In my practice as a software development partner, I primarily work with enterprises that are classically well managed, but struggle to create innovative products.  This is a common phenomenon as corporations deal with SOX compliance and quarterly results that encourage cultures focused on control and stability.   However, over the years, I’ve seen such “stability” to be illusory.    Remember WordStar, WordStar and MultiMate back in the day?   They were my first clients as I worked with them to innovate with graphics integration in the days prior to Windows.   They were profitable and stable but, like the dinosaurs, they moved too slowly to adapt and became extinct with the transition to Windows. 

Now in the Age of Elon, the pace of innovation in the marketplace has only accelerated.  Remember, the dominance of Nokia and Blackberry?   Further, the wave of digital transformation has spread to other industries that didn’t see themselves as software companies.  The auto industry is a good example with the valuation of Tesla (TSLA) now exceeding that of all the other legacy automakers combined.   Many analysts now question whether most of the established players will survive crossing the chasms of electrification and autonomy.    In the space launch business, even heavily government subsidized businesses like Boeing, Roscosmos, and Arianespace are struggling to remain relevant in the era of SpaceX reusability.    Non-tech businesses are not immune either.     Remember when brick and mortar retailers like Sears were dominant and taxis were the way to get around.  There is no safe haven.

How will your company survive “the great enterprise culling”?  The obvious answer is to be agile and innovate.   But how do you do this in a stable organization that avoids risks.   Innovations are inherently de-stabilizing and risky.    Staff incentives are generally based on meeting planned objectives not capturing new opportunities.    If someone on staff has a brilliant idea, it’s quickly killed by the “Corporate Immune System”.   Good corporate citizens don’t make waves.  Good entrepreneurs make waves.  Not surprisingly, with most established organizations, internally generated breakthrough products are extremely rare.

The most common survival strategy to innovate forward has been mergers and acquisition (M&A).   Let a nimble up-start company take the risk to prove out the new market, then purchase and get them under control.    Sounds good in theory but in practice, according a recent Harvard Business Review report, the failure rate of M&A sits between 70 and 90 percent

As an entrepreneur who’s been through the merger process, I personally experienced this tragedy when my company (Inset Systems) was acquired by a public company (Quarterdeck) along with dozens of others.  None of them were successful as they were seen as distractions to the core business of the company.  My award winning products were stripped of resources and used to spike the next quarter’s numbers.  In one case, a video conferencing company that they had purchased, but didn’t know what to do with, had significant contractual obligations.   To avoid the liability,  they gave it back to the original entrepreneurs (Subrah Iyar and Min Zhu).  Back in the hands of the founders, they became WebEx and were later sold to Cisco for $3.2B in a rare M&A success story.    Quarterdeck eventually crashed and was sold to Symantec for pennies on the dollar.  If you look at the bone yard of fallen Enterprise giants, most of them tried to acquire their way forward, but failed in the execution.

Fortunately, there are examples where entrepreneurship inside a large organization can and does prosper.   It’s called “Intrapreneurship” and is known as the corporate management style that integrates risk-taking and innovation approaches, as well as the reward and motivational techniques, that are more traditionally thought of as being the province of entrepreneurship.   Leading companies such as Google, Apple, 3M, Cisco and Intel have embraced this and thrived by fostering Intrapreneurs – inside entrepreneurs.  In Google’s case, it was Intrapreneurs that created products like Gmail, Google News, and AdSense.    Apple would probably not exist today without the intrapreneurial successes like the Mac, iPod, iTunes, iPhone, and iCloud.  The post-it notes on your desk were a 3M intrapranuerial success.   In Cisco’s case, fostering intrapreneurship has not only led to new products like virtual reality video conferencing but also a track record of remarkably successful acquisitions like WebEx.  Small wonder that Andy Grove, Intel founder and author of “only the paranoid survive” considered intrapreneurship critical. 

While fostering Intrapreneurship arguably represents the most successful long term enterprise survival strategy, the barriers are many.    Only a small fraction of companies have successfully embraced it.   Most are like the frog in the slowly heating pot of water.   By the time they notice the problem, it’s too late.    In my next blog entry, we’ll dig further to explore these inner entrepreneurial obstacles and highlight ways that organizations have overcome them.  

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