ITX Blog

Can Large Enterprises Innovate Effectively?

Pathways to Growth for Mature Organizations and Startups  

Of course, large enterprises can innovate, but it is harder for them than for startups. Many do not know where to begin. They look back and recall how, as a startup, they discovered the product-market fit that made them successful. And now, in full growth mode, they attack innovation with the mindset of growth they have today – which does not work.

In a recent post, I talked about investment in innovation based on where your product is in its life cycle: Inception vs. Growth. The Inception stage comes before your organization discovers product-market fit, while Growth occurs only after you realize how to deliver value and present a strong strategy to the right audience.

Products in the Inception and Growth phases require different approaches; Inception requires business leaders to find product-market fit quickly with as little investment as possible, whereas Growth invites investment in opportunities where the fit is more sound.

But even more than that, large enterprise organizations have a lot more at stake. Their mission is made more complex because now they not only need to grow; they also need to protect the investments they have already made – investments that have earned them a place in the market, a reputation, a brand.

Talk about “skin in the game.”

A startup can take risks with their brand because they don’t really have one yet. But a large enterprise cannot take the same risks because of the potential impact to their brand, governance, financial oversight, etc.

This is the dilemma confronting organizations large and small: the large organization has the resources, but greater aversion to certain risks. The smaller organization is prepared to assume the risks but does not have the resources.

The dilemma presents challenges, but also opportunities depending on where your organization is within its technology cycle and investment mindset.


Enterprise Orgs and Deceptively “Perfect” Iterations

“Perfect” Iterations describes the tendency of larger organizations to reduce risk and treat new products like mature ones. They try to be “perfect” vs. doing just enough to learn. In “Perfect” Iterations, enterprise organizations have brands they need to support. As a result, they face constraints on risk taking. They cannot afford the issues that will negatively impact their brand or internal governance. The damage to their brand caused by a security incident or a financial misstep is huge. So they have built up processes to protect against those risks.

Years ago I worked with a large Fortune 500 company that was testing a new product. They invested millions integrating a pre-product-market fit concept with their backend financial systems. The product vision was to develop more accurate revenue reporting and to meet internal legal requirements.

They quickly discovered that the market’s demand for the product was far lower than they thought; not surprisingly, they scrapped the whole project. They protected their brand and their financial reporting, but at the cost of millions in waste. The challenge they faced, like so many large organizations do, is how to iterate rapidly without wasting millions or negatively impacting their brand.

Startups’ Resource Scarcity Leads To Growth Stress

Startups run into Growth Stress when they find product-market fit, but lack the resources to capitalize on opportunities. Their task is to raise money, build their infrastructure, and change their approach to development to one that targets quality deliverables for their identified market.

This is hard work and often leads to startups losing ground to better-funded competitors. They cannot grow fast enough to take advantage of the market and lose the advantage they once enjoyed.


Startups With An Inception Mindset

Startups are a Great Fit for Inception, but only if they are nimble and prepared to pivot quickly – tasks for which they are ideally suited. They do not have the resources to stick at something that is not working, so their mission is to fail quickly and move on.

As Clay Christensen points out,1 93% of companies must pivot to be successful because their original plan does not work. A staggering figure that means if a startup is not prepared to fail and pivot multiple times on its way to product-market fit, they will almost certainly fail.

A word of caution, though. The greatest threat to a start-up believing they have product-market fit when they do not. One of the fastest ways to kill a startup is to give it too much money. Resources invested chasing a mirage is bad money.

On the other hand, embrace opportunities where product-market fit is confirmed and where good money leads to Growth.

Enterprise Organizations Leaning Toward Growth

Mature products within larger organizations are in the Growth stage. These are the bread-and-butter products that drive revenue. Enterprise organizations are a Great Fit for the Growth mindset; they have identified a defined target audience and know they can deliver value to them profitably. They have achieved product-market fit, and they know it.

This level of awareness makes scale, speed, and quality of paramount importance. The goal is to build a roadmap/release plan and build to that blueprint as quickly as possible before a competitor beats them to the punch. This is how most product people are accustomed to working. It is the mindset they are in –one that features a steady diet of deliverables along a well-planned roadmap and release plan.

Clarity of Mission and Position In The Product Life Cycle

Being clear about your organization’s mission and where it is in its product development cycle will guide your resource allocation. Without question, every company’s circumstances are different.

This is one reason large enterprises set up skunkworks that operate as entities separate from the organization. They can rapidly iterate without the overhead during inception. They work “outside” the norms and policies of the parent organization, allowing them to not be constrained in the same way. They enjoy the inception mindset of a startup and the financial backing of the enterprise.

Another approach many large organizations use is to acquire smaller organizations once the smaller organization has found product-market fit. This buy vs. build option presents a win/win for the enterprise, because it avoids the challenges that afflict so many startups – particularly those associated with growth stress – and delivers to the smaller organization the resources they need to scale.

Start-ups, to iterate quickly, should take advantage of the freedom that comes with not having an infrastructure to slow their progress or a brand that needs protection.

For example, do not build a complete system; instead, test ideas rapidly to fail fast and learn faster. Evaluate the effectiveness of new processes before investing in the software that will make them efficient. Build rapid learning cycles with the goal of finding product-market fit as inexpensively as possible.

I was once told that the definition of entrepreneur is someone who can present an idea at breakfast, gather feedback, and pivot as needed to present a new idea at lunch. A start-up has that flexibility to move nimbly, so they need to use it to their advantage.

Enterprise organizations can innovate. They must in order to remain competitive. And startups can achieve growth once they discover product-market fit. In the midst of that shift from growth to inception, or vice versa, both need to shift their mindsets to match their situation. The wrong mindset will lead to investment of bad money that creates unnecessary waste.

Product-market fit is elusive, especially if you have a few passionate customers who fall in love with your product. But remember, the measure of success is not that you can unprofitably please a few customers; it is whether you can scale to enough customers to deliver a profitable product.

Contact: Kyle Psaty, VP of Marketing at ITX | | 585-899-4895