The giant and the thousand pixies are walking through the wilderness. They come upon a massive mountain range that blocks their way. The giant pauses for a minute to think about the obstacle. The lean pixies swarm the lower slopes, shouting with excitement as they scramble for paths over the mountains. Very quickly a few of the pixies reach the first rocky heights, roughly even with the knee of the giant, and shout “Tally ho!” as they rush down into the first of many steep valleys, calling their fellow pixies after them.
His companions’ success intrigues the giant. He can see farther with his superior height and climb better with his superior strength. So he inspects the wooded foothills, gets down on his hands and knees, and begins to crawl over the most promising pass. Soon enough he has surpassed his friends, and some of the pixies are following behind on the broad path left where he pressed the rocky crags flat, marveling at what he has done.
A short while later he pauses to survey his progress. His path veered here and there with the fall of the mountains but largely remained true. As he sits he notices his fine walking pants are torn, his deep pockets have spilled their contents, his boots are scuffed but their rugged soles unused. He flexes his arms and lifts a mountain in each hand.
He stands, dusts himself off, and strides over the remaining mountains, taking care not to stumble. Behind him he hears the pixies shout.
One group calls to him in a small distant voice, “Hey, where are you going?”
The other calls in a growing chorus, “Gold, gold, thar’s gold in them thar hills!” So the giant turns, calling to his friends that he’s coming to help.
I spent twelve years as a product manager conceiving, building and launching new internet technology products and new business models within existing companies. They ranged from niche products targeting important customer segments within a larger ecosystem to broad category-creating platforms that helped to shift entire markets. The companies I worked for were idiosyncratic as are all companies; however, my experience exclusively leading a dozen new product businesses within existing companies for over a decade gave me access to some universal truths. Since I am not trying to sell those particular experiences to large companies, I have no need to flatter them, so let me speak plainly.
I was inspired to write this by a great post-mortem of Qualcomm’s now dismantled Venture Fest program on Steve Blank’s website, written by a fellow MIT alum Ricardo dos Santos, whom I think I would enjoy meeting someday. In his story and my research over the past year I see several truths more clearly than before. They are in my story of the giant and the pixies, but let me be more clear for those without patience for parable.
Intrapreneurship will never work for five reasons:
- The Strategy Mismatch – Entrepreneurs want to create new businesses, and companies want to expand and improve themselves. That sounds like a nice fit. However, in reality entrepreneurs are at odds with companies that host them in a way that is not true for external angel and venture investors. The entrepreneurs must follow their concepts and customers where they lead, and even if they are lucky and persistent enough to see some success in the market, it is a near certainty that will be in a direction that is not well matched with the current operation of a host business. The company must steward its resources, make use of its scale and grow predictably – it should rightfully seek ways to leverage its strengths, like the giant surveying from on high and seeking to protect his pants and make use of his long legs and rugged boots.
- The Budgeting Mismatch – In the early stages entrepreneurs cannot deliver revenue, so they are working to command the very expensive resources of the company in a budgeting process that is for them either a zero sum game where they hold few cards and gain sparse resources, a well-intended but structurally unsound ‘innovation initiative,’ a political exercise of alliance building to protect shadow projects, an exercise in making risky promises with the belief that they will be able to continue commanding investment when those promises do not pan out, or a ‘big bet’ business unit initiative that is completely dependent on the continued leadership and political capital of the head of the host business. I have followed all five strategies, and they all worked as implied. I used those strategies knowing that they were in the interests of the company only if the products panned out, that the company had no good way of accounting for them, and that even if they did pan out they may still fail during the growth phase because they would then have to survive in the ‘real world’ of budgets when their growing revenue was still far from justifying their much more rapidly growing expenses and business model mismatches. This is particularly true in large companies, where everything is far more expensive to do, no matter how hard a leader tries to be lean. In my experience, the ‘big bet’ worked best of all, like the giant lifting another mountain in his hand…but a giant can as easily toss a mountain aside as carry it forward.
- The Rationality Mismatch – While in many circles it is fun to bash the seeming stupidity and irrationality of corporations, in my experience the anecdotes of ‘irrational’ and ‘political’ corporate behavior are often better seen as the exceptions that prove the rule, especially when it comes to cash flow. Rather I think of corporations as unnaturally rational. Money comes into and flows out of big companies in highly predictable ways, far more predictably than any individual person’s wallet, and wildly more predictably than the cash flow of entrepreneurs. Corporations are created by entrepreneurs to make this predictibility happen. So instead of irrational and political, I prefer the perspective of corporations as hyper-rational psychopaths, shackled by flows of cash and put to use by society. Corporations look first to themselves and their best way forward, leaving their pixie companions behind as it suits the needs of the business; and largely as they should do, in my opinion.
- The Irrationality Mismatch – I also do not know why the myth of a rational ‘homo economicus’ persists in the face of vast scientific research, most notably that of Nobel Prize winner Daniel Kahneman, but we should put it in the dustbin of business history. Individuals are not rational, especially when making big decisions, and within the vast sea of human irrationality, Kahneman singles out entrepreneurs as an especially irrational group. I can already see these patterns in the early decision data from the Wahanegi beta, where changing jobs and starting a business are among the most common life decisions people are face. Let me assure all managers and investors of one thing, if you didn’t know it already – when people are considering a new job or a new venture, you are not a big part of the decision. It is their visions of themselves, their lives and their family that drives them to make such decisions, and cash is a mechanism and a de-motivator far more than it is a motivator. This makes sense upon reflection, since their motivations must come from deep and enduring sources to be strong enough to make decisions in the face of incalculable uncertainty and change. Like the pixies, they are doing it because the challenge is there and it excites them…plus, there just might be gold in them thar hills…it has happened before, after all.
- The Outcome Mismatch – The founder’s curse, when a company outgrows the entrepreneur, is a triple-curse inside of a corporation. Similar to the outside world, the businesses may outgrow entrepreneurs, especially if they are young or primarily technical. The entrepreneur can try to avoid this by jumping to another new business inside the same company, but only so many times, since the inevitable variability associated with new ventures will stand out against the predictable corporate backdrop, regardless of their perceived skill. Finally, if the entrepreneur is capable and the business successful, it is quite likely that the business will gain the attention of senior executives and be subsumed within a larger business to assure its success. When that happens, the entrepreneur will not get the freedom of a large cash payout as happens with an external acquisition. That is fair, since they were well compensated and well resourced along the way, but it still makes a large difference in their prospects inside the company. They are likely to be asked to move from an entrepreneurial role to a senior functional role that makes best use of their key strengths…and find themselves out of the game they enjoy, like the pixies standing by as the giant carves the mountains apart for their gold.
In my opinion, any one of these five mismatches is enough to doom corporate entrepreneurship initiatives, no matter how lean. Together they stack up high enough to blot out the attempts of corporate PR teams to cast their companies as trendy hotbeds of entrepreneurship, if not in the moment then always in the course of time. The parable of The Giant and The Thousand Pixies is inevitable, woven into the fabric of business, much like the Innovator’s Dilemma.
Lean principles can be used by corporations to improve existing products and business processes. Running lots of small experiments, connecting with customers, investing after success and all the other lean principles are business gold. But the principles should be applied not to intrapreneurship in the sense of building new ventures, but to management in the sense of increasing alignment with customer needs, stewarding resources and growing revenue.
Beyond that, I believe corporations should not be lean innovators, they should be giant innovators. They should focus on the type of innovation that ONLY they can do, not the type that everyone knows they do poorly. The type that requires eyes that can see over mountains and arms that can lift them. Innovation that involves deep R&D and vast infrastructure aimed at problems that are already well understood but whose solutions demand huge scale creates big bet opportunities to benefit the corporations at a similarly massive scale, and is the best way to use their cash to benefit society. Of course it will not always work and many will fail, just as entrepreneurs fail, and corporations run by the entrepreneurs that founded them (e.g. Jobs’ Apple, Bezos’ Amazon, Zuckerberg’s Facebook, Page and Brin’s Google) are probably best able to make the decisions to take such risks. But they should not mistake the skills of the lean pixies for their own - a thousand striding giants can do much more than move mountains.