How Large and Small Businesses Can Overcome the Innovation Paradox

“We need to act more like entrepreneurs, but those guys are nuts.” —a real quote from a Fortune 100 CEO

In 2007, a friend and client at a Fortune 100 company asked me if I knew of an entrepreneur who could come in and present to her executive leadership team. She wanted them to experience first-hand how entrepreneurs think. My buddy Mike Michalowicz—a serial entrepreneur and genuinely funny guy—agreed to spend some time with the team. The meeting, while enjoyable, left both sides of the table scratching their heads. Mike was struck by the cautious and guarded nature of the group, and the executives viewed Mike as a curious anomaly.

Four years after Mike’s meeting, I co-wrote a book called Brand New: Solving the Innovation Paradox, because we were curious about why large companies were so terrible at launching disruptive products, services and business models.

The dangerous trend of legendary companies being surprised by entrepreneurial start-ups like Napster, Uber and Airbnb was well underway at the time, so leaders at Ginormo Inc. were already committing reputational capital and big bucks toward the goal of disrupting themselves. According to them, they wanted to become more entrepreneurial—and yet they were truly, truly, truly terrible at it.

How can a sophisticated organization be so committed to a life-or-death mission but still not achieve it? This was our innovation paradox.

In March 2016, Accenture released a white paper on the state of innovation that reported that 84% of executives now believe innovation is critical to their strategy. The year after releasing our book, that number was 67%—so executives want to fix the problem now more than ever.

And yet the innovation paradox has grown stronger.

The numbers paint a challenging picture. Accenture reports that 72% of companies often miss opportunities to exploit underdeveloped areas or markets. In 2012, that number was 53%.

The report goes on to say that 60% say their companies don’t learn from past mistakes. In 2012, that number was 36%. Finally, 67% of executives believe their organizations are more risk-averse compared to 46% in 2012.

Since writing our book, we’ve worked with some of the largest firms in the world on innovation assignments. We’ve also started an early stage venture fund. So we’ve seen what works and what doesn’t in small companies—and large ones.

So what works? Simply put, the best future involves an approach where “crazy” entrepreneurs and “crazy” executives learn to work together. Here’s what we’ve learned:

1. To continually replicate innovation success, you must be insight driven; you must start with a meaningful consumer or customer issue then, and only then, move to ideas.
2. Entrepreneurs are awesome at coming up with those ideas, jumping into action and getting things done, which means they are idea and prototype factories. Unfortunately, they often lack the discipline, rigor and time to get ideas to market.
3. Large corporations have the bandwidth, reach, channels, relationships and cash to do quantitatively and qualitatively robust insight work. Unfortunately, they often deny what the world is telling them. But they have the ability to see the future if they want to. This power is priceless.
4. Most large corporations were designed to deliver short-term profit and mitigate risk. In essence, this means to be competent, they kill or castrate any disruptive idea because, by definition, these ideas are threatening.
5. The best thinkers in large companies are often frustrated because they have solutions that would save the firm that go ignored. A great example of this is Steven Sasson who invented the digital camera while working at Kodak—an idea that Kodak continually ignored because they believed, correctly, that they had built a different business.

So here’s the next chapter.

For big companies, the future is coming too fast to fundamentally change their well-tuned profit engine. Psychologists argue that it takes seven years to change human behavior. And according to a Babson study, nearly 40% of large companies will be extinct by that time.

Enlightened leaders at large companies are beginning to understand they need to start the innovation journey by tuning their current economic engine. The first—and easiest—step is to become more customer focused and insight driven. This often does not require a radical change. “Customer experience” often means “we’ll just sell our core product or service in a more delightful way, which does not threaten our current profit machine or people.”

To properly tune the engine, you must admit where you are stuck. Here are four questions related to areas where the best get stuck: 1) Have you made a case for innovation that investors or the C-suite will embrace? 2) Have you refined a process that moves you quickly from insight to prototype? 3) Have you developed a portfolio strategy so your teams understand how, when and where investments in the near and distant future make the most sense? 4) Finally, are you measuring the right things? Innovators know how to measure much more than just lagging indicators like profit.

Now, let’s move on to disrupting ourselves.

In mature companies, focusing on game-changing innovation requires a different strategy. To be truly disruptive, large companies must learn to outsource the scary stuff—such as new business models, new channel strategies and uber cheap versions of themselves—either through third-party incubators, conglomerates, venturing partners or consultants. All of these options are beginning to blend together as I write.

There’s great news here for the entrepreneur. Your weaknesses are the strengths of large companies. You must learn to focus on Achilles heels of the largest industry players. But instead of raising money from your Uncle Peter or some guy from San Fran with look-at-my-glasses-glasses, go get insights and funding from a large corporate partner that is smart enough to see you as their disruptive ticket to the future. This too has already begun to happen.

I suspect that in 10 years, the innovation paradox will be more pronounced than ever. My hope is that many of you choose this new path to help solve for the benefit of your clients, your company and yourself.