Removing the Roadblocks to Corporate Innovation – When Theory Meets Practice

Innovation theory and innovation in practice are radically different. Here are some simple tools to get your company’s innovation pipeline through the obstacles it will encounter.

Pete Newell and I’ve been working with Karl, the Chief Innovation Officer of a large diversified multi-billion-dollar company I’ll call Spacely Industries. Over the last 15 months his staff got innovation teams operating with speed and urgency. The innovation pipeline had been rationalized. His groups whole-heartedly adopted and adapted Lean. His innovators and stakeholders curated and prioritized their problems/idea/technology before handing them off.

Karl’s innovation pipeline had hundreds of employees going through weekend hackathons. 14 different innovation teams were going through a 3-month I-Corps/Lean LaunchPad program to validate product/market fit. His organization had a corporate incubator for disruptive (horizon 3) experiments and provided innovation support for his company’s operating divisions for process and business model innovations (Horizon 1 and 2.)  Karl’s innovation process looked like this:

(Read our last post for the details.)

Given all this activity we were surprised that in our last call with Karl he started with “I think they’ve beaten me down.” He listed the internal obstacles his teams continued to face, “We’ve created innovation teams in both the business units and in corporate. Our CEO is behind the program. The division general managers have verbally given us their support. But we’re 15 months into the program and the teams still run into continual roadblocks and immovable obstacles in every part of the company. Finance, HR, Legal, Security, Policy, Branding, you name it, everyone in a division or corporate staff has an excuse for why we can’t do something, and everyone has the power to say no and no urgency to make a change.”

The reality is that Karl’s innovation pipeline looked like this:

And worse, every time Karl negotiated to remove a roadblock for one team, he was back negotiating 6 months later to remove the very same one for a different team.

Karl was frustrated, “How do we get all these organizations to help us move forward with innovation? My CEO has been reading all the Lean Innovation books and wants to fix this and is ready to bring in a big consulting firm to redo all our business processes.”

Uh oh.

Recognizing the Roadblocks
Most of the impediments the innovation teams faced were pretty tactical: for example, an HR policy that said the innovative groups could only recruit employees by seniority. Or a branding group that refused to allow any form of the Spacely name to appear on any minimal viable product or web site. Or legal, who said minimal viable products opened the company to lawsuits. Or sales, who shut out innovation groups from doing customer discovery with any existing, or even potential customer. Or finance, who insisted on measuring the success of new ventures on their first year’s revenue and gross margin. Or purchasing who insisting that the teams use their existing vendors that took weeks to deliver simple purchases that Amazon would deliver overnight.

Listening to this we realized that while the company had playbooks for execution, what was missing were specific processes for innovation. We agreed that the goal was not to change any of the existing execution processes, procedures, incentives, metrics but rather to work with all the organizations to write new ones for innovation projects.

And the specific innovation policies would grow one at a time as needed collaboratively from the bottom of the organization, not top down by some executive mandate or consulting firm.

Read this section again. The creation of the innovation policies incrementally by the innovation groups collaborating with the service organizations is a very big idea.

We pointed out to Karl, that if he was successful, innovation and execution policies, processes, procedures, incentives, metrics would then co-exist side-by-side. In their day-to-day activities, the support organizations would simply ask, “Are we supporting an execution process (hopefully 90% of the time) or are we supporting an innovation process?” and apply the appropriate policy.

We offered that a top-down revamp of every business process should be a last resort. We suggested that Karl consider trying a 6-month experimental “Get to Yes” program. (It was critical that his CEO is a supporter.)

Get to Yes
Step one was that Karl needed a single memo from his CEO to his direct reports. We suggested that Karl ask for something like this:


Step two was that Karl needed a memo that went out to all department heads. The one from Finance looked like this:

The “Get to Yes” Collaboration
Every time an innovation team needed a new policy, procedure, etc. from an existing organization (legal, finance, sales, HR, branding, etc.), they worked with their designated point of contact (Finance, HR, Legal, etc.) Working together the two groups used the single-page standard Spacely “Get to Yes” form. It asked what problem the team was trying to solve that required a policy change, how it wanted the new policy to read, the impact the new policy would have on other policies and organizations, and most importantly the risks to the core existing business.

The “Get to Yes” request form looked like this:

In practice, once the finance, legal, and other organizations had gotten top-down guidance that innovation needed solutions to move forward, in 70% of the instances the approvals could be worked out at the lowest part of both organizations.

For the times that the innovation team and point of contact couldn’t agree, the issue got escalated to the appeals board of the appropriate department (legal, hr, security, finance, etc.) They had one week to ask questions, gather information, meet with the innovation team and evaluate the costs and risks of the proposed process. They could either:

  1. approve and adopt
  2. suggest modifications that the team agreed with
  3. deny the request.

The escalation form looked like this:

Although it was just a one-page form, the entire concept was radical:

  • The innovation team would be proposing the new process, procedure, metric, etc. – not waiting for ones to be written.
  • There was a hard 1-week deadline for the execution team to respond.
  • Yes, was the default answer, a No required detailed explanation.

For the few issues that the innovation program thought needed the executive staff attention, one further appeal was possible to the Chief Innovation Officer.

The big idea is that Spacely was going to create innovation by design, not by exception, and they were going to do it by co-opting the existing execution machinery.

The key to making this work was: 1) a simple top-down request from the CEO to their direct reports and from their direct reports down their organization, 2) a collaborative solution seeking partnership between innovation and execution teams, 3) an appeals and escalation process that would be acted on within the next week. And it’s there that the execution department had to make its case of why this request should not be approved. (If there was still no agreement, it became an issue for the executive staff.)

The time for a process resolution in a billion-dollar corporation – two weeks. At Spacely innovation was starting to move at the speed of a startup.

(BTW, when we showed this process to a government agency their first response was, “Oh that will work in a company, but in a government agency we’re bound by laws and regulations that mandate specifically what we are allowed to do.”  So, we modified the Get to Yes program to ensure that a “No” had to specifically point to the law or regulation, not agency legend, then confirm there was no potential exception to the regulation or law that could be applied.)

Lessons Learned

  • Explicit top down support for innovation only takes a single-page memo
    • If you can’t get leadership support, internal innovation won’t happen
  • Innovation process and procedures developed by collaboration, not by exception
  • Execution organizations now manage both execution and innovation
  • Innovation policy, process and procedures get written as needed, one at a time
  • Over time a set of innovation processes are created from the bottom up
  • Bias for immediate action not perpetual delay

How companies strangle innovation – and how you can get it right

 

A shorter version of this post first appeared on the HBR blog

I just watched a very smart company try to manage innovation by hiring a global consulting firm to offload engineering from “distractions.” They accomplished their goal, but at a huge, unanticipated cost: the processes and committees they designed ended up strangling innovation.

There’s a much better way.


An existing company or government organization is primarily organized for day-to-day execution of its current business processes or mission. From the point of view of the executors, having too many innovation ideas gets in the way of execution.

The Tidal Wave of Unfiltered Ideas
Pete Newell and I were working with a company that was getting its butt kicked from near-peer competitors as well as from a wave of well-funded insurgent startups. This was a very large and established tech company; its engineering organization developed the core day-to-day capabilities of the organization. Engineering continually felt overwhelmed. They were trying to keep up with providing the core services necessary to run the current business and at the same time deal with a flood of well-meaning but uncoordinated ideas about new features, technologies and innovations coming at them from all directions. It didn’t help that “innovation” was the new hot-button buzzword from senior leadership, and incubators were sprouting in every division of their company, it just made their job more unmanageable.

One of the senior engineering directors I greatly admire (who at one time or another had managed their largest technology groups) described the problem in pretty graphic terms:

The volume of ideas creates a denial of service attack against capability developers, furthers technical debt, and further encumbers the dollars that should be applied towards better innovation.”

Essentially, the engineering organization was saying that innovation without a filter was as bad as no innovation at all. So, in response the company had hired a global consulting firm to help solve the problem. After a year of analysis and millions of dollars in consulting fees, the result was a set of formal processes and committees to help create a rational innovation pipeline. They would narrow down the proposed ideas and choose which ones to fund and staff.

Build the Wall
I took one look at the process they came up with and could have sworn that it was invented by the company’s competitors to throttle innovation.

The new innovation process had lots of paperwork – committees, application forms and presentations, and pitches. People with ideas, technology or problems pitched in front of the evaluation committee. It seemed to make sense to have have all the parties represented at the committee, so lots of people attended – program managers who controlled the budget, the developers responsible for maintaining and enhancing the current product and building new ones, and representatives from the operating divisions who needed and would use these products. Someone with an idea would fill out the paperwork justifying the need for this innovation, it would go to the needs committee, and then to an overall needs assessment board to see if the idea was worth assigning people and budget to. And oh, since the innovation wasn’t in this year’s budget, it would only get started in the next year.

Seriously.

As you can guess in the nine months this process has been in place the company has approved no new innovation initiatives. But new unbudgeted and unplanned threats kept emerging at a speed their organization couldn’t respond to.

At least it succeeded in not distracting the developers.

This was done by smart, well-intentioned adults thinking they were doing the right thing for their company and consultants who thought this was great innovation advice.

What went wrong here? Three common mistakes.

First, this company (and most others) viewed innovation as unconstrained activities with no discipline. In reality for innovation to contribute to a company or government agency, it needs to be designed a process from start to deployment.

Second, the company had not factored in that their technology advantage attrited every year, and new threats would appear faster than their current systems could handle. Ironically, by standing still, they were falling behind.

Third, this company had no formal innovation pipeline process before proposals went to the committee. Approvals tended to be based on who had the best demo and/or slides or lobbied the hardest. There was no burden on those who proposed a new idea or technology to talk to customers, build minimal viable products, test hypotheses or understand the barriers to deployment. The company had a series of uncoordinated tools and methodologies as activities, but nothing to generate evidence to refine the ideas, technology or problems as an integrated innovation process (though they did have a great incubator with wonderful coffee cups). There were no requirements for the innovator. Instead the process dumped all of these “innovations” onto well-intentioned, smart people sitting in a committee who thought they could precompute whether these innovation ideas were worth pursuing.

An Innovation Process and Pipeline
What the company needed was a self-regulating, evidence-based innovation pipeline. Instead of having a committee vet ideas, they needed a process that operated with speed and urgency, and innovators and stakeholders who curated and prioritized their own problems/idea/technology.

All of this would occur before any new idea, tech or problem hit engineering. This way, the innovations that reached engineering would already have substantial evidence – about validated customer needs, processes, legal, security and integration issues identified — and most importantly, minimal viable products and working prototypes already tested. A canonical Lean Innovation process inside a company or government agency would look something like this:

Curation
As the head of the U.S. Army’s Rapid Equipping Force, Pete Newell built a battle-tested process to get technology solutions deployed rapidly. This process, called Curation, gets innovators to work through a formal process of getting out of their offices and understanding:

Internal and External Survey

  • Other places the problem might exist in a slightly different form
    • Internal projects already in existence
    • Commercially available solutions
  • Legal issues
  • Security issues
  • Support issues

Use Cases/Concept of Operations

  • Who are the customers? Stakeholders? Other players?
  • How did they interact? Pains/Gains/Jobs to be done?
  • How does the proposed solution work from the viewpoint of the users?
  • What would the initial minimal viable products (MVPs) – incremental and iterative solutions – look like?

In the meantime, the innovators would begin to build initial minimal viable products (MVPs) – incremental and iterative tests of key hypotheses. Some ideas will drop out when the team itself recognizes that they may be technically, financially or legally unfeasible or they may discover that other groups have already built a similar product.

Prioritization
One of the quickest ways to sort innovation ideas is to use the McKinsey Three Horizons Model. Horizon 1 ideas provide continuous innovation to a company’s existing business model and core capabilities. Horizon 2 ideas extend a company’s existing business model and core capabilities to new customers, markets or targets. Horizon 3 is the creation of new capabilities to take advantage of or respond to disruptive opportunities or disruption. And we added a new category, Horizon 0, which defers or graveyards ideas that are not viable or feasible.

At the end of this prioritization step, the teams meet another milestone: is this project worth pursing for another few months full time? A key concept of prioritization across all horizons is that this ranking is not done by a remote committee, but by the innovation teams themselves as an early step in their discovery process.

Solution Exploration/Hypotheses Testing
The ideas that pass through the prioritization filter enter an I-Corps incubation process. I-Corps was adopted by all U.S. government federal research agencies to turn ideas into products. Over a 1,000 teams of our country’s best scientists have gone through the program taught in over 50 universities. (Segments of the U.S. Department of Defense and Intelligence community have also adopted this model as the Hacking for Defense process.)

This six- to ten-week process delivers evidence for defensible, data-based decisions. It tests the initial idea against all the hypotheses in a business model (or for the government, the mission model) canvas. This not only includes the obvious — is there product/market (solution/mission) fit? — but the other “gotchas” that innovators always seem to forget. The framework has the team talking not just to potential customers but also with regulators, and people responsible for legal, policy, finance, support. It also requires that they think through compatibility, scalability and deployment long before this gets presented to engineering. There is now another major milestone for the team: to show compelling evidence that this project deserves to be a new mainstream capability and inserted into engineering. Or does it create a new capability that could be spun into its own organization? Or does the team think it should be killed?

Incubation
Once hypothesis testing is complete, many projects will still need a period of incubation as the teams championing the projects need to gather additional data about the application as well as may need to mature as a team before they are ready to integrate with a horizon 1 engineering organization or product division. Incubation requires dedicated leadership oversight from the horizon 1 organization to insure the fledgling project does not die of malnutrition (a lack of access to resources) or become an orphan (no parent to guide them).

Integration/Refactoring
Trying to integrate new, unbudgeted and unscheduled Horizon 1 and 2 innovation projects into an engineering organization that has line item budgets for people and resources results in chaos and frustration. In addition, innovation projects not only carry technical debt, but also organizational debt.

Technical debt describes what happens when software or hardware is built quickly to validate hypotheses and find early customers. This quick and dirty development results in software that can become unwieldy, difficult to maintain and incapable of scaling. Organizational debt is all the people/culture compromises made to “just get it done” in the early stages of an innovation project. You clean up technical debt through refactoring, by going into the existing code and restructuring it to make the code stable and understandable. You fix organizational debt by refactoring the team, realizing that most of the team who built and validated a prototype may not be the right team to take it to scale but is more valuable starting the next innovation initiative.

Often when an innovation pipeline runs head-on into a process-driven execution organization, chaos and finger-pointing ensues and adoption of new projects stall. To solve this problem we acknowledge that innovation projects will need to refactor both technical and organizational debt to become a mainstream product/service. To do so, the innovation pipeline has engineering set up a small refactoring organization to move these validated prototypes into production. In addition, to solve the problem that innovation is always unscheduled and unbudgeted, this group has a dedicated annual budget.

Disruptive Products
Some products and services going through the pipeline create new capabilities or open new markets. These Horizon 3 disruptive innovations need to separate from the existing development organizations and be allowed to grow and develop in physically separate spaces. They need the support and oversight of the CEO.

Fast forward a year, and slowly, like turning a supertanker, the innovation pipeline we proposed is taking shape. The company has adopted Lean language and process: curation, prioritization, three horizons, I-Corps – business/mission model canvas, customer development and agile engineering.

Lessons Learned

  • Every large company and government agency is dealing with disruption
  • Most have concluded that “business as usual” can’t go on
  • Yet while the top of the organization gets it, and the innovators on the bottom get it, there has been no relief for the engineering groups trying to keep the lights on
  • Innovation isn’t a single activity; it is a process from start to deployment
  • In “execution engines,” committees and broad stakeholder involvement make sense because experience, knowledge, and data from the past allow better decision-making
  • In “innovation engines” there isn’t the data to decide between competing ideas/projects (since nobody’s been in the future), so the teams need to gather facts outside their cubicle or building quickly
  • A self-regulating, evidence-based Lean Innovation process will deliver continuous innovation and disruptive breakthroughs with speed and urgency

Working Outside the Tech Bubble

Annual note to self – most of the world exists outside the tech bubble.

—–

We have a summer home in New England in a semi-rural area, just ~10,000 people in town, with a potato farm across the street. Drive down the road and you can see the tall stalks of corn waving on other farms. Most people aren’t in tech or law or teaching in universities; they fall solidly in what is called working-class. They work as electricians, carpenters, plumbers, in hospitals, restaurants, as clerks, office managers, farmers, etc. They have solid middle-class values of work, family, education and country – work hard, own a home, have a secure job, and save for their kids’ college and their retirement.

This summer I was sitting in the Delekta Pharmacy in the nearby town of Warren having a Coffee Cabinet (a coffee milkshake).  It’s one of the last drugstores with a real soda fountain. The summer tourists mostly come through on the weekend but during the week the locals come by to gab with the guy behind the counter. There are four small wooden booths along the wall in front of the fountain, and as I drank my Cabinet I got to overhear townie conversations from the other three booths.

Unlike every cafe I sit in the valley or San Francisco, their conversations were not about tech.

While they own tech, smartphones and computers, most can’t tell you who the ex-CEO of Uber is, or the details of the diversity blowup at Google. More important issues dominate their daily lives.

I was listening to one guy talk about how much his mortgage and kid’s college expenses were increasing while he hadn’t gotten a raise in three years and was worried about paying the bills. A woman talked about her husband, and how after 21 years as an electrician in the local hospital, he had just been laid-off. Others chimed in with their stories, best summarized by a feeling of economic anxiety. Of being squeezed with no real exit.

It was a long time ago, but I knew the feeling well.

I grew up in New York in a single-parent household that teetered on the bottom end of what today we’d call working class. My parents were immigrants and when they were divorced my mother supported us on the $125 a week she made as a bookkeeper. The bills got paid, and we had food in the house, but there was nothing extra left. No vacations. New clothes were bought once a year before school.

Years later when I got out of the Air Force, I installed broadband process control systems in automobile assembly plants and steel mills across the industrial heart of the Midwest. I got to see the peak of America’s manufacturing prowess in the 1970s, when we actually made things – before we shipped the factories and jobs overseas. I hung out with the guys who worked there, went bowling and shooting with them, complained about the same things, wives, girlfriends, jobs and bosses, and shared their same concerns.

Listening to these conversations in the Pharmacy, and the other stories I have heard as I explored the small towns here, reminded me that people I grew up with, served with and others I worked with, still live in this world. In fact, more than half of Americans fall into the working class. And the conversations I was listening to were a real-life narrative of the “middle-class squeeze.” While the economy has continued to grow, in the name of corporate efficiency and profitability we’ve closed the shipyards and factories and moved those jobs overseas. The bulk of those gains have ended up in the pockets of the very affluent. Income inequality stares you in the face here. The level of despair is high. The small city next to us has been hard hit in the opioid crisis: 63 people died last year.

My annual trek out here reminds me that that I live in a Silicon Valley bubble—and that a good part of the country is not reading what we read, caring about what we care about or thinking about what we think about. They have a lot more immediate concerns.

It’s good to spend time outside the bubble –  but I get to go back. My neighbors here, people in that pharmacy and the many others like them can’t. In the U.S. people used to move to where the jobs are. But today, Americans are less mobile. Some are rooted, embedded in their communities; and some are trapped — because housing is unaffordable where the better paying jobs are. And the jobs that are high paying are not the jobs they built their lives on. Likely their circumstances won’t have changed much by the time I return next year.

I don’t know how the people I listened to and talked to voted, but it’s easy to see why they might feel as if no one in Washington is living their lives.  And that the tech world is just as distant as Hollywood or Wall Street.

There isn’t an app to fix this.

You adapt, or you adopt, or you die

I was in Boston and stopped by the Harvard Business Review for their IdeaCast podcast. I shared my current thinking about innovation in companies and government agencies. The interviewer, Curt Nickisch was great and managed to get me to summarize several years of learning in one podcast.  He even got me to tell my Steve Jobs interview story.

It’s worth a listen.

Listen to the entire interview here:

Or listen to just parts of the interview:
3:29 Entrepreneurs make their own luck
4:35 The difference between an idea and an entrepreneur
5:18 Why entrepreneurship thrived in Silicon Valley
7:10 The pay-it-forward culture
7:53 Failure as part of the process
9:32 When I was more wrong than anyone on earth
11:20 Steve Jobs on Customer Development
12:38 The first time I did customer discovery
14:49 Engineers built products for themselves and the “next bench”
15:27 Why MBA’s avoided Silicon Valley
16:01 20th century investors were not entrepreneurs
16:45 Startups are not smaller versions of large companies
18:18 We needed a management stack for innovation
19:17 HBR and the Lean Startup and corporations
20:09 Why Lean fails in corporations
20:45 Startups can do anything, companies can only do what’s legal
22:0o The team
22:23 Rewards
23:00 What will drive continuous corporate innovation?
24:01 Innovation Theater
24:39 Innovation at speed
25:27 You adapt, or you adopt, or you die

Why Corporate Innovation is Harder Now

I was at Stanford in the Graduate School of Business and was interviewed by Peter Gardner of StartGrid for his On The Road podcast. I shared my current thinking about innovation in companies and government agencies.

It’s worth a listen.

BTW, it seems every podcast has a trick last question. This one was, “if I was on a road trip what’s the destination and what’s playing on the radio?”

Listen to the entire interview here:

Or just parts of the interview:

01:59     What drew me to entrepreneurship
03:43     What motivates me about innovation today
05:25     Entrepreneurship in the 20th century
06:30     The difference between large companies and startups
07:13     The Lean Startup Lightbulb moment
07:44     An MBA meant Master of Business Administration
08:18     Agile Development and Lean – Eric Ries
09:05     Business Model Canvas – Alexander Osterwalder
12:32     Innovation in Large Companies in the 20th Century
13:05     Startup Capital at Scale threatens large Companies
13:58     Startups operate with alacrity, agility and at times a death wish
15:06     Companies can only do things that are legal, while startups can do anything
16:00     Corporate defcon level – the wartime footing level
17:41     Innovation Theater
18:23     Did you move the top or bottom line?
19:50     Two types of 21st century corporations
20:55     Hedge funds and dual-class stock
22:28     Innovation pipeline not silos
24:25     Innovation Outposts
26:32     Why Innovators Leave Companies
27:30     We can’t afford to have our government go out of business
28:54    Why I turn on the Beach Boys

National Security Innovation just got a major boost in Washington

Two good things just happened in Washington – these days that should be enough of a headline.

First, someone ideal was just appointed to be Deputy Assistant Secretary of Defense.

Second, funding to teach our Hacking for Defense class across the country just was added to the National Defense Authorization Act.

Interestingly enough, both events are about how the best and brightest can serve their country – and are testament to the work of two dedicated men.

Soldier, Scholar, Entrepreneur
Joe Felter was just appointed Deputy Assistant Secretary of Defense for South and Southeast Asia. As a result, our country just became a bit safer and smarter. That’s because Joe brings a wealth of real-world experience and leadership to the role.

I got lucky to know and teach with Joe at Stanford. When we met, my first impression was that of a very smart and pragmatic academic. And I also noticed that there was always a cloud of talented grad students who wanted to follow him. (I learned later I was watching one of the qualities of a great leader.) Joe had appointments at Stanford’s Center for International Security and Cooperation (CISAC), where he was the co-director of the Empirical Studies of Conflict Project and at the Hoover Institute where he was a research fellow. I learned he’d gone to Harvard to get his MPA at the Kennedy School of Government in conflict resolution. But the thing that really caught my attention: his Stanford Ph.D thesis in Political Science had the world’s best title: “Taking Guns to a Knife Fight: A Case for Empirical Study of Counterinsurgency.” I wondered how this academic knew anything about counterinsurgency.

This was another reminder that when you reach a certain age, people you encounter may have lived multiple lives, had multiple careers, and had multiple acts. It took me a while to realize that Joe had one heck of a first act before coming to Stanford in 2011.

As I later discovered, Joe’s first act was 24 years in the Army Special Operations Forces (SOF), retiring as a Colonel.
His Special Forces time was with the 1st Special Forces Group as a team leader and later as a company commander. He did a tour with the 75th Ranger Regiment as a platoon leader. In 2005, he returned to West Point (where he earned his undergrad degree) and ran the Combating Terrorism Center. Putting theory into practice, he went to Iraq in 2008 as part of the 75th Ranger Regiment, in support of a Joint Special Operations Task Force. In 2010 Joe was in Afghanistan as the Commander of the Counterinsurgency Advisory and Assistance Team. At various points his Special Forces career took him to countries in Southeast Asia where counterinsurgency was not just academics.

Ironically, I was first introduced to Joe not at Stanford but through one of his other lives – that of an entrepreneur and businessman – at the company he founded, BMNT Partners. It was there that Joe and I along with another retired Army Colonel, Pete Newell, came up with the idea of creating the Hacking for Defense class. We combined the Lean Startup methodology – used by the National Science Foundation to commercialize science  – with the rapid problem sourcing and solution methodology Pete developed on the battlefields in Afghanistan and Iraq when he ran the US Army’s Rapid Equipping Force.

My interest was to get Stanford students engaged in national service and exposed to parts of the U.S. government where their traditional academic path and business career would never take them. (I have a strong belief that we’ve run a 44-year experiment with what happens when you disconnect the majority of Americans from any form of national service. And the result hasn’t been good for our country. Today if college students want to give back to their country, they think of Teach for America, the Peace Corps, or Americorps or perhaps the US Digital Service or the GSA’s 18F. Few consider opportunities to make the world safer with the Department of Defense, State Department, Intelligence Community or other government agencies.)

Joe, Pete and I would end up building a curriculum that would turn into a series of classes — first, Hacking for Defense, then Hacking for Diplomacy (with the State Department and Professor Jeremy Weinstein), Hacking for Energy, Hacking for Impact, etc.

Hacking For Defense
Our first Hacking for Defense class in 2016 blew past our expectations – and we had set a pretty high bar. (See the final class presentations here and here).

Our primary goal was to teach students entrepreneurship while they engaged in national public service.

Our second goal was to introduce our sponsors – the innovators inside the Department of Defense and Intelligence Community –  to a methodology that can help them understand and better respond to rapidly evolving asymmetric threats. We believed if we could get teams to rapidly discover the real problems in the field using Lean methods, and only then articulate the requirements to solve them, then defense acquisition programs could operate at speed and urgency and deliver timely and needed solutions.

Finally, we also wanted to show our sponsors in the Department of Defense that students can make meaningful contributions to understanding problems and rapid prototyping of solutions to real-world national security problems.

The Innovation Insurgency Spreads
Fast forward a year. Hacking for Defense is now offered at eight universities in addition to Stanford – Georgetown, University of PittsburghBoise StateUC San Diego, James Madison University, University of Southern Mississippi, and later this year University of Southern California and Columbia University. We established Hacking for Defense.org, a non-profit to train educators and provide a single point of contact for connecting the DOD/IC sponsor problems to these universities.

By the middle of this year Hacking For Defense started to feel like it had the same momentum as when my Lean LaunchPad class at Stanford got adopted by the National Science Foundation and became the Innovation Corps (I-Corps). I-Corps uses Lean Startup methods to teach scientists how to turn their discoveries into entrepreneurial, job-producing businesses. Over 1,000 teams of our nation’s best scientists have been through the program. It has changed how federally funded research is commercialized.

Recognizing that it’s a model for a government program that’s gotten the balance between public/private partnerships just right, last fall Congress passed the American Innovation and Competitiveness Act, making the National Science Foundation Innovation Corps a permanent part of the nation’s science ecosystem.

It dawned on Pete, Joe and me that perhaps we could get Congress to fund the national expansion of Hacking for Defense the same way. But serendipitously, the best person we were going to ask for help had already been thinking about this.

The Congressman From Science and Innovation
Before everyone else thought that teaching scientists how to build companies using Lean Methods might be a good for the country, there was one congressman who got it first.

In 2012, Rep. Dan Lipinski (D-Il), ranking member on the House Research and Technology Subcommittee, got on an airplane and flew to Stanford to see first-hand the class that would become I-Corps. For the first few years Lipinski was a lonely voice in Congress saying that we’ve found a better way to train our scientists to create companies and jobs. But over time, his colleagues became convinced that it was a non-partisan good idea. Rep. Lipinski was responsible for helping I-Corps proliferate through the federal government.

While Joe Felter and Pete Newell were thinking about approaching Congressman Lipinski about funding for Hacking for Defense Lipinski had already been planning to do so. As he recalled, “I was listening to your podcast as I was working in my backyard cutting, digging, chopping, etc. (yes, I do really work in my backyard,) when it dawned on me that funding Hacking for Defense as a national program – just like I did for the Innovation Corps – would be great for our nation’s defense when we are facing new unique threats. I tasked my staff to draft an amendment to the National Defense Authorization Act and I sponsored the amendment.”

(The successful outcome of I-Corps has given the Congressman credibility on entrepreneurship education among his peers. And it doesn’t hurt that he has a Ph.D and was a university professor before he ended up in Congress.)

Joe Felter and Pete Newell mobilized a network of Hacking for Defense supporters. Joe and Pete’s reputations preceded them on Capitol Hill, but in part a testament to the strength of Hacking for Defense, there’s now a large network of people who have experienced and believe in the program, and were willing to help out by writing letters of support, reaching out to other members of Congress to ask for support, and providing Congressman Lipinski’s office with information and background.

Congressman Lipinski led the amendment. He brought on co-sponsors from both sides of the aisle: Representatives Steve Knight (R-CA 25), Ro Khanna (D-CA 17), Anna Eshoo (D-CA 18), Seth Moulton (D-MA 6) and Carol Shea-Porter (D-NH 1).

On the floor of the House, Lipinski said, “Rapid, low-cost technological innovation is what makes Silicon Valley revolutionary, but the DOD hasn’t historically had the mechanisms in place to harness this American advantage. Hacking for Defense creates ways for talented scientists and engineers to work alongside veterans, military leaders, and business mentors to innovate solutions that make America safer.”

Last Friday the House unanimously approved an amendment to the National Defense Authorization Act authorizing the Hacking for Defense (H4D) program and enabling the Secretary of Defense to expend up to $15 million to support development of curriculum, best practices, and recruitment materials for the program.

This week the H4D amendment moves on to the Senate and Joe Felter moves on to the Pentagon. Both of those events have the potential to make our world a much safer place – today and tomorrow.

Why good people leave large tech companies

If you want to build a ship, don’t drum up the people to gather wood,
divide the work, and give orders.

Instead, teach them to yearn for the vast and endless sea.

Antoine de Saint-Exupéry

I was visiting with an ex-student who’s now the CFO of a large public tech company. The company is still one of the hottest places to work in tech. They make hardware with a large part of their innovation in embedded software and services.

The CFO asked me to stay as one of the engineering directors came in for a meeting.

I wish I hadn’t.

—-

The director was there to protest the forced relocation of his entire 70-person team from Palo Alto to the East Bay. “Today most of my team walks to work or takes the train there. The move will have them commuting for another 45 minutes. We’re going to lose a lot of them.”

The director had complained to his boss, the VP of Engineering, who admitted his hands were tied, as this was a “facilities matter,” and the VP of facilities reported to the CFO. So, this was a meeting of last resort, as the engineering director was making one last appeal to the CFO to keep his team in town.

While a significant part of the headcount of this tech company was in manufacturing, the director’s group was made up of experienced software engineers. Given they could get new jobs by just showing up at the local coffee shop, I was stunned by the CFO’s reply: “Too bad, but we need the space. They’re lucky they work here. If they leave at least they’ll have ‘name of our company’ on their resume.”

WTF? I wasn’t sure who was more shocked, the director or me.

After the director left, I must have looked pretty surprised as the CFO explained, “We have tens of thousands of employees, and at the rate we’re growing it’s almost impossible to keep up with our space needs in the Bay Area. You know for our CEO, ‘love us or leave us’ has been his policy from day one.” (By coincidence, the CEO was an intern at one of my startups more than two decades ago.) I asked, “Now that the company is public and has grown so large, has the policy changed?” The CFO replied, “No, our CEO believes we are on a mission to change the world, and you really have to want to work here or you ought to leave. And because we’re inundated with resumes from people who want to work for us, he sees no reason to change.”

I don’t know what was more sobering, thinking that the policy which might have made sense as a scrappy startup, was now being applied to a company with 10,000+ employees or that the phrase, “…we are on a mission to change the world, and you really have to want to work here or you ought to leave…” was the exact same line I used when the now-CEO was my intern.

Adult Supervision
Before the rapid rise of Unicorns, (startups with a valuation over a billion dollars), when boards were still in control, they “encouraged” the hiring of “adult supervision” of the founders after they found product/market fit. The belief then was that most founders couldn’t acquire the HR, finance, sales, and board governance skills rapidly enough to steer the company to a liquidity event, so they hired professional managers. These new CEOs would also act as a brake to temper the founder’s excesses.

In the last decade, technology investors realized that these professional CEOs were effective at maximizing, but not finding, product cycles. Yet technology cycles have become a treadmill, and to survive startups need to be on a continuous innovation cycle. This requires retaining a startup culture for years – and who is best to do that? The founders. Founders are comfortable in the chaos and disorder. In contrast, professional managers attempt to bring order to chaos and often kill the startup culture in the process. Venture firms realized that teaching a founding CEO how to grow a company is easier than teaching the professional CEO how to find the new innovation for the next product cycle. And they were right.  It was true in the company I was visiting— and in the last five years over 200 other Unicorns have emerged, and most still have their founders at the helm.

And so, this startup found itself with a “founder friendly” board that believed that the company could grow at a greater rate if the founding CEO continued to run the company. This founder’s reality distortion field attracted a large number of employees who shared his vision. It was so compelling, everyone worked extremely long hours, for little pay and some stock. They were lucky, they got the timing right, and after a painful couple of years figured out product/market fit, and went public. And those early employees got rewarded as their stock turned into cash.

The problem was that at some point past employee 1000, the big payoffs ended from pre-public stock and the stock’s subsequent run-up from their IPO. But the CEO never noticed that the payoff had ended for the other 95% of his company. Flying to his remote company locations in his private jet, and surrounded by his early employees who were now worth tens of millions of dollars, the mantra of “you really have to want to work here or you ought to leave” rang hollow for the latest employees.

The company was now attracting interns who did want the name of this hot company on their resume. But since compensation was way below average, they stayed just long enough to pump up their resumes and left for much better paying jobs – often in a startup.

And because fewer senior engineers considered it a great place to work, the company’s initial technology advantage has started to erode.

Wakeup Call
The downside of founders running large companies is that there are no written best practices, no classes, no standard model at all. And given that in the past, founders as a group were rarely in charge as startups became large companies, it’s no surprise. Reprogramming founders who grew their business by being agile, relentless, tenacious, and often aggressive, and irrational and at times, into CEOs that can drive organizational growth, is tough.

This means quickly learning a new set of skills; sublimating large egos, working through direct reports, when their span of control can no longer encompass the entire company; and building repeatable processes that enable scale. At times this comes only after a crisis that provides a wakeup call.

As a startup scales into a company, founders and the board need to realize that the most important transitions are not about systems, buildings or hardware. They’re about the company’s most valuable asset – its employees.

Founders of great companies figure out how the keep their passion but put people before process.

Postscript
I can tell this story now, as the director left the company and founded his own startup in a different market segment. Over the next six months 55 of the 70 employees in his group that were asked to relocate left. 25 of them joined his new startup. And of the other 30 who left?  Six new startups were formed.

Lessons Learned

  • Be careful of unintended consequences when you grow
  • Recognize the transition boundaries in company size
  • Recognize that what drove an Innovation Culture when you were small may no longer apply when you’re large
%d bloggers like this: