funding for that project to use and let them be as efficient about it as they can. Approve the team and the project, set some specific goals in terms of proof of success, but let them go free beyond that. 

Don’t disrupt in my backyard and what-the-hell economics:

Another huge elephant in the room was the question of disruption of existing businesses.  This is the main reason that most companies want to do this, so that if there is vulnerability to disruption that might take down their business, that they do it themselves instead of either getting blindsided and destroyed or have to pay someone else a fortune to buy the start-up that did that to them.  Keeping names hidden to protect the guilty, I observed one EIR at Adobe completely blocked from talking to customers in his area, because the VP of the group that had the services that were potentially going to be disrupted didn’t want the EIR confusing the existing customers and messing up the long sales cycle.  That VP was being paid based on the success of those sales, so there was no part of him that was interested in that getting messed with.  Plus the fact that if the disruption was successful, the EIR would end up being a threat to his job.  In most cases, the existing power structures are personally and financially motivated either to see the new project either fail, or become a feature to enhance the existing projects.

Internal stake holders (and a great tee shirt design...)

In general the internal economics are the biggest barrier to internal entrepreneurship.  The people who should be most motivated to help are motivated to see failure or envelopment. The quarterly nonsense promotes inefficiency.  And then there is the go, no-go approvers motivations.  Where a VC’s motivations are very clear, (they put x amount into a bunch of companies and x time 20 comes back from some set of those companies, they give that profit back to their investors and the investors come back and give them more dough to do it again), the internal approvers motivations are not so clear.  Christenson does a great job of laying this out in his books.  For most of these mid-level managers, they will be tarred with the failures that come under their watch, and they have a limited amount of funds to work with. If something succeeds, they get praise, but the rewards from that are so far off that it doesn’t affect the pot they have to work with.  So they want to stay safe.  The biggest source of brick shaped impressions on the foreheads of all the EIR’s that I’ve talked with, myself included, is this request that comes from the folks who make the go, no-go decision; “Prove to me that this is a market and I’ll be happy to fund it.” This sounds like a perfectly reasonable request, but one that makes any entrepreneur cry in frustration.  The fact is that we can make decent assumptions and build good business models, but the only way we can prove it’s a successful market is if someone has been there first.  If you want to be an entrepreneur, at some point you need to pinch your nose and jump into the pool.

What to do better:  This one is tougher, but the key to the whole ball of wax. The economics of not just the team, but the key supporters within the company and the decision makers have to be aligned with the standard risk/rewards of entrepreneurship.  Risk and change of direction are ok and part of the equation and that desire and motivation to see the project succeed needs to be in everyone’s self interest.  This is a LOT harder to do then to spin off a walled garden with the illusion of being disconnected with the company.  It involves adding to and modifying compensation in totally unrelated parts of the company, and since this is usually done as an “experiment”, that is politically hard as hell to pull off.   But if everyone doesn’t have their interest aligned, the corporate antibodies will pretty much guarantee that success beyond added features is impossible. 

Great related links...

The Search For the Fountain of Youth – Innovation and Entrepreneurship in the Enterprise by Steve Blank

The Paradox of Corporate Entrepreneurship by Julian Brikinshaw

The Birth and Death of Yahoo Brickhouse