We analyzed 20 of the most innovative companies and around 100 of their enterprise size competitors, and the theoretical potential for enterprises to compete. As a result, we found three key reasons why enterprises fail:
Most enterprises underestimate entirely the investments necessary to fund innovation. When we look at one of the most recent innovative companies with just one product like Tesla, Cisco, Google, Facebook and so forth, they needed funding of about $1 Billion before they went public and became self-sufficient. All of these companies had only two risks: 1) to fail and shut down 2) to not return the funding to investors.
An established enterprise, when disrupting themselves has three more risk: 1) loosing a billion$ enterprise, 2) risking tens or hundreds of thousands of jobs, and 3) risking that general investors loose their investment entirely, which is different for the general stockholders versus venture capitalists. However – going forward, those risks also persist when they FAIL to be innovative and get disrupted by others.
Enterprises with more than 10,000 employees have a size that almost forbids to be innovative. Innovation is not only expensive but resource-intensive. Employees need to be at a healthy utilization rate for the company to be profitable and stay in business as well as sustain all kinds of downs and challenging times. How could a company inspire their teams to be more innovative while keeping its current performance? If the teams have time for innovation, they have not been fully utilized, and the company must focus on getting back on track and not derail. And if the team is fully utilized, there is no time to relax, meditate, get inspired, and think of new and industry-shaping ideas. Innovation needs to be managed as well, and it requires resources. Hoping for a lucky punch is a really bad idea. And dreaming of getting a free lunch… you know. Why does innovation work in a startup? Well, at least so far, it only worked in the initiation phase. What Intel, Cisco, Google , SAP did was ground-braking. But today 30 – 50 years later…? They ran into the same challenge. Like everybody else, they try fiercely to innovation – but we still wait for the outcome. And there is a chance they get disrupted from a startup that may have already been founded.
Enterprises with millions of consumers (B2B or B2C) are essentially out of touch with their target audience. They know only through questionable research what those users or consumers really want or need. The C-level of a global enterprise does not know what their customer’s pain points really are and what their dreams may be. The hierarchies, reporting structures, value definitions have no path for innovation to be happening. The experiences of top-level managers and the experiences of their customers are almost fundamentally different. The experiences of startup founders and the ones of their future customers, however, are well aligned or at least entirely understood – until they grow to an enterprise level. Microsoft executives get their laptops configured by their team. That way, they save the day it cost to get everything in order after buying a new machine. And on top of all that, the “customer experience thinking” is still seen as an esoteric luxury by most top managers as it is too hard to report on and to get it into the annual report in a way that it wows the investors.
In the past four years exploring the entire “Innovations Paradigm” based on our own experience building startups to billion-dollar companies and working with other startups that became billion $ companies we finally developed methods and tools that harness the innovation power of an enterprise by bringing new ways of thinking and new working models and cultural elements to selected teams.