This post first appeared on xconomy.com.
What does the word “startup” mean to you?
Many words can come to mind: new, exciting, experimental, small, lean, agile, fast. To me, “startup” mostly makes me think of “agile” and “fast.”
In an early stage startup, everybody is focused on the same thing. People are passionate, enthusiastic, hungry for an opportunity to change the world, and they will do whatever it takes to get things done. At a headcount of 5-10 people, coordination comes naturally. There are no legacy processes to slow things down. Without existing customers, the team is free to modify their products and services as they learn more. There is also a shared sense of urgency. So they run fast: because it’s fun, because they can, and because they have to.
Contrast that with an established company with a healthy, mature business. Let’s say the company has a global headcount of 100,000. Suppose one of the business units has 6,000 people. The R&D team may have 450 people. The revenue for this business unit is growing at 5-10 percent year over year.
Now suppose two product leaders in this R&D team come up with an idea for a radically different product offering that can turn things upside down. If things work out, this could quadruple their total addressable market. But these leaders still have responsibilities to the existing business, as do all the potential team members. Under these conditions, how would they get started? How can a big company run fast like a startup?
Entrepreneurially minded product leaders in big companies have significant advantages over the average startup founder. They are funded, they have teams, their core technology is solid, and they have deep market knowledge from their existing business. But they still face daunting challenges:
- Budget Catch-22. They have an existing budget, earmarked for sustaining development for existing products. They need a new budget to support experimentation, which will not be approved until they show progress.
- Divided attention from product leaders. Founders for a startup can focus single-mindedly on making their new idea work. Leaders of new initiatives in a big company are still responsible for the existing product portfolio.
- Legacy processes. A team at scale has comprehensive processes that govern how work is managed and coordinated, how information is shared, and how decisions are made. These processes are almost never aligned with “fast” or “agile.”
- Functional silos. A technical team at scale is often organized by functional disciplines. While this is great for streamlining well-understood work, it is not the best structure to power the amorphous experimentation phase for a new program.
- Organizational dynamics. A successful company at scale has well defined rules of engagement, as well as incentive systems to optimize productivity for existing work. These rules and systems may discourage team members from working on new, risky, unproven ideas.
- Pace mismatch. The pace of new product development is much different from that of sustaining engineering. It could be hard for the team to switch from a marathon pace to a sprint.
- Risk against the status quo. What if the new idea works too well, and it cannibalizes the existing business? This concern could be used to smother a new idea before it gets going.
How can product leaders address these challenges and pursue their ideas, with the speed and agility of a startup?
A lot of the startup magic lies in having a small team that comes together by choice to build something out of nothing. Entrepreneurial teams in big companies can potentially emulate this dynamic. Here is a thought experiment on how product leaders can build an internal startup inside a big company.
- Get buy-in from senior management. This support is needed to help them delegate their existing responsibilities to free themselves up, recruit people to join their quest, and to operate without hiding the project from everyone.
- “Secure funding.” Frequently product leaders have a fixed annual budget that is set without their input. They would need to find creative ways to meet existing goals, while freeing up people to work on the idea.
- Build an A-team. Hand-pick a small, cross-functional team with complementary skills to dedicate to the project. Start small: find a hustler, a hacker, and a designer. Find people who are excited to pursue this new idea. They must choose to join this team, and they must feel energized about adopting a completely new work style and pace.
- Find office space. Set up the team as a semi-autonomous entity in a location that is psychologically separated from their original teams. This could be as simple as moving people from different departments to sit next to each other.
- Provide some autonomy. Empower the team to make most of the important decisions about the project independently, without going through normal corporate processes.
- Define mechanisms for “corporate governance.” Come up with some lightweight mechanism to provide managerial foresight. For instance, there might be a senior management debrief once every month or two.
Now the team is ready to begin, starting with customer development. They will need to get out of the building to find out who their customers and users are. With validated hypotheses about target customers, the team can then work on their minimum viable product. This will launch them into the build-measure-learn cycle until they find product-market fit.
Big companies have financial and domain knowledge advantages over startups. Startups have human systems advantages over big companies. By combining the best of both worlds, entrepreneurial teams in established businesses can very well give startups a run for their money in speed and agility.