So, customer development/lean startup is a great template for large companies pursuing truly disruptive innovations, i.e., those involving new technologies and new markets that do not draw heavily on the parent’s existing resources. CD/LS disciples may try to stretch the template to encompass sustaining technologies. My intuition says that some CD/LS concepts do make sense for sustaining innovation. In fact, the CD/LS framework shares several precepts (e.g., rapid prototyping, intensive user feedback) with “design thinking,” which is used by many large companies to develop sustaining innovations. An important challenge for our community is to figure out how CD/LS differs from design thinking.

It is more or less clear why enterprise might want to attract the startup folks into there fold. But what is in it for an entrepreneur? How would the risk-reward formula work? Hire an entrepreneur at the minimum wage and give him a multi-mega-dollar stock earn-out deal?

Looking fw to ideas on this in your follow-on posts
Misha

There are a couple of obstacles preventing larger organizations to implement this shift, however. They overlap with more general differences between the structures and attitudes of start-ups and big corps:

* Risk

Large corps are generally risk averse, while start-ups are all about taking on (and hopefully managing) risk. This can be tracked back to individual risk taking and processes. A start-up entrepreneur knows he is embarking on a risky venture and he/she will do all he/she can do manage that risk and grow. A manager in a large corp often has little incentives to take on risky intrapreneurial projects, since that could hamper his/her career.

* Size

A large corp expects new projects to quickly generate very large revenues. If Nestlé, for example, launches a new project, then a first-year revenue of 10 million USD will be seen as a failure. For the usual start-up that would often represent quite a success. The problem with innovative products/services and business models is that they often take some time to grow to generate substantial revenues and profits.

* Experimentation

Start-ups experiment with their business model in an iterative fashion until they find the most appropriate model for success and growth. Structures in large organizations mostly favor the big bang approach, which aims to quickly generate large revenues with a “proven model”. This is sometimes related to a sort of “resource-course”. Start-ups don’t have the resources for a big-bang approach and experimentation is thus often a practical byproduct of the entrepreneurial journey. Large corps have the resources to start big, which might not be such a good thing after all… They have to come to understand and value business model prototyping and experimentation, which might require slightly more time than the quarterly reports demanded by stock markets…

In my client work with large organizations around the world I am still trying to find the best way to “sell” a more iterative approach. I do try to get them to mimic start-ups in order to move towards a more iterative approach of business model innovation. To date the most successful argument is “risk management”. I convince companies that it is almost impossible to immediately find the right new business model in a new market. I order to manage risk they need to prototype to slowly, but constantly converge towards a successful model…

In thinking about the changes that small companies undergo on the way to becoming large, I found it also interesting to consider how institutional memory tends to forget the basic economic concept of sunk costs. As companies invest more and more money into a given technology, process or initiative, it becomes increasingly difficult for management to stop the bleeding and change direction – this is where small, highly adaptive companies are able to disrupt the market with something that a large company could never pull themselves to consider.

Enterprises need to become leaner and allow more freedom for their employees to innovate by using resources outside of the enterprise. Individuals and groups should be measured and rewarded based on their output of production and/or ideas. Even if those ideas don’t produce measurable results in the short term. Enterprises have to become learning enterprises using the processes described in your book.