If you cannot measure it, you cannot improve it,” remarked Lord Kelvin in the 19th century. Organisations and managers have been heeding his advice ever since. But what does this mean for new ventures? John Mullins and Randy Komisar measure up.
Launching a radically new product or a new venture — whether tucked away in a corner of a large company or in the garage of a spanking new start-up full of hope and enthusiasm — is never easy. But there’s a pair of problems that makes this new venture challenge especially daunting, wherever it is found. First, everybody knows what happens to most new ventures, their rosy forecasts and well-crafted business plans notwithstanding. They fail. Second, for those that do eventually succeed, most of the time the business that is ultimately successful bears modest — sometimes, little — resemblance to what was conceived at the outset. For the business we now know as PayPal, what ultimately worked was Max Levchin’s seventh idea for how to apply his cryptography expertise.
Thus innovation is risky, and companies worried about their quarter to quarter stock market performance too often shy away from it. But without innovating, companies are — sooner or later — left in the dust. Cost cutting, perhaps essential during a downturn like the one we’re just experiencing, will only take you so far. “You cannot cost-cut your way to greatness,” as the saying goes, though the likes of Ryanair and Wal-Mart call such a statement into question.
The unfortunate result of all this is what Bill Joy, a co-founder of Sun Microsystems and now a venture capital investor, calls the innovation gap in large companies. But there’s a smidgeon of good news. Savvy entrepreneurs, fully aware that Plan A, their initial idea, is unlikely to work out as planned, have borrowed a great tool for better managing their innovation efforts from big companies and, counter intuitively but wisely, turned it upside down. That tool, the dashboard, as used in large companies, brings together a set of key performance indicators (KPIs) that signal whenever the corporate ship veers ever-so-slightly off course. Any deviations are quickly spotted so that adjustments — in people, processes, strategies and more — can be made to get the ship back on course.
Keeping the ship on course, however, is probably the wrong thing to do in a nascent venture, where what is likely to work is not what was planned at the outset (never mind the original business plan, which probably argued it would!). Our research has shown us that dashboards are, indeed, powerful tools for navigating the uncharted waters in which new ventures sail.
But their purpose in such settings isn’t to keep the venture on course. It’s to capture data from the marketplace and signal that mid-course corrections are urgently needed, because Plan A is not working as expected! Is this subtle but radical difference, together with the expectations that underlie big-company dashboards, one reason why most large companies don’t innovate well? (See Sidebar: Why Big Companies Don’t Innovate) And does it also hold a key to understanding why so many new ventures of any kind fail? Might it even hold a key to moving the new venture failure rate needle down a few notches?
There are many explanations why big companies don’t innovate: culture, incentives, risk averse behaviour, and more. Arguably, the recent infatuation with “open innovation” is a reflection of this fact and an admission that they might as well just give up at innovating internally and buy their innovations outside, as companies like Cisco and, more recently, Procter & Gamble, do so successfully. Our research suggests that big companies’ failure to innovate rests, at least in part, on inappropriate or misaligned expectations of their new ventures, as can be seen as the following: