What Corporations Can Learn From Startups

(Originally Posted on Forbes.com)

Organic growth has softened. Purchase frequency has slowed. What to do? When pressed to innovate, many corporations have the same knee-jerk reaction: to hire people and spend money. They create cross-functional task-force teams and launch expensive, time-consuming market research studies, generating mounds of data, but to little effect.

Instead of helping a company bring new ideas to market, these efforts at spurring innovation often lead to counterproductive results, distancing the firm from the very group it wants to serve: their buying public. Instead of observing customers first-hand and drawing insights from their behavior, the company’s innovation team becomes bogged down and bleary-eyed, managing task force meeting calendars and wading through reams of purchase rate propensities and lifetime value projections. Process gets in the way of progress. Company decision-makers find themselves staring at well-constructed PowerPoint decks and Excel models but are no closer to uncovering the searing insights that will translate into highly desired new products and services.

At the Kellogg School of Management, we advise corporate leaders to consider a fundamentally different approach to innovation, one that draws upon the playbook of startups. It boils down to adopting what we call “venture thinking,” a mindset of resourceful entrepreneurship that’s applicable to virtually any company looking to spur innovation and drive growth.

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Startups find ways of turning their constraints into strengths. For them, scarcity is the mother of invention. With a small budget and limited time, startups are forced to operate with a great sense of urgency. They are often able to out-maneuver large corporations because of their speed in bringing new ideas to market and their nimbleness in adapting to market needs. In order to compete with startups, large organizations should be inspired by them.

Venture thinking is rooted in three basic ideas:

1. Go native

Successful startups have a visceral understanding of their customers. With no research department to guide them, entrepreneurs are forced to go out into the market themselves to learn firsthand what their customers are experiencing. In many cases, founders are their own customers, starting a company in an effort to solve a problem they were experiencing.

Corporations should do the same. Instead of interpreting customer behavior through data, ask customers questions directly. Observe them in their buying or usage environment. Empathize with them, noting where they appear to struggle, where they look confused and frustrated, where they give up or create a workaround in an attempt to solve a problem. Connecting and empathizing with customers is the best way to uncover problems and develop solutions that will lead to new sources of value.

2. Embrace experimentation

It’s rare that a startup’s initial product idea is the one that brings them success. Groupon started as a community organization platform, Flickr started as an online role-playing game and Avon started as a book seller. These firms evolved into their current model through a process of constant iteration.

Larger organizations often fall into the “perfect is the enemy of good” trap; in an effort to get it right from day one, they spend too much time refining their product before testing it in market. Instead, they should take their “minimum viable product” (MVP) directly to the market, experimenting and iterating with it.

Venture thinking organizations aim to be nimble when testing potential solutions to problems. They create well-articulated hypotheses and test them through a sequence of small experiments. They don’t attempt to boil the ocean with a big, broad research plot that lacks specific objectives. Their goal is to kill bad ideas quickly and refine their solutions multiple times on the way to market. Just as in a science experiment, failures in entrepreneurial testing aren’t viewed as huge Failures —they’re merely opportunities to learn and sharpen the focus. This mindset often requires a cultural shift in larger organizations, and as a result this principle may be the hardest of the three to realize.

3. Show, don’t tell

Successful startups know the best way to communicate the value of a new idea is to visualize it. A great example of this can be seen on Kickstarter, where each campaign is accompanied by a video that helps bring the idea to life — in many cases, long before the product is even built!

Startups show, they don’t tell. They know their early prototypes don’t need to be anywhere close to their final product. They need to be just good enough to answer a key question. In the case of most Kickstarter campaigns, the question entrepreneurs are answering with their videos is: “Does anyone care about the problem I’m solving?”

Corporations too should embody their questions in the form of prototypes. Customer reactions will be more authentic and actionable than posing a series of theoretical questions through market research studies. Often it’s not necessary to spend a lot of time or money building prototypes either. Sometimes, a cheap sketch or a simple video can answer the million-dollar question.

This entrepreneurial attitude of stripped-down scarcity may go against the organizational DNA and deep-seated culture of many companies. For corporate leaders, venture thinking may require making uncomfortable changes: constricting time and resources, reducing administrative tasks and clearing calendars in order to get out of the ivory tower and back to the customer frontlines. But once organizations begin to uncover problems worth solving for their customers, the change will be well worth the effort.