Corporate cosplay at its worst.
You’ve heard it many times no doubt if you move in corporate circles. “We need to act more like a start-up”. Do people really believe that acquiring a foosball table and wearing a hoodie to work will fix everything?
I’ve seen this a lot whilst working at the intersection of corporates and start-ups. One thing that’s stood out to me how poorly conceived this idea is. It’s really all the evidence you need. Something wrong with the one diagnosing.
Firstly, let’s not ignore the fact that the start-up failure rate is extraordinarily high. Start-up Genome’s 2019 report stated that number was as high as 90%. This is consistent with almost any statistic I’ve come across.
Furthermore, are we really ok the working idea that a huge organisation should simply run about, hands flailing in the air like Kevin McCallister from Home Alone? Being fast, poorly governed, more ‘Agile’, taking risks.
To illustrate how this materialises in real life, consider this example. I worked with a huge multinational many years ago who had become stifled by its own bureaucracy. The team wanted to try new things and were given the opportunity to be let off the leash.
At last, they were free. And what I observed was corporate people with no start-up experience establish what was one of the most incompetent, expensive and reckless start-ups conceivable. Fuelled by deep financial coffers (which start-ups rarely have), they went about making error after error and torching the capital with abandon. They were a cashed-up, ignorant, and a hot mess.
So what did they do? What was so bad? And why it might have happened?
Remove bureaucracy, remove governance.
The team were given the ability to avoid the core project governance processes of the wider organisation. This was a key ambition they’d had from the outset. It’s no surprise. Corporates often blame their internal bureaucracy on their inability to move quickly.
Indeed, bureaucracy contributes a lot to the sluggish nature of corporate innovation. However, removing it altogether poses its own suite of issues. These systems benefit ventures. They add strong financial, regulatory, safety and quality governance to projects. Removing them opens up risk.
In this case, the removal of bureaucracy also enabled product performance failures. Incorrect packaging and physical product quality issues both hit the market.
Cash burn and capital raising are concepts that are part of start-up life, but which have no real meaning for a corporate. The dynamic is like a kid having to earn money to buy their first car versus being gifted one by a parent. Their relationship and care for the car are different when it was bought with their own sweat and tears.
For a corporate team to acquire $2M to test an idea, it can be as simple as a budget reallocation being made. For a start-up to come across this it’s generally a fairly excruciating process.
When you’re a corporate, it’s simply not your money. If you spend it all, more will be found, and if it’s not, you’ll all just move onto the next thing. The paycheck is coming anyway.
Despite the idea being completely unproven, this corporate team spent extraordinary amounts of capital. Graphic design, brand strategy, flashy packaging, fancy demonstration videos and events. All before actually knowing whether their idea was any good.
Building (without measuring or learning).
Equally is the actual measurement of performance and the iteration of a proposition or business model based on what’s learnt. This is an area that corporates tend to dramatically underperform in. There are two key reasons why corporates fail so badly at measuring and learning vs. start-ups. The first is linked to the previous point, capital.
Due to the fact that they tend to throw monopoly money at ideas, they tend to scale them quickly too. Why not, if you can. Well, there are many reasons ‘why not’ to. But the major one is that when your launch is broad, it’s more difficult to measure what’s actually happening. As such, you can’t make timely adjustments.
When there’s too much data, when it’s too fragmented, and when you’re running a scaling business, operations start to take priority. Further, when you find something wrong, fixing it becomes problematic. You may be sitting on a large amount of inventory, have signed up a large number of customers, or be in multiple geographies.
In this case study, the concept was ‘test-launched’ in six countries. Yes, six. There was also a couple of million dollars in inventory. Management of the launch was so complicated that ground-level performance was inadequately measured.
So when things didn’t work, there was no real understanding of why.
Staying in the building.
Finally, one huge difference between corporates and start-ups is that the nature of corporate work. It’s often far from the coal face. A corporate marketing person is not a field agent. That’s the domain sales reps and activation folk. Those whose role it is to deeply understand the user problem and solve it, have rarely met a user in the wild.
If you don’t understand your user, you can’t have empathy with them. You can’t really serve them.
This is something corporates just don’t seem to grasp. Start-ups don’t tend to have the luxury of expensive research agencies, field teams and sales reps. By necessity, they work in the coal face, and they see and hear everything.
Do you really want to be like a start-up?
The truth is, that corporates often like the idea of foosball and hoodies, but perhaps not the actual realities of a start-up’s existence.
- In avoiding ‘bureaucracy’, are they prepared to replace it with proper venture governance?
- Are they ok to be interrogated over their use of proceeds, cash burn and delivery of real validation of the business model?
- Will they give back their multi-million-dollar launch budgets and live hand to mouth, having to prove themselves to earn every dollar of funding?
- Is it possible for them to actually conduct in-market testing?
- Can they competently set the KPI’s and metrics that matter, then ‘get out of the building’ to measure and respond to them in real-time?
- Is leaving the comforts of the office to immerse in the market, to be the one pounding the pavement, stocking the shelves and conversing with customers acceptable for them?
Corporates need to move beyond the idealistic view of acting like start-ups. There is a lot they can learn and borrow from start-ups. It’s a question of whether they’re willing to take on board any of the lessons should, or only the things they think are fun.