Internal start-ups: there is no success, only failure

By Gareth Fryer, Partner

December 10, 2015    3 mins

I was reading recently about the latest attempt from yet another large organisation, this time its MasterCard, to fund another new internal start-up, and it set me thinking about how rare it is to hear about the ‘success’ of such initiatives, and to question the real value of internal start-ups or incubators that typically recruit both internal and external talent.

Over the past couple of years we have seen giant corporations such as American Express, Coca-Cola, MetLife, General Electric, IBM, Mondelez International, Cisco, and Tyco International all take cues from the start-up and venture capital community. They’re holding innovation contests and using panels of executives to dole out investment money to fund internal start-up ideas.

Unlike special projects of the past where a single initiative was run as its own unit to allow it to flourish, these efforts are intended not only to nurture profitable new entities, but also to infuse entrepreneurism and agility into organisations built around traditional, siloed operational delivery streams.

Whilst many of the pundits are saying it is still early days, we won’t know how successful these will be, in my opinion these efforts are often doomed to failure, purely as a result of the objective they are set at the start.

The meaning of failure

I would like to pose a question. Should the only job of an internal start-up or incubator actually be to fail, and to communicate that new failure back to the parent organisation on a regular basis?

Yes, I know that ‘fail fast’ and ‘permission to fail’ are the first names on the innovation team sheet, but I think organisations often miss the point of these well used terms.

In my view, these types of internal ventures are often doomed because nine times out of ten they’ve been set up with a clear definition of success, a pre-defined outcome that the organisation investing has set to demonstrate value or return. Whether you like it or not, by setting an objective (any objective) you make it harder for people to actually be prepared to try something and learn from it, because it goes against what we’re trying to achieve. We as humans don’t like to communicate that we’re not succeeding, so we try harder, or go on for too long. We’re not prepared to chuck it in and move on, because the objective we’ve been set makes it harder for us to do so. Especially in a corporate environment.

What I’d like to know is, can organisations accept and communicate failure as a genuine success? How do you report to your internal stakeholders that you have failed and that is in fact the outcome you were looking for, because look what you’ve learnt.

You see had the incubator been independent, it would have tried one hundred different things and probably failed one hundred different times to get to a meaningful outcome, or to get to the point where it could deliver a product that customers want to buy or use. The problem with internal start-ups is that they are set up with pre-defined solutions in sight. Then they usually keep going too long — under pressure to deliver, the team are too afraid of not being able to report back positive progression towards the predefined view of success.

It is a mindset shift that makes success

Most ventures or incubators will start with a defined solution in mind. But I would challenge that if you try and aim for a clear solution or goal, then what is the point of having an incubator or start-up in the first place — just create a project.

What if you were to set the only objective to fail?

‘We want you to report back every week that you have tried something and it didn’t work?’

Is that something truly different? There’s no rule-book when you’re only aiming to fail.

Imagine how liberating that would be? Imagine the instant permission to just try things and have the freedom for them to fail and to benefit from what you might learn.

By adopting this approach you are more likely to be successful. If the incubator or start-up spent four months trying to get towards that outcome and every day tried and tested ideas, the aspects that are not working and causing them to not succeed in that outcome are more useful for the business to know than reporting the success. It’s controlled failure.

This is about a mindset shift and allowing people to think differently. To question and not anchor on any pre-conceived ideas.

One hundred small ideas soon add up

In my opinion you shouldn’t define a start-up with a solution, you should be defining the outcome. And the outcome should focus on doing something better for the customer. This is about taking a customer-first approach and coming up with an idea in the morning, testing that idea in the afternoon and canning the idea if it is not working.
The reporting of success should focus on what didn’t work rather than what did. That way you make it easier to report back. By setting a vision of success, ironically too many incubators are playing it safe, and playing it safe isn’t wear true breakthrough ideas come from.

Below are a number of guiding principles that we work through with our clients:

  1. Remember you are a customer first
  2. Agility is everything — be adaptable and be open to change
  3. A little bit of fear goes a long way — you are trying something different
  4. Celebrate what didn’t work — you are here only to discover
  5. Test assumptions quickly — some customer insight is better than none
  6. Define only the purpose — not a deliverable
  7. Commit to being in the room — both physically and mentally
  8. Be prepared to forget what you know
  9. Welcome different ideas and as many ideas as possible
  10. The split test challenge

If the only role of an incubator or internal start-up is to fail this would be more beneficial to big business. In my opinion, one hundred small ideas that enable the corporation to make changes, is surely better than aiming for one ‘game-changer’ that is most likely doomed to failure. At WAE, we work to help organisations de-sanitise failure, taking the organisation away from traditional ways of thinking and working. We help to facilitate a relationship between business and their customer, and encourage them to think objectively by putting the customer at the heart of that process.

My advice? Next time you are thinking of setting up an internal start-up why not set up two, with two different objectives, and run a split test. Set a clear purpose and challenge, but task one team to bring a solution to market and challenge the other only to fail regularly and then see what that delivers back to the business.