What prevents big enterprises from launching amazing new products

Everyone I know working in a big enterprise knows that it’s not enough for the company to coast on its core products and services, that doing so will lead them to quickly become relics of the past. They know they have to continually reinvent themselves, even disrupt themselves, to stay relevant and grow year after year, and their companies invest huge amounts in this effort. 

Yet for all of the money spent on R&D, on incubators and design thinking, and on the intrapreneurs hired to identify market needs and build and launch solutions, we don’t see a lot of game-changing new businesses, products or services coming out of these big companies. For all of this effort, we still see a lot more 5-bladed razors than Dollar Shave Clubs. We see the easy line extension; we don’t see new categories, new business models, or new and radical solutions to the world’s newest, biggest problems. 

Why is that?

You could chalk it up to lots of things. Or you could say big companies will never launch game-changing businesses. 

I have been inside a lot of these companies, seen their new growth capabilities at various stages of function or dysfunction up close. I have also been talking lately with some EIR friends at some of the best-run companies in the world in terms of growth teams. Assuming that a company has all of the above capacities, I believe there are three additional things that a company needs to really create and grow game-changing solutions - and these things are all too often missing from the picture entirely. They are:

1. Political will from leadership
2. Allocated capital
3. Correct incentives for teams

Looking at each of those in more detail:

Political will from leadership: Every leader of a big company knows their company needs to innovate and reinvent themselves. So they approve the budgets for the new growth teams and they sign up for the workshops. That’s the easy part. The hard part is developing the patience and the tolerance for failure necessary in order to find success. Even harder is having the stomach to explore and pursue business models that disrupt their core business. These are too often missing from leadership when they sign on for new growth initiatives. But they are exactly what is needed for a serious new product or service, beyond a line extension, to emerge from a big company. Success only comes through trial and error, dead ends and retracing steps. Without the will from leadership to really push through all of these things day after day, the culture will be risk averse and innovation efforts will go nowhere.

Allocated capital: It’s easy for big companies to sign on to hiring teams of designers, developers and product managers to prototype and explore new solutions. That is relatively cheap: a few FTEs, and a small slush fund for experiments and prototypes. But when it’s time to take these ideas to market, the money gets real. It may cost $2 million in year one to launch a new business in a lean, sub-scale way - and then the realization sets in that if that initiative is successful, it’s going to cost $8 million in year two. That’s where business leaders get cold feet. They realize this could be a huge hit to their P&L, with no guarantee of returns. (The irony here is that these same business leaders will not hesitate to fund un-vetted line extensions or marketing campaigns for $10m). For big companies to launch real, new businesses, they have to account for the fact that these businesses are going to cost real money to get to scale. This may mean among other things setting a specific amount aside in a fund that is off the quarterly profit statement so that new businesses can draw on those funds without hurting earnings for the company. 

Correct incentives for teams: When I was at Bionic, I often thought that if big companies just got their incentives right, the rest would take care of itself naturally. If you truly incentivize people to create new value, they do whatever it takes to figure out ways to create that new value.

Instead, what you most often see inside big companies is the opposite: 

1. no incentives for working extra hard and taking personal risks to find breakthrough success
2. plenty of incentives for staying the course and sticking to the status quo

That sets up a negative feedback loop that every new business initiative has to continually fight against to succeed. “Why should I stay late working on this? Why should I work weekends? I am not going to make any more money by doing so, or get promoted. In fact I am LESS likely to get promoted because I’m taking a chance on something that may fail.” Those are real words from the mouths of real intrapraneurs I’ve spoken to. These people DO work late, because they really believe in what they’re doing. But they burn out because they are continually swimming against those negative feedback loops. Imagine if you corrected the incentives, and got those feedback loops going in the right direction. That force would be unstoppable.

All of the R&D, design thinking, entrepreneurial mindsets, etc are still hugely valuable to these big companies. Anyone who has ever worked in a big company without these things can tell you that. But any big company that wants to really succeed in creating new, game-changing products and businesses is going to need political will, allocated capital, and correct incentives to do so. Get those in place, and the game-changing products and services will follow.