Believe it or not, even large and mature companies often initiate entrepreneurial efforts inside their own companies, and they look for employees who have the right attributes to make this happen. If you want to explore the world of an entrepreneur, without jumping ship, this would be the way to do it. Entrepreneurs working inside big companies are called “intrapreneurs.”
Many companies do this to explore opportunities for growth outside their normal domain, and compete with conventional startups, to penetrate new markets and profit from the next big thing. A reason on the other end of the spectrum would be to de-consolidate non-core functions to live or die on their own merits. A third reason would be to mingle and learn from the startup culture.
Most often, corporate entrepreneurial efforts are destined to be spun-off, or disconnected from the base company, very early in their cycle, to give them all the advantages (and challenges) of a real startup. Since initial funding and staffing is usually provided by the parent company, one would assume they have a real survival advantage over other startups.
Yet, through some first-hand company experience that I won’t detail here, to protect the guilty, I am convinced that spin-offs often fail to launch or compete in the real world, for one or more of the following reasons:
Employees selected to run the spin-off don’t think like entrepreneurs. All too often, corporate top performers, or ones who have scaled the ladder of time, are put in charge, regardless of whether they have a passion to run a startup, the broad range of skills, required or the required relationships with industry players and outside partners.
The parent company never really relinquishes control. Like startup investors who demand board control positions, parent company executives too often exert their power, without understanding that starting a business is far different from running an established one. The result is an under-funded and under-staffed clone of the parent organization.
Incentives based on internal objectives, rather than market-driven. In enterprise environments, performance objectives and bonuses are often tied to internal processes and targets, rather than product revenue, customer acquisition and market penetration. This technique, when applied to a startup, can actually inhibit progress and scalability.
Salaries and support services carry corporate overhead. Legally and culturally, benefits and facilities provided to an intrapreneur under the auspices of the parent company have to be driven by the corporate burden rate. Thus the spin-off carries a heavy overhead, or faces a disconnect from the parent with no visible return path.
Mission is set in stone, so required pivots are not allowed. The corporate mandate of a spin-off usually lacks the flexibility and creativity of an outside startup. Every startup I know has found the need to pivot multiple times, before finding their best fit in the market, no matter how strong their initial vision. Intrapreneurial missions are more hard-coded.
Your challenge as a corporate entrepreneur, or intrapreneur, is thus actually tougher than starting your own business on the outside. It looks more attractive, considering the guaranteed funding up front, access to pre-trained internal team members and professional analysis of the financial considerations, but the challenges listed above can override all of these.
The answer for spin-offs, I believe, is for the parent to apply tough love -- limited financial support, with no do-overs and no golden parachutes. With this approach, Sony’s intrapreneurial venture into the PlayStation game market succeeded wildly, and has since grown into an ownership of over 70 percent of the home-video-game-console market share.
On the other hand, Hewlett-Packard applied resources to all these issues a few years ago in an attempt to spin off the personal computer business, but quickly backed out as they saw losses mounting toward $1 billion a year. The low margins of the PC business just could not be overcome by resources and value unlocked by splitting the business into two more focused entities.
For aspiring entrepreneurs, there are a couple of lessons here. First, entrepreneurship (or intrapreneurship) is a mindset that team members can apply for value in corporations, as well as startups. Huge resources, even with this mindset, won’t make a startup or a spin-off successful. The magic is figuring out how to do more with less. So why are you waiting for that big investor?
*** First published on Entrepreneur.com on 05/20/2016 ***