Culture defines every company regardless of whether it is an early stage startup or a global enterprise. It influences behavior, and for this reason, culture is a very important issue for corporate innovation. Many corporate innovation initiatives failed because the corporations driving them lacked innovation culture or innovation DNA.
Based on my experience from the startups I built as an entrepreneur and the ones I funded over the past 15 years as a VC, I always claim that a company’s culture is defined by the first 10 employees, starting with the startup’s founders. Corporate culture is driven by leadership (and here); is based on performance management; and can only be achieved if there exists a common vocabulary among the individuals that live it.
Companies with a strong innovation culture share 7 common values and practices:
- Hiring the best: Today, more than any other time in the past, there is a war for talent going on in every industry and among organizations of every size. Companies with a strong innovation culture are great at identifying the best talent; offering the right incentives to attract these individuals; and providing the right environment to keep their employees motivated, productive and well compensated.
- Trusting: Corporate employees, from the CEO down, must accept the fact they need help in achieving their innovation goals (be it sustaining, disruptive or continuous), and all goals for that matter. Employees need to trust their colleagues regardless of rank and feel certain they will do what is appropriate for the company to achieve its goals rather than what is good for the individual.
- Embracing risk: Several types of risk are inherent in venture-backed companies, such as technology risk and management risk. These companies raise capital in order to address such risks. Their investors understand this reality and help them in the process. IVCs further realize that despite their best efforts, a startup may not be able to overcome its risks and ultimately fail. Corporations may consider these risks unreasonable or imbalanced, but they must be prepared and willing to deal with them. Ultimately they must understand which type of risk they are willing to take. Embracing risk also implies looking at different areas and favoring outlier ideas in order to identify the disruptive opportunities.
- Accepting failures: Failures are a natural consequence of embracing risk and pursuing innovation. As such, corporations must come to terms with the fact that in the same way that most startups fail, so too can their own innovation efforts. Innovation-related failures should be seen as opportunities to learn rather than as excuses to avoid trying something new or as times to criticize and assign blame. Consider the vast difference between concepts such as Minimum Viable Product that is embraced by startups, and Zero Defects used by large corporations in order to understand how much the typical corporate culture must change in order to be accepting to disruptive innovation. For this reason it is important that corporations seek to understand and establish the failure rate they are comfortable with.
- Moving fast, experimenting with new ideas, iterating: Corporations must understand the importance of experimenting with new ideas and pushing their boundaries. They must also appreciate doing so with a sense of urgency. Startups thrive on experimentation, pioneering concepts and models, and moving fast. These characteristics impact their ability to disrupt. Learning how to set up an experiment is as important as the experiment itself. Sometimes the experiment is too ambitious and its results are not adequately beneficial.
Corporations must also try to understand how the strict adherence to corporate processes can negatively impact their ability to become disruptive innovators. Their innovation culture must empower them to make decisions and operate on partial information — they must learn to work under uncertainty like all startups do. Finally they must realize that innovations often come from the rapid iterative refinement of some breakthrough ideas, e.g., consider how Google went from its search algorithm to the monetization through advertising and how Apple moved from the iPod to the iPhone. This approach doesn’t mean lack of evaluating and measuring, which corporations like to do; however, it necessitates the use of innovation-KPIs rather than execution-KPIs.
- Assimilating fast: As part of the innovation culture, corporations also need to empower their employees to quickly assimilate the most promising of the ideas and innovations, even when they are not fully ready or run counter to existing practices. For this reason employees must feel empowered and trusted. They must also learn to collaborate in an effort to make up an innovation’s potential initial incompleteness.
- Celebrating success: In the same way corporations must learn to accept failures as a normal step to seeking innovation, they must learn to celebrate success. On this front, much can be learned from the way startups celebrate even small successes and from the way their investors encourage them to do so.
CEOs such as Larry Page (and Eric Schmidt before him), Jeff Bezos, Marc Benioff, Mark Zuckerberg, and Paul Jacobs (now executive chairman at Qualcomm) all exhibited these traits and built innovation-driven cultures in their companies. Recognizing the importance of fostering the right innovation culture, corporations such as IBM and BMW are fencing off their new business units (IBM’s Watson unit and BMW’s iBrand unit) from the rest of their established business units. Other companies like Verizon and Samsung are establishing major operations in Silicon Valley and are in the process of trying to adopt the innovation culture pioneered by the likes of Google, Yahoo, Facebook and the myriad of startups.
One way to influence the corporate culture is to hire entrepreneurs who have founded and run startups, or entrepreneurs who have the characteristics of startup founders. Companies like Walmart and Home Depot have done exactly that by acquiring companies with strong founders and then establishing new units these founders can operate. Walmart’s ecommerce unit has thrived as a result. In addition to bringing the right culture, these entrepreneurs also know how to work with VCs and should be able to collaborate effectively with the corporation’s venture unit.