How (and How Not) to Build a Corporate Innovation Lab
At Viget, we’ve had the privilege of working with both industry-breaking startups and big corporate innovation labs. We’ve seen the ways they both can succeed and fail. These are four pillars that differentiate the successes from the failures.
Being considered a Fortune 500 or even 100 company is a coveted and honored position. But we tend to have a lasting impression that once a top company enters this echelon, they’re always considered among the biggest and best companies. But that couldn’t be farther from the truth. Between 2008 and 2018, 43 of the Fortune 100 companies turned over, meaning the once biggest and best companies (as ranked by Fortune) have since been displaced by newcomers. In 2008, Apple ranked just #337 on the list but now sits at #4. If anything, looking down at your competition is more dangerous than looking up.
Technology has accelerated the rate of turnover amongst this group as the barrier to entry, whether for Silicon Valley-backed startups or corporate competitors, has dramatically decreased. The greatest fear of these companies is that their business will be made irrelevant or outpaced.
So how have these big corporations approached that fear? Enter: corporate innovation labs.
The idea behind an innovation lab is that it’s a protected environment for dedicated teams to work on improving or changing the way the organization does business, much like a startup might (“fail fast, not big”). At Viget, we’ve had the privilege of working with both industry-breaking startups and big corporate innovation labs. We’ve seen the ways they both can succeed and fail. In my experience, there are four pillars that differentiate the successes from the failures.
1. Clarify the goal: diversify revenue streams
Many innovation labs were set up to check a box for the board or shareholders, that the business is doing something to innovate and change over time. This tends to become a designated sandbox to play with new technologies and ideas, but only enough to prove that tinkering is being done.
But the real motivation for these initiatives should be that industry leaders must continuously innovate or die – the way you currently succeed will not be the same in 5 or 10 years. As such, the primary goal of these initiatives should be results-oriented, and to find the industry and business disruptors before they find you. By clarifying that the goal is to diversify the way you make money, you’re taking the cash cow side of the business and putting it into question marks in hopes they will become stars.
2. Originate from the top
When innovation labs don't have buy-in from the C-level, they're not likely to have the room or autonomy to launch anything real. But when they do, they're empowered and motivated to launch real, innovative new business lines. The best and most effective initiatives not only have that C-level buy-in, but they start there. When your leadership is unequivocal about innovation being a priority, your lab will benefit from the advantage of big corporate profits and an extended runway. This will give you a competitive advantage over scrappy startups.
3. Isolate it outside the core business
Speed is one of the primary reasons why new startups and products can outpace the giants – they simply don’t have the bureaucratic and operational cruft slowing down their process. One of the ways corporations can emulate this is by setting the innovation initiative aside, not within, the corporate infrastructure. This could mean everything from a separate business entity to an office outside of headquarters, to not being beholden to the same IT infrastructure. Think of anything and everything that slows your business down, and rip it away from your innovation initiative, or it will be bound to be too slow to matter from the start.
4. Provide room for failing and pivoting
Corporate executives often think in terms of risk mitigation and operate based on 5 or 10-year strategic plans. But startups typically think in as little as 2-week sprints or 6-month funding runways. This shorter runway and bite-sized approach to milestones prove you don’t need a 5-year business plan for something that doesn’t even exist yet in order to pursue it. Failing quickly can lead to success if you do it right. You need an idea and a fast, efficient way to research, test, iterate, and build on it.
This list certainly isn’t comprehensive (in fact, books are being written about it), and it’s true that a lot of what makes corporate innovation labs successful is the opposite of what has made the company successful over all these years. It’s uncomfortable and unnatural, but engaging with that discomfort is one of the only ways to protect your place at the top.