Entrepreneurship in larger companies
Entrepreneurship in large and established companies is vital for their long-term success. Incumbent firms face many challenges ranging from global competition to digitization. In times past, being caught flat-footed might have set a company back several years, but it could recover. Today, the threats are existential in nature, and competition can emerge quickly and from the places one least expects. Successful incumbents must ensure that they do not become self-complacent but instead look to renew themselves through corporate entrepreneurship (sometimes also called intrapreneurship).
Many books and articles document the overall importance of corporate entrepreneurship and associated business renewal, and many advisors consider the important perspective of the CEO looking across the whole company. An example is Leading Breakthrough Innovation in Established Companies (Harvard Business School Press #5272) by Lynda Applegate and William Kerr, which provides a longer reference set for the CEO and corporate-wide perspective.
This chapter uses a different lens—it focuses instead on the perspective of a middle-to-upper-level manager contemplating a potential assignment to lead an internal venture in a large company. Befitting this series, we build lists of important considerations that this manager should evaluate. These lists are not exhaustive, but they offer corporate leaders a starting point for a careful due diligence and action plan around new ventures.
1. Assessing the importance of the opportunity and fit
Leading a new venture in a large corporation is not for everyone, and decisions to pursue these opportunities require careful consideration by managers and executives.
There are potential advantages to leading a new venture in a larger company:
- Excitement: Many venture opportunities provide cutting-edge exposure to an industry’s trends and latest business This can be an exciting change of pace from a career focused on operational efficiencies, and it can be a very good experience for executives who think that they may want to start their own business one day or move to a smaller, growth-focused firm.
- General management experience: For executives coming from functional areas or junior roles within established business lines, these roles as leaders of new ventures can offer general management and leadership responsibilities much earlier in a large- company career than otherwise possible.
- Visibility to senior leadership: The CEO and executive team should be taking a guiding role in the exploration opportunities pursued by their corporation, and managers who take on the task of leading a new venture may benefit from exposure and regular contact with senior management, boosting a career substantially.
There are also potential disadvantages to leading a new venture in a larger company:
- What happens if it does not work?: Success is great, but the pursuit of these new opportunities often identifies that the business idea won’t work out. The best companies know how to separate the quality of the leader from the results of the experiment. If, however, you are not in one of these companies, be cautious about the career risk involved if the company confuses project failure with leadership failure.
- Turf wars and political issues: A flip side to senior-level visibility is that you are exposed to more senior-level issues, which could include turf wars over resources and the right path for the company to take forward. If you are contemplating an assignment that could directly cannibalize the core existing business of the company, these issues may become especially
Key questions to ask:
- Is the CEO, board of directors, and senior management really really really (I mean really) behind this work? Many senior leaders say they want corporate ventures, but their support in reality is on par with their support for world peace. This is a very dangerous misalignment. The best companies have clearly alignedprocesses for new ventures, a common understanding of the entrepreneurial leader’s roles and responsibilities, and unmistakable senior support. If your company is less mature with respect to these elements, you need to at least closely observe the CEO and senior leaders to make certain they truly are ready to put their money (and time) where their mouth is.
- How well do I handle uncertainty and limited resources? Great new opportunities bring lots of uncertainty; given this uncertainty, resources tend to be quite expensive, in short supply, and must be closely Make sure that you are a leader who can handle the uncertainty and also navigate a world with fewer resources than an established operation procures. Not only do you need to be okay with the fact that fewer people will be reporting to you in the new role, but you also need to be even more capable of using as few resources as possible to get the job done.
2. Negotiating the terms of the assignment
There is no one-size-fits-all format to new ventures, and the best large companies tailor the management and governance of each new venture to the venture’s specific setting. It is vital to recognize that your bargaining power is at its strongest point before you agree to the job, so make sure you get the appropriate issues on the table.
Key pieces for your venture:
- Budgets: You need appropriate financial resources to investigate your opportunity. You need flexibility in allocating these resources because the path ahead is very uncertain, but you also need firm commitments of the resources. Recognize that it always costs much more than initially expected! Aim for a sweet spot where you have commitments that are large enough to conduct your investigation but also small enough to not be subject to objections by other executives and possible clawbacks.
- People: Talent is paramount. If someone is essential, get the person’s name (or description) on the table from the start. On the flip side, recognize too that a large team can be quite unwieldy for a new initiative and that your goal is not to build an empire. You want a Special Operations Forces team that brings together very effective skillsets to accomplish a tightly defined mission.
- Time to investigate: Experimentation requires time to find the right solution. While you will want to report back regularly and run fast iterative cycles (as described further below), you need to negotiate a sufficient time horizon for your project to meaningfully investigate multiple paths. Remember, it always takes longer than expected, and most established operations of a large company are managed with short-term expectations. Negotiate for yourself sufficient runway to accomplish takeoff.
- Access to critical resources: Many ventures are created in large companies with a belief that they will leverage an existing asset (e.g., the corporate brand, customer database, distribution network, etc.). This synergy always looks fantastic on paper, and it really is the key advantage that ventures in large companies can have over true startups. Remember, however, that these assets are controlled by other people in the large company, not by you, and thus access is not guaranteed! Set expectations about the critical assets, including what your venture must prove to gain access to them and how access will be granted.
- Anticipated future path of venture: A sad (but common) outcome of the new venture development process in large companies is that the new business works (yes!) but there is misalignment about what happens next: integration or spinout, independence or cross- selling, etc. You can’t nail this future path down the way you can nail down next year’s budget, but it is important to understand the default early plan and to make sure that you have the resources ready to pursue that path.
Key pieces for you personally:
- How your performance will be assessed: Perhaps the biggest mandate for corporate entrepreneurs is to define in advance what “success” means for In very uncertain waters, many ventures fail even when the manager did everything right, and you want your performance measured by how well you did the job versus whether or not this particular venture happens to work.
- Compensation structures: Compensation programs for corporate entrepreneurs are quite varied. In some settings, there is very little difference from the pay structure of other executives, especially in settings where the company’s philosophy emphasizes corporate-wide results for everyone. In other settings, corporate entrepreneurs have very high-powered incentives and compensation tied to the objectives of their venture (e.g., performance targets, shadow stock). Reentry points after the assignment: Some star employees negotiate for themselves in advance what their role will be in the large company after the venture assignment is over (especially if the venture fails).
3. Management of the project
Many of the chapters in this volume about entrepreneurship apply to corporate ventures, because the corporate entrepreneur needs to navigate extreme uncertainty and limited resources just like startup entrepreneurs. We do not seek to repeat all of those lessons, but instead highlight a few particular ones that are very important in corporate settings.
Key pieces for your venture:
- Utilize lean testing methodologies: Take advantage of the lean testing tools that are popular for startups (e.g., The Lean Startup by Eric Ries). Not only will these make your internal venture more effective, but they can also be powerful for corporate For example, when working with the leadership to define your performance metrics, you can directly use the business hypotheses that your venture needs to test—how rapidly and effectively can you and your team test these hypotheses? Success becomes less about whether or not the idea works but how quickly and cost effectively you deliver the key pieces of information to senior leaders.
- Focus on biggest assumptions: Every new opportunity brings many assumptions, and corporate entrepreneurs have the greatest impact when they can resolve the really big uncertainties, especially when they are “deal killer” The problem is that managers tend to test what they know how to test—that is, leaders with marketing backgrounds tend to first test customer and sales features, while those with engineering backgrounds naturally start with technical features. Prioritize the most important pieces of information, not the ones easiest or most comfortable for you to consider.
- Be wary of fear of failure: Like a bad penny, the fear of failure can creep back into a team, even if all of the team members agree at the start to pursue the idea aggressively and with a focus on understanding whether the idea will work. This is especially true in large companies where there is a limited history for new ventures and a dominant culture around execution of existing proven businesses that are the company’s core operations. Corporate entrepreneurs must guard against reverting in this way through team culture and task management. For example, showing the team a workflow for a new product design that allocates time and budget for four product iterations with customers helps establish the expectation that the first tests will not be perfect products but are early trials to gain feedback.
- Respect but also minimize your parent company’s requirements: Internal ventures can be stifled by structures and processes of their parent company that are designed for large and established businesses (e.g., IT system requirements, decision-making procedures). Identify what can be minimized early on to allow faster progress. On the other hand, recognize legitimate corporate factors that need to be addressed even though inconvenient (e.g., corporate-wide risk compliance).
- Leverage external collaborations and partnerships: The boundaries of innovative large companies are porous and permit you to harness the capabilities of others, ranging from university collaborations to joint- development partnerships with other large companies to accelerator programs that can grab the attention and insights of local startup entrepreneurs. Corporate entrepreneurs must harness these external resources as effectively as they harness internal ones. Avoid the mindset of making internal resources always the default, because your fiercest competitors are not doing so!
- Search for objective advice: If you have organized your performance evaluation to focus on successful execution of the business idea, your job will include objectively assessing whether or not the business development tests are promising and warrant continued investment. This assessment may not be easy for your team, and so consider how you can harness those outside your team, either inside your parent company or among external advisors familiar with the venture’s domain, to provide unfiltered and objective advice about the venture’s progress and prospects.
Corporate entrepreneurship is a vital capacity for incumbent firms to develop and master in today’s turbulent business environment. If they are behind on this front, incumbents need to begin today the development of this skillset and the platform for new growth opportunities for the company in the decade ahead. For individual leaders, corporate ventures can be as rewarding and powerful as the creation of a new startup company. To realize this potential, managers need to successfully evaluate the venture concept and existing senior executive support, negotiate the terms for the venture and for their own performance assessment, and manage the venture with the best of startup tools and the power of their parent company. Managers that do this well can find these opportunities a powerful lever for career advancement.
William R. Kerr, Professor of Business Administration, Harvard Business School