Intrapreneurship versus Entrepreneurship: worth the investment?

By Yue Zhao

Companies spend a significant amount of their hard earned cash on acquisitions of startups in an attempt to complement innovation (or lack thereof) in their own ranks. In 2011, 970 deals worth $70 billion dollars were spent by corporations on acquisitions less than $1 billion in value. Of these, 21% by value or 80% by deal count were less than $100M and 53% by value or 17% by deal count were between $100M to $500M (E&Y Global Technology M&A reports). So, why not adopt lean startup tactics for intrapreneurship and save billions of dollars on acquiring entrepreneurs and their companies?

First off, let me note that my Microsoft Word spell check does not recognize the words “intrapreneur” and “intrapreneurship”. On this extreme end of the argument, any format of entrepreneurship and innovation are incompatible with the DNA of large companies. Corporations have established scalable products that have proven product market fit and profit model. The sole purpose of their existence is to run established processes that scale the existing product as quickly and efficiently as possible, saying no to all other ideas and distractions. By design, they are not startups and are not meant to innovate.

We also recognize that by nature, the lean method is difficult to apply to strategic innovations that require heavy R&D investment (e.g. pharma drugs) or knowledge of trade secrets (e.g. Intel’s chips). As we saw in the Aardvark case, it is much easily applied to innovations that can be tested quickly with customers and requires comparatively low tech to prove.

For the types of innovation that are suitable to lean then, advantages of intrapreneurship include ease of access to capital (so long as the existing business does well), readily available resources ( e.g. labor, technology), and access to an existing customer base. Upon closer examination, we find that requirements of a lean startup make these advantages difficult to realize.

·         A large corporation already has plenty of experience sales people, engineers, and managers. Unfortunately, the lean startup method requires risk-takers who can dream big and act quickly. They are often jack of all trades, willing to work long hours and can handle the stress of quick iterations. These are not 8-5 time card punchers who specialize in a particular function. To do lean, corporations need to attract those who are willing to take risks with the company’s resource and often, their own careers.

·         Funding processes within organizations, which are closely linked to strategic planning, resource allocation, and product reviews, are by nature slow and anti-lean. It’s impossible to as for a three year business case from a lean startup. If a lean startup project is shuffled in with other existing business priorities, these slow moving, ROI focused processes will prevent teams receiving the any share of a large corporation’s cash reserves. So, a lean startup needs its own separate pool of funds, given based on a different process and criteria.

·         Large corporations have a brand to protect and purposely place a barrier between product development and end customers (e.g. sales). It is difficult for them to show their existing customers, most of who are by definition not early adopters, untested and unfinished products. It would lessen the value of their brand. However, by requirement, lean startup tactics require constant customer feedback and interface.

Not only is it difficult for lean startup tactics to leverage any existing resources, it will add another layer of pain for management. Corporations are typically functionally structured. They’re designed to output batches of product, not change and move quickly. To apply lean, one needs to create a cross-functional team separate from the rest of the organization as its own distinct entity. This team should have complete autonomy and be allowed to develop its own (lean) operating culture.

Hence, to fully support lean startup projects, all a company needs to do is hire people with a different mindset, create new funding processes, disillusion their current customers, and create a new organization structure. Is making the changes to sponsor such intrapreneurship is easier than acquiring a startup that has achieved product-market fit through applying lean tactics on its one?