According to Ivanka Visnjic and Ronnie Leten, authors of How to collaborate well and scale up fast (Havard Business Review. September–October 2024), “Large firms aren’t designed for moon shots. Their owners don’t like the risks and won’t kill the goose that lays the golden egg. As a result, all too often they end up defaulting to incremental innovation.”
But there is a solution: Established companies can partner with entrepreneurial start-ups or with intrapreneurs that have ideas for breakthrough products. By doing that, they can leverage their significant resources while increasing the odds that those ideas will take off.
There are three stages: Exploration, Commitment, and Getting to Scale. Each has its own challenges. Here’s a guide to get there.
Exploration: Find Your Start-Ups
Legacy companies can’t work for decades tackling grand challenges that turn visions into innovations like entrepreneurial start-ups. They must reliably provide existing goods and services that adapt to customer preferences. But here are three practices in the first stage of their journey to innovation:
Setting up multiple partnerships. Companies should prepare for a variety of future scenarios and conduct numerous experiments with start-ups.
For these partnerships to work, they need to create value for the young companies—by helping them test their inventions or giving them access to their clients—and reserve the right to a stake in any success.
Sometimes the entrepreneurial partner will come from within the established companies’ ranks. Post-it Notes, PlayStation, Gmail, and Amazon Web Services (AWS) are all famous homegrown innovations.
Establish hubs. Create innovation hubs that help venture teams connect to the company’s middle management and front lines. Identify potential collaboration opportunities and see what proof-of-concept projects emerge.
Unlike R&D units, accelerators, and incubators, which tend to isolate innovation activities from regular business activities, hubs spread new ideas throughout an organization.
Groom intrapreneurial talent. Operational management and the front line also need to be motivated to support innovation. Reward managers with major promotions when they experiment with new business-model opportunities. This helps the company create a new generation of leaders with intrapreneurial spirit.
Commitment: Leverage Your Advantages
At this stage, organizations need to carefully manage escalation of their involvement. When working with start-ups, they should shift from a relatively loose, hands-off relationship to a more collaborative one and help the smaller venture find creative ways to remove roadblocks and prepare to scale up.
To determine whether an innovation project has cleared all the hurdles necessary for larger investment, the incumbent needs to address four questions:
Is the business model viable? Test each innovation by asking, “What will it do, how will we supply its production, and how will we make a profit with it?”
Do we have an ecosystem that will support growth? The industrial-scale rollout of an innovative offering is likely to require a system of complementary businesses, including component developers, downstream distributors, and service partners.
How ready are our customers to make purchases? Map the potential customers to identify projects and partnerships to prioritize. The ability to do this is an advantage legacy companies have over most start-ups.
How can we win support from other stakeholders? Innovators often lack the credibility to win over skeptical stakeholders and regulators. With their established brands and reputations, established organizations are well placed to tackle that challenge.
Getting to Scale: Move Fast
Once a new venture’s business model becomes viable and the interest of a critical mass of customers is clear, the adoption of an innovation takes off exponentially with a frantic race to markets. So, it’s vital to be organized to rapidly mobilize resources and scale innovations up quickly.
Four actions can help leadership teams avoid obstacles to scaling up:
Make the CFO a direct stakeholder. When CFOs are brought into the conversation from the beginning, they become more comfortable with innovation measures like leading indicators and daily active users and with the qualitative data used to evaluate innovation projects. Then they are more inclined to “leverage the balance sheet” to ensure future competitiveness.
Pitch a conservative case to the board. Just as a start-up must build a business case for its investors, the CEO of a legacy company needs to construct a compelling argument for investing in scaling up a new venture for the shareholders’ representative, the board. That requires crafting strategies for leveraging the existing business and its competitive advantages and hedging against its disruption.
Beware the differentiation and synergy traps. Legacy companies and their start-up partners often struggle to let go of product or service features that don’t scale up well and to prioritize speed over cost synergies. Once exponential growth starts, they need to avoid those traps. Learn to prioritize scale over “nice to have” features when creating the business model.
Put an entrepreneur in charge. An entrepreneurial mindset is critical for driving innovation and overcoming organizational inertia. If you have already partnered with a start-up, then its founder is the obvious candidate, especially if that person has a track record in getting new businesses off the ground. If the venture is homegrown, a likely candidate will be the manager who brought you the idea, but that person must be capable of motivating others to join the ride and very entrepreneurial in outlook.
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While legacy organizations may lack the creative spark of classic entrepreneurial ventures, they can partner with them. As the ventures develop, they can carefully increase their support and shape the projects to leverage their resources and better suit their customers’ needs. Once a new business begins to take off, they have the capital, resources, and capabilities to grow it rapidly. Although the entrepreneurial mantra “move fast and break things” may not be suitable for established companies, “collaborate and scale up quickly” works very well for them—and can unlock underexploited sources of value.
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Visnjic, Ivanka and Leten, Ronnie. How to collaborate well and scale up fast. Havard Business Review. September–October 2024