Many enterprises see the power of startups. Startups disrupt their cash cows and business models. Companies that were 5 or 10 years ago ‘startups’ now dominate the top 10 of most valuable companies across the globe. The question for existing enterprises is how to react to this. Most see the need for ‘digital transformation’ or ‘becoming more agile’. But with so many policies and politics in place, it’s not easy to create internal startups that can launch ‘the next big thing’.
To pave the road for creating the entrepreneurial function inside a big corporate, leaders need to ask themselves some questions:
- How do we create space for experiments with appropriate liability constraints? (allowing teams to experiment without letting them have no liability. giving them budgets that they can spend as they see fit without giving them unlimited resources).
In most companies, managers expect big upfront business cases and excel sheets. And although startups need to create business plans if they want to secure funding, most of what goes on in a startup is experimentation and execution. So we want to give entrepreneurial teams the freedom to start experimenting. One of the solutions to this riddle is to separate ‘experimentation’ from ‘execution’. In the experimentation phase, people keep their current roles and join a startup team ‘on the side’. In that phase, they build a minimum viable product to test their ideas. This phase is all about ideation and learning what customers want and don’t want. We don’t need a formal business plan for this.
Once the team finds product market fit, they have ammunition to build a business case. The business case can be supported with data they uncovered in the experimentation phase. Data about user behavior and maybe even user spending.
- How do we fund projects without knowing the ROI in advance?
If entrepreneurs would always know the ROI upfront, most people wouldn’t doubt and jump to create the next big thing. Unfortunately, this is not how the world works. Creating breakthrough innovation is highly unpredictable. The early phases of a startup are all about ‘learning what to build’. And in that period, we do not have a clue about the outcomes.
Traditional management practices don’t like this type of uncertainty. So if we want to develop entrepreneurial capabilities, we need a funding process that allows for uncertainty. The most pragmatic approach is to follow what venture capitalists do: staged funding. A startup gets small funding in the early days and as it proves that they have a viable product, the funding grows (angel funding > series A > series B, etc).
To make this happen, we could appoint some leaders to act as investors. The startups’ teams ‘pitch’ for the investment board. Once they get series A funding, they get a clear set of outcomes they need to achieve (for example x users before the end of September; or outcomes defined around conversion or even turnover). If they hit their targets, they can pitch for the next round of funding. These outcomes organically change over the life cycle of the startup. In the early days, the outcomes must be around ‘learning’ (because we don’t know yet what users want, the startup must be focused on exploration). As the team learns what users need, the outcomes can move towards user behavior, adoption rates, and later even income.
- How do we create appropriate milestones for teams that are operating autonomously?
One of the big discussions I have with managers is how to change the existing ‘KPI systems’ towards a more entrepreneurial way of measuring progress. As discussed above, on a team level, we can define milestones based on the user adoption of a product. On an individual level, we need to remove the traditional KPI’s; this could be done gradually. As long as the members work part-time in the startup team, they could keep (part of) their KPI. As they move full time, we can abandon traditional KPI’s and replace them with OKR’s or team based metrics and milestones.
- How do we provide professional development and coaching to help people get better at entrepreneurship as a skill?
This is a big topic. As the entrepreneurial function is usually ‘non-existent’ in large traditional organizations, we need to engage people who know the ‘game of startups’. This can be done by hiring people who worked in startups before. It can also be done by hiring the right external coaches to facilitate the startup teams. No matter what, this is where HR has a very important role in the corporate startup transformation.
I have always believed that true entrepreneurs are born. As I grew older, I came to believe that with the right character, people can also learn entrepreneurial traits. The truth is probably in the middle, but the hardest part of this game is that entrepreneurs, in general, want to create their own company. They don’t want to join a big enterprise. So we need to create the right environment of freedom and support. In a way, enterprises are good environments for entrepreneurs, because the big benefit of an enterprise is that it has existing customers, it has a lot of resources and money.
- How do we provide networking and matchmaking in and out of the company, so people understand their new identity: ‘I am a corporate entrepreneur’? (together as ambassadors of the startup way, we must create this support if we expect this new function to thrive)
Looking at Indonesia today, there are communities for startups. There are communities for Agile. But there is not much support yet for ‘corporate intrapreneurs’. Although intrapreneurs can learn from startups, it’s often not enough to look at external startups. In a true startup, the policies, politics and restrictions are non-existent. And those are exactly the things an intrapreneur needs to ‘fight with’. So if an enterprise is serious about creating intrapreneurship, it needs to engage with others doing the same thing and co-create the right environment (a thing Telkom has recently started doing).
For getting the right people on board, we need to create a system based on ‘volunteering’. Entrepreneurs cannot be appointed. If given the right environment and opportunity, entrepreneurs will come forward. And they can also select their own team members. My strong belief here is that we need to have people decide by themselves whether to jump into a startup team or stay where they are. If we push a traditional, conservative manager into a startup role, he will not accomplish what a highly motivated entrepreneur would. Entrepreneurs are impatient, they are frustrated about the status quo, they see things that are broken and want to fix them, they want to break the rules. Those are the behaviors we need to look for.
- How do we create new incentive and advancement systems?
The basis for this should be an incentive system which matches with the goals in the phase the startup team is in. In the early days, this means the goal is ‘learning’. So people should not be measured on bringing income or clients, but on ‘learning what the team needs to build’ and ‘learning what customers need’. In later phases, as income is still not there (think of Facebook, investing years to create a critical mass of users before it found out ads in the users’ stream is what sells), teams need to be rewarded for attracting user or similar goals.
Enterprises are running on an organizational model that was invented before the era of startup disruption. Most management tools assume the world is predictable. Managers want to see business cases which accurately predict cash flow, revenues and profits. Employees want to have a predictable career path. But many of the ‘last century management practices and behaviors’ need to change if we want to develop entrepreneurial capabilities. The above questions can be a good starting point for a leadership team to develop the missing ingredient of entrepreneurship.