Why do attempts at new business ventures in large organizations so often fail to deliver on their promise? Effective tools for breakthrough innovation have emerged and been tested in the real world over the last decade. Lean Startup, in particular, has been successful in helping new entrepreneurial ventures find their customer value proposition and business model.
Why are large companies not having the same success when they apply the same methodology?
Because success with Lean Startup’s practices can trigger antibodies inside a company that cause the corporate body to reject the new organism – no matter how well it fits the external market. The antibodies are rooted in threats to the core business. As with the human body, each acts in a way to protect the host organism. At the same time, each of the antibody reactions is to some extent irrational, based more on fear than reason.
We need to understand the fears in order to overcome them.
This blog and the ones that follow will discuss ways the fears can be surfaced, discussed, and managed for success. The insights here are drawn from my forthcoming book, Lean Startup in Large Organizations, publishing Feb. 23.
What We’re Afraid Of
There are six fears that drive resistance to new business innovation inside corporations. Each of these fears is activated at a particular point by the exercise of good innovation practice. These fears must be managed for the new business innovation to succeed in corporate settings.
Table 1. The Risks of Lean Startup in Existing Organizations
| Lean Startup Practice | Legitimate Concern | Fear |
| Employ Lean Learning Loops in Pivot or Persist experiments | An unmanaged process | Chaos |
| Develop an MVP to get market feedback quickly | Distraction of the functions that make the core efficient | Disruption of operations |
| Develop the Value Hypothesis | Pursuing opportunities that the company cannot exploit (orphans) | Loss of focus |
| Develop the Business Model Hypothesis | Cannibalization of the core | Undermining the business |
| Create a Growth Hypothesis and build an organization that can scale | Misallocation of resources | Draining needed resources from the core |
| Innovation Accounting based on a learning agenda | Failure to assess new ventures rigorously | Making a blunder |
- Fear of Chaos
The Lean Startup methodology is somewhat chaotic. It works, when it works well, because the chaos is managed through a learning agenda. Over the course of a weekly sprint, many things can change: the feature set of a minimum viable product (MVP); the target customer; the channel to market; the revenue model. In the context of a typical business process, these rapid, multifaceted changes look like they are unmanaged. Even with frequent reviews and good documentation of the decisions made, the iterative nature of Lean Startup and the many small, targeted efforts can look undirected, and even random. Progress emerges from this chaos, but it is not always obvious to those outside the process. How can the fear of chaos be overcome in the corporate context?
- Fear of Disruption
Every company has what Vijay Govindarajan and Chris Trimble call a “performance engine” — the collection of functions, processes, and resources that have been optimized over time to maximize the success and profitability of the core business. The key functions include sales, marketing, intellectual property law, procurement, IT, and liability. The people who work in these functions have defined objectives and internal client expectations; they also have skills, capabilities, and methods of operating that have been honed to meet the needs of the current business. An innovation team — especially one focused on breakthrough innovation — can disrupt this finely tuned machine. But to create a competitive advantage, a new internal venture must leverage the skills, resources, and infrastructure of the core business. How can it do so and overcome the fear of disruption?
- Fear of Losing Focus
Corporations have defined strategies, whether they are explicitly stated or implicitly enacted. Any new venture must align with these strategies or with an explicitly espoused growth strategy. This is true even if the CEO says there are no bounds on the innovation team, that he or she will invest in any truly good new venture. For a variety of reasons, this promise is almost never true. If executives cannot see the connection to a larger strategic objective, if the focus area of the innovation is not relevant to a larger goal, it is unlikely that key decision-makers will take the time to understand the new domain in sufficient depth to make decisions with confidence. If the new venture is perceived as diverting resources from the existing corporate strategy rather than moving it forward, then investment will not flow. This alignment can be difficult to achieve for a variety of reasons – the most common being that the growth strategy beyond the core is so rarely articulated.
- Fear of Cannibalization
A business model is a configuration of resources, assets, and processes designed to profitably deliver a customer value proposition. A good business model creates differentiation in the marketplace and has economic leverage: It gets better with scale. Over time, a company’s dominant business model, like its performance engine, is optimized. When a company reaches this stage, it has internalized a core set of assumptions that drive important decisions. It is easy to work in alignment with a successful, dominant business model, but very difficult to challenge its assumptions. Introducing a new business model is both costly and risky. It means going back to square one and learning anew how to drive profitability. A major concern is whether the new business will cannibalize the old, resulting in a net loss for the corporation. How can this fear of cannibalization be rationally addressed without walking away from real opportunity?
- Fear of Draining Resources
Organizational issues do not loom large when an internal venture is small. Everyone involved does whatever is necessary for success. Resources are begged, borrowed, stolen, and cajoled into being. A small venture can fly under the radar. But growth changes things. It makes visible the challenges the venture creates for the status quo. The core at that point often fights back (especially if it feels it has the political permission to do so). Moving the venture from incubation to scale must be done carefully, especially if the new business intends to leverage the assets of the core business. How can this inherent conflict be overcome?
- Fear of Making a Blunder
Once an independent startup has reached the point where it has proven attractive to customers, profitable, and scalable, a venture capitalist will go all in to win in the marketplace. But the corporate investor, confronted with alternate investment paths, will often choose the one that minimizes the downside risk rather than the one that maximizes the venture’s potential. This is understandable. It can be hard for a public company to explain to Wall Street a dip in earnings due to significant investment in a new and very different business. How can executives become confident enough of their judgment in the new venture to overcome this fear and bet to win?
In future posts, I will take a closer look at each of these core fears, and discuss how to successfully manage them.
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