The 8 biggest challenges you’ll face running a corporate lean startup, and how to tackle them
So you’re running a lean startup at a large corporate…
Congratulations! It’s an exciting and challenging time to be an intrapreneur.
While there were only 9 unicorns (privately held startups valued at over $1 billion) disrupting traditional industries in 2008, this number had risen to 138 by 2018 (QZ). Incumbent organisations are responding to the threat by creating spaces for rapid experimentation in great numbers. They may be called ventures, innovation labs, corporate accelerators, speedboats, or incubators. In this article, we’ll simply call them lean startups.
Running a lean startup within a corporate structure can be beneficial for both the startup itself and the wider organisation. Being part of a large corporate means having (almost) endless resources at your disposal – something very useful in the early phases of your startup. Need some legal advice? Just call the legal department. Need exposure to about 10.000 of your target audience to A/B test some copy? Check with the CRM manager and send an email!
When your lean startup does not veer too far away from the core business, the insights you gather while researching customer needs and testing hypotheses can benefit the wider organisation. You’ll also be demonstrating to other teams how agile and fact-based approaches can generate valuable insights and increase execution speed. A third benefit to the wider organisation relates to culture and attitude towards failure: projects in a large corporate are often ‘too big to fail’ and teams do not happily engage in sharing failures. In a lean startup, however, you test hypotheses on a small scale to figure out what works – and what doesn’t! – to learn and optimise. You’ll impact corporate culture step-by-step, shifting attitudes towards failing, testing, learning and being ‘right’.
All the excitement aside, as an intrapreneur you might also feel frustrated or lost, like a lone warrior battling bureaucracy. Benedict Evans captured this feeling brilliantly in a GIF.
“I run the innovation lab. It’s like we’re a startup, but inside a big company.” pic.twitter.com/q3m7XysPNn
— Benedict Evans (@benedictevans) 9 settembre 2018
Sure, running a corporate startup can be a lot more comfortable than running a bootstrapped or VC-backed startup. However, the job does come with its own set of challenges. We’ll outline some of those challenges, and the best practices you should follow to tackle them in this article.
Challenges of running a lean startup within a large organization
1. Dispersed ownership of the customer
That experience of having to involve six different departments to make one small change.
As a company grows, an increasing part of the organisation moves further and further away from the customer. In a small company product, sales, customer service, IT, logistics and marketing communication are often handled by one team. But in a large corporate these different functions will be managed by a range of big departments, potentially spread across the globe. Each with their own interests and objectives.
If you run a corporate startup using the parent company’s customers and ecosystem, you’ll soon realise that small changes can be very complex to implement. Imagine, for example, looking for a different fulfillment partner for your offering. This will require changes in the API-calls made to the existing fulfillment partner, instructions to customer service on how to handle questions and complaints from customers, changes to the e-commerce portal and changes to email copy. Running the startup completely separate from the parent company means more agility. However, it also means not benefiting from the corporate infrastructure, and a more complex integration when scaling.
Takeaway: as an intrapreneur, evaluate carefully at each startup phase and for each element of the customer journey whether it is better to stay inside or move out of the established corporate structure. Consider running the lean startup completely separate from the existing customer ecosystem.
2. Lack of clear business ownership and dedication
Why is nobody attending the daily stand-up this morning?
Getting team dedication and clear business ownership in a large organisation can be a challenge. With short term issues constantly demanding attention, it is difficult to run a successful lean startup. How to prevent your innovation efforts from being seen as something done ‘on the side’?
First, it is important to have clear, measurable objectives and a timeline for achieving them. Your objective should fit the maturity phase you’re in. So if you still need to prove that customers love the solution you’re offering, it is best to avoid ambitious growth targets. Second, the right people need to feel ownership of these objectives. If your objective feeds into a higher-level target, senior stakeholders will have a reason to help you move obstacles out of the way. Likewise, breaking down your objectives into smaller chunks will allow team members and stakeholders to take ownership in the challenge. KPIs can be a great source of purpose and teamwork when used the right way!
Takeaway: as an intrapreneur, you don’t operate in a vacuum. It is up to you to ensure that your project is given the priority it deserves. A great way to share this sense of ownership across your team and stakeholders is through thoughtfully selected objectives.
3. A matrix organization’s inherent conflicts
That constant battle between competing interests.
Working in a matrix organisation entails inherent paradoxes that are especially relevant for intrapreneurs. As described by James Allen from Bain, a matrix organization produces a set of paradoxes, or conflicts, that can be healthy or unhealthy, depending on how they are dealt with. They are:
- Scale vs. intimacy: how can we meet the specific needs of small customer segments (e.g. attending to local preferences), while giving them the benefits of our large scale (e.g. lower prices)?
- Routine vs. disruptions: a large organisation would want about 85%-95% of their work to be executed efficiently, according to a clear set of steps, like a pilot flying a plane. The other 5 to 15% is about venturing into new spaces and trying new things, like an engineer exploring new aviation technologies.
- Short term vs. long term: if an account manager is falling behind to meet Q4’s sales targets, she will probably contact her key accounts and try to make a deal on the company’s flagship product. She is less likely to try to sell an emerging MVP product, even if it is supposed to secure the company’s continuing existence over the next few decades.
Takeaway: as an intrapreneur, be aware of the conflicts of working in a matrix organisation. Realise that these conflicts serve a purpose, which is to find the right balance between the two extremes.
4. Guidelines, restrictions and approvals
How many forms do I need to fill?!
Depending on how detached your venture is from the established organisation, you may be facing a lot of approval loops. This is especially challenging when you are testing add-ons to an existing business (e.g. value-added services or new channels), as opposed to a stand-alone venture. Being drowned in paperwork does not help your rapid experimentation efforts.
Takeaway: as an intrapreneur, realise that legal, privacy, IT, risk, brand compliance, and procurement departments play an important role and can serve as invaluable coaches or consultants if you manage the relationship the right way. You can do this by having someone from each team serve as a ‘startup consultant’ helping you navigate their area of expertise. You could meet with each of them bi-weekly for 15-30 minutes.
5. Risk averseness
That moment you realise not everyone is as excited about doing things differently as you are
Large corporations tend to be more risk-averse than startups, for good reason: there is more to lose and relatively less to gain. To reduce resistance to change, it is important to minimise risk for your colleagues (what does this mean for my job?!) and the corporation itself (what if we fail our customers?!). Three forms of risk to watch out for at the corporate level specifically are:
- Risk of cannibalisation: some might fear that the innovation you’re introducing will hurt the existing business, potentially resulting in a temporary revenue dip. It is debatable whether this is a valid concern. Experts state that to stay on top of their game, companies need to embrace self-cannibalisation. This is how innovation giants like Apple, Google, Facebook, Amazon, or Tencent keep an edge over the competition. Their motto: if we don’t cannibalise ourselves, someone else will.
- Risk of reputation damage: a large brand’s key asset is its reputation. Consumers trust the brand because of a long track record of delivering quality. The risk of damaging the company’s reputation looms around the corner. One option to mitigate this risk is by testing consumer demand with a fake brand, or fully launching the innovation under a different brand name. Depending on the solution you’re developing and how much it relies on the company’s existing products and infrastructure, this may or may not be a good option. An alternative solution is to limit the exposure of your MVP, and gradually increase exposure as you iterate and improve based on customer feedback.
- Risk of failure: chances are the venture you’re working on will not be a success. This might be a reason for the company to either not invest in the venture, or to keep it going for long after the failure is apparent. There are ways to deal with this risk and clarify reasons to still invest. First, clarify the reason to invest despite the likelihood of failure by highlighting the cost of doing nothing. While the company’s product portfolio remains the same, competitors continue entering emerging high-growth areas. Second, quantify the risk and make a plan to minimise it: by following lean startup methodology, you are continuously testing and learning. By making a small investment in a prototype and testing that in the market, you learn if it has a chance of succeeding without spending millions on product development. In essence, you are minimizing downside risk and maximizing upside potential.
Takeaway: an important part of running any venture is minimising risk. As an innovator at a large corporate, quantify risks, benefits, and costs and communicate them effectively to your stakeholders. Realise that demands for minimizing risk are not unreasonable and that a VC investor at a startup would require the same accountability for risk from a founder!
6. Performance measurement does not account for innovation
How do I show progress when all the normal business metrics are effectively zero?
It is likely the case that your lean startup is not (yet) making any significant revenue, especially compared to your costs. Tracking performance and effectively communicating to stakeholders can be especially challenging if the organisation does not already have a structure in place to manage innovation projects, such as innovation portfolio management or a corporate venture lab.
Even if there is no structure in place for managing innovation programs, there are still ways to estimate and track the performance of your lean startup. We’ll go into these topics further in an upcoming article, but here’s the summary:
- Estimate your project’s real options value. Why was Facebook at one time valued at 100x its annual revenue? Why are pharmaceutical companies willing to invest millions in a medicine that may never pass FDA approval? It’s because there’s options value in these projects. A real option is similar to a financial option (to buy stock for a set price) in that it is a right, not an obligation, to step into something uncertain (e.g. to further invest in an emerging technology). It has the same upside potential but limits the downside risk.
- Score your project against others on a risk/reward matrix. The incremental impact of other projects might be steady, predictable and incremental. In sharp contrast to your breakthrough innovation project, which is variable, unpredictable and potentially game changing. When evaluating projects, the potential upside and risk involved should, therefore, be considered.
- Apply innovation accounting. Although the CFO might not be satisfied with you reporting a ‘very promising conversion rate’, innovation accounting (and similar approaches) has a lot of potential for internal performance reporting. It is also a good alternative to more traditional stage gating, which tends to rely on very uncertain business case assumptions. Innovation accounting uses metrics that help you prove risky hypotheses per phase of your startup. They take you from a proven identified customer need to a proven solution that customers are willing to pay for, to a solution that sells itself, and finally to a profitable and scalable business model.
Takeaway: it’s possible that the traditional performance metrics and project selection methods are stifling innovation in your organisation, or encouraging you to build unrealistic business cases. There are alternatives, and it’s worthwhile to discuss with the finance team against which metrics your project should be evaluated.
7. The highest paid person’s opinion (HiPPO)
You have the facts, but none of that seems to matter…
You hire a service designer to create the best customer experience, an analyst to create and run clean experiments, and a developer to write clear, simple, effective lines of code. Everything you do is informed and validated by data and customer insights. Then, when you share progress with senior stakeholders, they give their unsolicited advice that you should have done things differently: a more formal tone of voice, a different colour, a lower price point, etc. Even though fact-based decision making is cited as the biggest advantage of adopting lean startup methods by innovation leaders, that doesn’t mean it is easy to implement.
Takeaway: as an intrapreneur, make sure that your investors (the senior stakeholders financing your project) know their role: to give direction and purpose, challenge you on results and help remove obstacles. Autonomy is a key element of successful agile teams. Leaders can have an opinion about whether the product you are building should be blue or green, and are welcome to share that opinion, but they need to trust the expert to make the right decision.
8. You are your own worst enemy
Yes, we are talking about you now
As an innovator within a corporate, you’re in an interesting position: you are asked to act like a startup founder, with the comfort of having a fixed position and getting a paycheck every month. This is a great position to be in, and executed excellently by most corporate entrepreneurs. However, being in this situation does bring a specific set of challenges that you should be aware of. Three things to look out for:
- Designing at the whiteboard: this happens when you and your team try to make decisions without going outside and talking to actual people! You might be organising workshops, writing down ideas, making sketches, but forgetting to validate anything with real customers. This is especially a risk for innovators in large companies because they tend to not be in direct contact with customers on a daily basis. Determine where your customer is and what would be the simplest way to get in touch with them to validate your assumptions.
- Innovation theater: post-its, ping-pong tables, Silicon Valley jargon and inspiring Steve Jobs quotes do not make a lean startup. While it’s a good idea to create a safe and creative environment that looks and feels different from the rest of the organisation, it is not a requirement nor an achievement. Creating the space is only where the work starts: the company expects you to deliver results and you should hold yourself accountable to do so.
- Unwillingness to kill your darlings: you might get attached to your idea, or be afraid to admit failure to your stakeholders. Use crisp metrics and regular hypothesis validations to keep you from fooling yourself.
Takeaway: The temptations are real. Beware of them.
To conclude: key success factors
Was that a lot to process? Don’t worry, we’ve got you covered. Keep calm, and follow the below recommendations to tackle your corporate startup challenges:
- Carefully select your level of detachment from the parent organisation and start thinking from a very early stage about how you will scale the startup, if successful.
- Be aware that each large organisation has conflicting priorities and objectives. This is intentional and depending on how connected you are to the parent organisation, you will run into these conflicts occasionally.
- Involve supporting functions (such as legal, IT, procurement) from an early stage and try to identify someone in each of these teams who can help you with the red tape and serve as a startup coach or advisor.
- List the risks you might expose your employer to by starting this innovation project. Share this list with others in the organisation and invite them to contribute. Try to quantify these risks and determine how you might mitigate them.
- Agree with finance and leadership on how the success and progress of your startup will be measured and determine whether this approach will encourage or stifle innovation. Adjust accordingly.
- Agree with the leadership team on how their expert opinion will be validated as part of the lean startup approach. Whenever they ask you to do something differently based on an opinion, say: “that’s an interesting hypothesis, we can put it on the testing roadmap!”
- While innovating can be fun, as an innovator you are running a risky project that needs to deliver big results to justify that risk. You need to be willing to get out of the building, aim for measurable results as if your life depended on it, and be willing to walk away from your ideas if they don’t work.
We hope those recommendations will help you navigate life as a corporate innovator with a better sense of direction. Looking for more tips and practical advice on how to run a lean startup in a corporate setting? Stay tuned for more articles!
Contributors to this article:
- Roos Reitsma, Data-Driven Innovation lead at Riverflex. Worked for Hedera (part of Cognizant) as Manager for Growth Strategy and Innovation, and at Microsoft as Digital Analytics Manager. Past clients include Philips, PVH Europe, Sanoma and PON Holdings.
- Cameron Mckelvie is an independent transformation consultant and Riverflex member, formerly working at Bain & Company. Cameron’s previous clients include HMRC, Ahold Delhaize, and Mars confectionery.
- Martijn Verbeek, led the innovation teams at Eneco and Ahold Delhaize, was business director data/value-added services at Quby and is a member of the Riverflex community.
Riverflex is a new type of consulting firm. We deliver digital expertise and value by combining top consultants with the power of independent specialists — providing digital consulting, staff augmentation, and interim management services. For more information visit us at www.riverflex.com
Read our insights on Data-Driven Innovation here.