With all their resources and talent, why do big companies have trouble innovating? How can a Blekko exist when there’s Google? Why were Tapulous and Zynga created and successful when there is an Electronic Arts?
Even more puzzling, why couldn’t Yahoo create Facebook with Yahoo 360 instead of losing out to a 20-year-old kid from Harvard? A lot of innovation comes from tiny teams with only $100,000 in the bank, or often a lot less. The reason is they don’t fear breaking the rules and their motivation drives them.
In reality, there’s a lot of innovation happening at big companies, but most of it is incremental. The focus usually is on process optimization and efficiency improvement. In order to support the rigid, crystalline structure of a large enterprise, many rules and procedures are implemented and enforced. These rules are what I call, The Box. The goal of most enterprise innovation is to get close to the edge of The Box without touching the lines – like a child drawing in a coloring book.
A startup innovator doesn’t care about rules and doesn’t care about The Box. An innovator’s motivation is to achieve something that has never been done. Most innovators we meet have an explicit goal of changing the world.
Another key reason why big companies aren’t good at qualitative innovation is a combination of legacy and Wall Street pressure. Most large companies do not grow very fast. Their current customer base is large, and, by comparison, the inflow of new customers is small. This imbalance creates a disincentive to introduce change and innovate. Customers often react negatively to change over the short term, and Wall Street punishes companies for taking risks.
Startups, on the other hand, are unencumbered and can grow and innovate fast. There’s no aversion to risk. There’s nothing to protect.
Case in point – Can you name America’s largest startup? It’s not Facebook, Amazon or even Home Depot. It isn’t even a technology company.
This little known giant is the Transportation Security Administration, and its massive scale offers a roadmap for entrepreneurs eager to turn big ideas into sustainable businesses.
The secret isn’t just a clear mission or a risk-taking culture, though both are important. The TSA was created in December 2001, months after 9/11. In its first year in service, TSA processed a million job applications, interviewed 125,000 candidates, hired 60,000 people, purchased $1 billion of security equipment and set up security at 450 airports. All this was done under intense Congressional scrutiny – and not without a few hiccups. You can imagine what a shoe bomber does to your business plan three weeks after opening the doors.
Now of course complaints about the TSA are numerous, perpetual and in many cases just, which goes to show that messes can follow startup creation in some cases. Former lead administrator of the TSA, Kip Hawley, left his Silicon Valley job after 9/11 to help build and lead the agency, and has recently published a book on the shortcomings of the TSA called “Permanent Emergency.” The point of using this government agency as an example of how versatile a startup can be when properly motivated to quickly establish itself, scale and deliver a solution to an existing problem.
Entrepreneurs learn from building their organization quickly (maybe not at the TSA example’s breakneck speed) by following a few key messages:
Have a clear mission. TSA’s motivation was the 9/11 attacks. They provided unparalleled inspiration. Several team members had experienced personal loss. When Transportation Secretary Norman Mineta launched the agency, its goal was obvious: to secure the nation’s airports – and fast.
Start-ups need to articulate powerful reasons for being in a similarly clear and unequivocal manner. If that means posting banners on the wall, or having a credo such as Facebook’s “The Hacker Way,” so be it. Just make sure the message is as obvious and inspiring to your most junior employee as it is to the CEO. It is your rallying cry and inspires innovation.
Support from key outsiders and top talent. They might be venture capitalists or angels. They might be advisors. What they do is encourage risk-taking and help set the direction for the core team. Young companies should not under estimate the value top talent brings and should be willing to write bigger checks than they might like for key hires. They also should consider hiring in unexpected places.
Monitor key tasks against overall goals. The persistence to monitor and adjust as needed, while ignoring the noise that distracts you, can’t be over emphasized. Congress had estimated 3,000 screeners were needed for scanning checked bags. The real number was 10 times that amount. TSA was forced to reevaluate its hiring goals in an instant.
The startup environment is different on a fundamental economic level, not just because founders are more motivated and focused, but because anytime a startup does something big, the upside is uncapped and the downside is pretty small. If a company fails, an investor loses a few million dollars. The team goes on to get new jobs.
Big companies can look at the same project with the same economics and lose a billion dollars in market cap. Netflix is an example. The risk paradigm is reversed. For any qualitative innovation, a big company has an uncapped downside and a finite upside.
That’s why startups do what they do. They have nothing to lose, only upside. It is why they are willing to change the world.
Author: Ben T. Smith IV is CEO of ShopCo, a startup focused on reinventing circular shopping with a social experience. He is also a Venture Partner at Accelerator Ventures and co-founder of MerchantCircle.com and Spoke.com. Ben blogs at btsiv.com, and you can follow him on Twitter at @bentsmithfour.
Victor Belfor and Justin P. Oberman contributed to this article. Find them on Twitter @vbelfor, @justinpoberman and Kip Hawley