Q&A on the Book The Corporate Startup

The book The Corporate Startup by Tendayi Viki, Dan Toma and Esther Gons explores what existing large corporations can do to establish an innovation ecosystem able to continually create new growth avenues. Instead of striving to be a startup, they should find their own way of innovating, use their assets, and learn how to create and use business models that support innovation.

InfoQ readers can download a sample of the corporate startup book.

InfoQ interviewed Toma and Gons about using an innovation thesis and coming up with profitable business models for innovation, how to decide which ideas to develop and how to test them, dealing with the challenges of scaling product ideas, and what large organizations can do to become excellent innovators.

InfoQ: Why did you write this book?

Dan Toma: I started thinking about writing a book on corporate innovation back in 2013 when I was working as innovation manager for one of Europe’s largest telecommunication companies. My trigger was the fact that some of the startup methodologies I was trying to apply in this corporate context were failing - and I knew from my previous entrepreneurial experience that they work in ‘startup land’. The ‘why’ behind this was my initial trigger. Also following some research and talking with people at various events across the world I realized that this was a recurrent theme all over the globe, independent of the corporations’ business line. And also there was no ‘handbook’ out there on how to manage innovation in this complex corporate context.

Esther Gons: Being able to add my startup and investor experiences to a corporate handbook and help design canvasses and models to make it the first practical handbook out there is what triggered me most. A lot of startups and corporates have approached me over the years saying; “ I have read the book ( or books) and I think I understand what is meant, but what does that mean for my startup?”, or  “How can I make this actionable in my company? Do I apply it to my process?” It being used as a “corporate innovation bible” is a real compliment for what I felt it needed to be.

InfoQ: For whom is it intended?

Gons: It is a real practical book that does not only give you the theory and the blueprint for a company wide strategy, but also the practical tools and use cases to make this come true. Because of that, the book is actually used throughout companies, from innovation managers to the top level strategists. But it is also useful for startups to understand what is at play at a corporate to be able work with corporates in a meaningful way.

Toma: The book has two parts. The first part is strategy and the second one is tactics. So this makes the book appeal to both executives, in charge of designing a corporation’s innovation strategy, as well as innovation managers & product owners, in charge of implementing the strategy in new business development.

InfoQ: You stated that "large companies are not startups, nor should they strive to be". Can you elaborate?

Toma: Large companies, unlike startups, have a massive assets base. Some of the assets are tangible, like buildings, and some are intangible, like brands or distributions channels. Sometimes in their strive to mimike startups, corporations might damage some of their assets. Large companies need to find their own way of innovating - inspired by the startups, but not identically replicating the startups.

Gons: A lot of corporates see the success of startups around them and consider the way startups behave as the answer to how they can be successful at innovation as well. Let’s copy that! We should become more like startups. But what they tend to forget is that their core is built around optimizing their current business models, around executing for growth. This is exactly what provides them with the resources to sustain, grow and expand. A startup is an uncertain entity searching for a business model that works. This requires not only a different approach, but also different processes and a different rhythm. Throwing away your current business model and the way you currently execute on it doesn't help your company become successful. Combining the two however, is far more effective. It is what can make corporates even more successful than startups in the current tech environment. Searching for something that works whilst using the resources of the current business.

InfoQ: What's the purpose of an innovation thesis?

Gons:  As a company, it is important not only to determine where you think the future of the company will lie in terms of technology and markets, but also how important these areas are in terms of investing in new models and technology. An innovation thesis will give you a scope that makes it really clear where you see there will be opportunities or threats. Investing in these areas even though the current models are still profitable is important because change is a constant and what is not a threat to a current model can be tomorrow. A good example is an airline company that decided that in their innovation thesis, apart from new technologies in airplanes, they also wanted to explore other technologies and innovations in any form of transportation. From bicycle to cars, from trains to walking. Because changes in this arena can also affect the use of airplanes, even small looking changes can end up being disruptive behaviour or technologies. Their innovation thesis justified a small fund for new technologies in transport that was not immediately clear otherwise.

Toma: Venture capital funds have investment thesis - these set the boundaries of what type of companies the fund is going to invest in, in the same way large organizations need to create innovation thesis to set the boundaries of what are they going to innovate on. In a rapidly changing environment it’s quite easy to feel attracted by every new piece of technology that comes along and spread yourself thin trying invest in everything. The innovation thesis is there to prevent this from happening.

Besides the example of Union Square Ventures that can be found in the book - whenever I talk about the innovation thesis I like to give the example of President’s Kennedy ‘innovation thesis’ for NASA: “I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the Moon and returning him safely to the Earth.” Basically he was telling NASA what they should be investing in, without micromanaging them or being super broad either.

InfoQ: What's your advice for coming up with a profitable business model for innovations?

Toma: Well there’s a lot that can be said here and numerous books on the topic have been written by other thinkers. If I would have to summarize, I would say validate everything before attempting to scale, and don’t forget the majority of the assumptions in a business model are on the market side.

Gons: I’d say the biggest challenge is perseverance. Not seeing big numbers or the needle moving can be demotivating at best. Keeping at validating your way towards a working model seems logical, but actually is really hard to do. Successes aren't born overnight. It takes time to build a solid and working business model.

InfoQ: There can be many ideas for new products or services coming out of brainstorming or ideation. How can we decide which ideas to develop?

Gons: It is important to invest in a clear and transparent process and governance around innovation and ideation. So that it is not only clear to teams and individuals which criteria are used in decisions, but also to make it easier to make data driven decisions for innovations rather than those based on a gut feeling. Having many ideas to start with is a good idea since only a few will actually make it. Making clear what kind of ideas it is the company is looking for is important as well. Are all of the ideas actually exploring new markets or new technologies, or are some of them optimizing current models? If so, they should be treated differently or not used. Are the ideas aligned to the thesis or scope that was set up before hand? Give the ideas some room before shooting them, maybe make clear that at least the problem that the idea is based upon needs to be validated first with a tiny budget. 

Toma: Ideas are great but what needs to happen is that these ideas need to be aligned with the company’s innovation thesis while at the same fitting the company's portfolio. For example, a company with its majority portfolio entries in ‘core’ should not continue to make the bulk of its  investments in ideas addressing the ‘core’, but rather start investing in ideas which are ‘adjacent’ to the core or even ‘transformational’.

InfoQ: How can we test ideas?

Toma: There are several methodologies that can help product teams test their ideas - Lean Startup and Agile Development are just the most popular. What’s important to understand in the testing phase is the mindset (which trumps the methodology). The right people with the right “search” mindset should run this activity. In general, a humble attitude is advisable, as this will ensure that the ‘searcher’ will always start by saying: “we know that we don’t know everything so let’s design an experiment to find out more about X”. My only advice for “search” teams is to remember that they don’t know what they don’t know.

Gons: It is important to understand that your ideas are merely a bunch of assumptions based on your worldview.  Testing is nothing more than researching if this is something that holds true for others. It is important to remember that you test ideas to learn, not to test the obvious. Determining which things need testing or exploring in the first place because they will have an impact on your business model is key.

InfoQ: What are the challenges when a product idea is scaled? How should one deal with those challenges?

Gons: The biggest challenge in corporate startups is premature scaling. Corporates are used to processes that are prone to optimizing growth. Hence their push for revenue, growth and ROI is something very logical as soon as there is some sign of these. But buidling and scaling a business model is hard. The first revenue might come from a customer segment that might not be the same as the one on which the scaling is going to happen.

Toma: Assuming the scaling idea has been validated, the biggest challenge - in my experience - is the mindset transition the team needs to go through, from search to execution. A failure of a successful transition will result in the cost of the search activities to become overhead. A manifestation of a failed transition is sometimes displayed in the failure of the idea to be adopted by an existing department/business unit. To prevent this from happening I encourage innovation teams to engage in conversations with business unit leader early on - trying to ensure a place for their idea to scale if it’s successfully validated.

InfoQ: How can we prevent premature scaling?

Toma: Through a clear fact-based governance system that will be able to determine if an idea is ready for scaling, meaning that all problem-solution-fit critical assumptions have been validated or not. What’s important to understand is that a governance system is more than just a set of go/no-go criteria. It includes metrics and budgeting leavers among other things.

Gons: Again, it is important to have a clear governance and metrics process around innovation. Preferably one that can help you determine the phase of a startup and whether or not it is still in need of validating certain things before focusing solely on growth. Stage gated investing, tracking progress in terms of learnings and impact metrics can all help.

InfoQ: What's your advice for large organizations to become excellent innovators?

Gons: Do not benchmark innovation. That what others are doing in terms of innovation is not what will make you successful or stand out; copying it will not help you. Figure out what is important in your company, where you see the opportunities, decide on an innovation thesis and dare to be different! If there is at least one person at strategy level that understands the two different worlds and can combine the resources and learnings, you are already one step ahead.

Toma: Enabling innovation is not a Big-Bang type of event - it needs to happen continuously, with perseverance and discipline. Modern corporations need to understand that in today’s world, innovation is everyone’s job and that innovation needs to transcend product innovation and be implemented in other parts of the organization too (e.g. HR innovation or process innovation). Lastly, innovation is a team sport and it can only happen when all the players in the company’s internal ecosystem strive for the same goal. If a large company is just investing in an innovation lab and hope they will be successful, they are in for an unpleasant surprise.

About the book authors

Dan Toma comes from an entrepreneurial background. Puzzled by the questions ‘why are innovative products mainly launched by startups?’, he focuses  on enterprise innovation strategy - specifically on the changes blue-chip organizations need to make to allow for new ventures to be built in a corporate setting. In this capacity he worked with companies like Deutsche Telekom, Bosch, Jaguar Land Rover, Bayer, John Deere or Allianz.

Esther Gons has over 20 years of experience as an entrepreneur. As a visual spatial thinker she was part of bringing the lean startup movement to the Netherlands and has mentored over 200 startups so far, and still acts as an advisor for many of them. Gons is Founding Partner of next.amsterdam where she mentors and invests in software driven early stage startups and helps corporates with internal innovation programs, innovation accounting and portfolio management.