Monthly Archives: June 2012

Why is it so hard for large companies to innovate?

Giving a talk later this week on some of my experiences and lessons learned around making innovation happen in large and small companies.

I wanted to start off with a very specific question: Why is it so hard for large companies to innovate?

I have some insights from my ten years at Siemens way back when. At first glance you might actually think that this type of environment would be ideal to get things done. After all, there seems to be a lot of money flying around. People used to boast about how many tens of millions of dollars they had sunk into some failed initiative. We also had great customer access and strong credibility. You would have expected customers to work with us and to help us. And we had a deep and broad talent pool which should have allowed us to marshal the resources needed.

The difficulties became clear when we tried to come to grips with new business opportunities in the area of “multimedia”. This was just before the Internet conquered everything but we didn’t know that yet. We spent millions in internal resources and external consulting (the usual suspects) to identify markets and potential offerings. For all the good ideas we had on the drawing board we hit several walls when it came to defining how to execute. Hard walls.  Especially:

  • Lack of investment capital. In a large company any business venture that doesn’t scale up to e.g. 500 million in year three is not very interesting. And therefore doesn’t get funded. Even though it may ultimately be huge and important. You just don’t know exactly when that will be.
  • Talent: Lots of talent in the organization but missing critical ingredients. Which we would have found very difficult to hire. Both rockstar engineers as well as creative as well as dealmaking talent comes to mind. We offered big paychecks, but to no avail. They just wouldn’t come.
  • Time: This is probably the hardest wall we hit. We just couldn’t imagine how we might get from here to there in a finite amount of time. Given that everything in a large company takes months not weeks and years not quarters, any implementation plan ended up taking many years. And you know that the world will be different in three or four years so it makes no sense to plan a project that takes that long. It just doesn’t. We simply had no idea for how fast a smaller, more nimble, and more focused company can move.

What is the size of your ambition? Look in the mirror and tell me what you see.

Lots of discussions recently with founders on how companies grow and how they grow within them. A daunting topic for first-time founders who may not really know what they want out of life. But also daunting for repeat entrepreneurs, who mostly tend to know what they do not want.

In this case I think it is important for people to look in the mirror and be honest about what exactly is the size of their ambition. Which may determine the preferred approach to starting and building out their business. If ambition and business model do not fit then you may be in for rude surprises. 

If you look around you will find that there is a only small number of business model options available. Go ahead and pick one that fits your ambition. 

  • Systems integrator or consultant: Has a small number of customers that they are very close to (in terms geography and/or in terms of vertical domain expertise). Build some technology, buy some technology, make sure your customer gets what they need. Make money on margin, more importantly on billable hours. Make sure not to grow beyond at most a dozen people. End-game scenario: Fat salaries for the founders and a nice company car. Nothing wrong with that. Just make sure you stay really really close to your customers.
  • App boutique: Has an app or a tool. Very small team, one or two would be best. Solution is distributed widely. Monetization through voluntary contributions, freemium conversions, and, of course, app store purchases. Make sure not to hire any more people. End-game scenario: Pull in a couple 100K p.a. and milk it for as long as you can. Preferably develop the next app in your spare time, if you have any. Instapaper my favorite example, but there are many others. 
  • Product vendor: Has a product of some complexity which is sold or rented. Product is significantly better product for an existing market (needs to better because otherwise you couldn’t enter the market in the first place) or creates a new market (good luck to you). Early adopter customers buy first version because they need something now and because they believe in your roadmap. You now deliver on your roadmap. Meanwhile, if the market you serve or create is of any interest at all, there are dozens or hundreds of market entrants nipping at your heels. Some of them smarter than you, some of them with more funding, some of them active in larger markets. So your mission is simple: Win or go home. There is no place for a middling competitor. You are now condemned to grow or die. The bad news is that you can never sit back and take a breath. The second you do that somebody will have outperformed you, mostly by just giving away what you were charging for. Which means that your company will either die or grow to be 8, 15, 35, 70, 120, 200, etc. people. Make sure you’re comfortable with that and make sure that you can envision your changing role in such an organization.