Reducing the Risk of Innovation

Sometimes, the biggest obstacle to innovation isn’t too few resources — it’s too many.

When attempting to explore new directions, larger companies often find themselves struggling to accomplish what companies with just a fraction of the resources achieve. It’s one thing for workers at a large company to think “agile” but quite another to actually innovate.

Even worse, many employees tasked with innovative projects are hesitant to stray too far from the box. After all, few people are rewarded when risky ventures fail.

While no one can eliminate all risk in any business venture, there are a few ways companies can approach innovative thinking that will reduce the risk of trying new things and increase their chances of success.

The Wrong Way to Do It

Organizations love to focus on new ideas that can “move the needle.” If projects don’t sound like $100 million ideas, they often don’t attract internal enthusiasm and buy-in.

Consequently, many ideas get bundled into “portal” formats — situations in which companies absorb exorbitant resources in the planning stages, envision a massive scope for a project, and allocate large budgets to pay for development. Companies often spend 18-24 months on a single project, only to see it fail when finally put in front of actual users. By the time the project is half-redone and ready for relaunch, enthusiasm has waned, and the world has moved on.

The difference between big companies and small ones is simple: Many of the operational processes inherent in large businesses naturally lead to high test costs and elongated development cycles. Their payment policies and procurement systems, for example, are designed for working with other large companies — not agile freelancers and small vendors.

These factors make building a good product quickly and cheaply almost impossible without the proper mindset.

Lowering Risk and Improving Results

Small companies have flexibility and experience interacting with startup resources. As an alternative to the “big company” methods that cost more and accomplish less, we recommend identifying a problem and focusing on finding the quickest way to test a solution to that problem with real customers. If an idea fails to gain traction, let it go; if it succeeds, double down and move forward.

Here are a few more tips to help you think like a startup in a big business:

1. Go through different channels. Think about what new structures would allow you to work with external partners the way startups do. Whether that means partnering with an intermediary or getting creative with payment terms and standard policies, you must be flexible if you want to work with (and emulate) smaller, more flexible companies.

2. Make the start the easy part. Focus on ideas that have an easy start and a big finish. Big companies like to plan out entire projects from beginning to end, but innovation requires more fluidity. Put the bulk of your energy into projects that can get quick traction, and build from there.

3. Avoid tunnel vision. Look at your industry holistically. Innovation isn’t just about making your existing business operations better; it’s about identifying tangential opportunities you might not have considered otherwise. If an unsolved problem makes itself apparent during your process, see whether you can find an answer for it.

4. Facilitate entrepreneurial talent. Why not work with the people who do this every day? Seek out venture partnerships by setting up new companies that can work with more flexible rules than your parent company.

Innovation is never risk-free. That doesn’t mean you have to throw money away every time you want to try something new. Follow these tips to think more like an entrepreneur, and watch as your company begins to solve more problems more quickly.

image credit: leaderchat.org

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Henrik Werdelin is managing partner of Prehype, a venture development firm headquartered in New York with offices in Detroit, Copenhagen, London, and Rio. Prehype co-creates new ventures and incubation programs with VCs and corporations and launches successful venture-backed startups, such as BarkBox, AND CO, and Managed by Q. Follow @werdelin