Why Innovation Fails in the Corporate World

In the early-stage world, eyes tend to roll when a new corporate accelerator or innovation lab is announced and often for good reason. As research firm CB Insights recently noted in its newsletter, these large corporates are generally more interested in looking innovative than actually innovating.

In recent years, companies like Wells Fargo, Sprint, Volkswagen and General Mills have all launched accelerator programs, in theory to learn from emerging companies and adopt some of the best practices for innovation internally. In reality, innovation efforts at large companies, no matter how well intentioned or how much money they have behind them are often a facade for a few key reasons.

Commitment

According to this Harvard Business Review article the “median life span of corporate venturing programs has traditionally hovered around one year.” It is the same as when people start exercising just because they want to look better. Their efforts generally fail since there is not an intrinsic desire to bring their vision to reality.

One reason many corporations struggle to find success in building or incubating young companies is a lack of understanding around the time and focus it takes to innovate or to support others who are doing so. More and more accelerators, incubators and innovation centers – both corporate-backed and not – open their doors each month and as this recent TechCrunch piece noted, most fail. Top accelerators are able to attract top talent but the number of slots in that upper echelon is limited and as more accelerators come into the fold, competition is increased.

Corporate Accelerators

*via Pitchbook Data

Innovation, whether creating it or supporting it, can’t be a side or vanity project and at many large, established companies, that is exactly what it is.

Risk Tolerance

In the aforementioned CB Insights look at “corporate innovation” one of their eight (facetious) rules for helping big companies become innovative is to have people at those companies talk a lot about “failing fast.” It is easy for a company to talk about adopting a mindset that accepts failure as a form of learning but much more difficult in practice, where executives up and down the chain have been raised to focus on making incremental improvements on a quarter by quarter basis.

Successful investing and operating at the seed stage relies heavily on a tolerance for risk. The risk profile of people starting or joining startups is significantly different than the people a corporation has on its own bench to tap when they want to start an accelerator or begin a startup-like initiative. That is not to say there is a lack of talent at large corporations. First Round Capital recently took a 10 year retrospective look at their portfolio performance and noted that founding teams with experience at Amazon, Apple, Facebook, Google, Microsoft or Twitter outperformed peers by 160%.

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This is great news for early-stage investors who have the opportunity to invest directly in people leaving the corporate world for the startup world. Corporate work gives potential entrepreneurs the the background and skills they need to identify problems and come up with winning solutions but not the culture to support the building of those solutions.

Urgency

At early-stage companies, urgency (often bordering on the side of panic) is the name of the game. Everything is a race against the cash clock as teams try to build product, acquire customers and attract investors before their position becomes too desperate. And it isn’t just the company’s livelihood that hangs in the balance when people commit to building a startup from scratch.

In his post titled, Entrepreneurshit, Upfront’s Mark Suster noted that “as a startup founder you rarely have much money in your bank accounts. Neither in the personal nor business account. That’s stressful enough.” As an example, he pointed to a young founder that claimed he hadn’t had more than $8,000 to his name since starting his company.

This degree of urgency – and the level of commitment and risk tolerance it takes to get to that point – breeds many things, chief among them a desire to push forward and build something truly outstanding that will make the sacrifice and the emotional toll worthwhile.

As hard as they may try and as authentically as they may want it to be so, large companies descending on the early-stage market will never be able to fully replicate the levels of commitment, risk tolerance and urgency it takes to build truly innovative products and businesses in a market as competitive as it is today.