Last week, as news of Silicon Valley Bank’s losses and eventual collapse, took over the news cycle, attention understandably turned to the devastating impact on the startup ecosystem.
Prospects brightened a bit on Monday with news that the federal government would make all depositors whole. Startups, VCs, and others in the ecosystem would be able to continue operations and make payroll, and SVB’s collapse would be just another cautionary tale.
But the impact of SVB’s collapse isn’t confined to the startup ecosystem or the banking industry.
Its impact (should have) struck fear and excitement into the hearts of every executive tasked with growing their business.
Your Portfolio’s Risk Profile Just Changed
The early 2000s were the heyday of innovation teams and skunkworks, but as these internal efforts struggled to produce significant results, companies started looking beyond their walls for innovation. Thus began the era of Corporate Venture Capital (CVC).
Innovation, companies realized, didn’t need to be incubated. It could be purchased.
Often at a lower price than the cost of an in-house team.
And it felt less risky. After all, other companies were doing it and it was a hot topic in the business press. Plus, making investments felt much more familiar and comfortable than running small-scale experiments and questioning the status quo.
Between 2010 and 2020, the number of corporate investors increased more than 6x to over 4,000, investment ballooned to nearly $170B in 2021 (up 142% from 2020), and 1,317 CVC-backed deals were closed in Q1 of 2020.
But, with SVB’s collapse, the perceived risk of startup investing suddenly changed.
Now startups feel riskier. Venture Capital firms are pulling back, and traditional banks are prohibited from stepping forward to provide the venture debt many startups rely on. While some see this as an opportunity for CVC to step up, that optimism ignores the fact that companies are, by nature and necessity, risk averse and more likely to follow the herd than lead it.
Why This is Bad News
As CVC, Open Innovation, and joint ventures became the preferred path to innovation and growth, internal innovation shifted to events – hackathons, shark tanks, and Silicon Valley field trips.
Employees were given the “freedom” to innovate within a set time and maybe even some training on tools like Design Thinking and Lean Startup. But behind closed doors, executives spoke of these events as employee retention efforts, not serious efforts to grow the business or advance critical strategies.
Employees eventually saw these events for what they were – innovation theater, activities designed to appease them and create feel-good stories for investors. In response, employees either left for places where innovation (or at least the curiosity and questions required) was welcomed, or they stayed, wiser and more cynical about management’s true intentions.
Then came the pandemic and a recession. Companies retreated further into themselves, focused more on core operations, and cut anything that wouldn’t generate financial results in 12 months or less.
Innovation muscles atrophied.
Just at the moment they need to be flexed most.
Why This is Good News
As the risk of investment in external innovation increases, companies will start looking for other ways to innovate and grow. Ways that feel less risky and give them more control.
They’ll rediscover Internal Innovation.
This is the silver lining of the dark SVB cloud – renewed investment in innovation, not as an event or activity to appease employees, but as a strategic tool critical to delivering strategic priorities and accelerating growth.
And, because this is our 2nd time around, we know it’s not about internal innovation teams OR external partners/investments. It’s about internal innovation teams AND external partners/investments.
Both are needed, and both can be successful if they:
Are critical enablers of strategic priorities
Pursue realistic goals (stretch, don’t splatter!)
Receive the people and resources required to deliver against those goals
Are empowered to choose progress over process
Are supported by senior leaders with words AND actions
What To Do Now
When it comes to corporate innovation teams, many companies are starting from nothing. Some companies have files and playbooks they can dust off. A few have 1 or 2 people already working.
Whatever your starting point is, start now.
Just do me one favor. When you start pulling the team together, remember LL Cool J, “Don’t call it a comeback, I been here for years.”
You want and need the best, most brilliant, most awesome-est people at your company. But with unemployment at a record low, the battle for top talent is fierce.
So, you vow not to enter the battle and invest in keeping your best people and building a reputation that attracts other extraordinary talents.
You offer high salaries, great benefits, flexible work arrangements, the prestige of working for your company, and the promise of rapid career progression. All things easily matched or beaten by other companies, so you get creative.
INNOVATION!
Your best people are full of ideas and have the confidence and energy to make things happen. So, you unleash them. You host hackathons and shark tanks. You install idea collection software and run contests. You offer training on how to be more innovative. You encourage employees to spend 20% of their time on passion projects.
And they quit.
They quit participating in all the opportunities you offer.
They quit sharing ideas.
They quit your company,
Not because they are ungrateful.
Or because they don’t want to innovate.
Or because they don’t have ideas.
They quit because they realize one of the following “truths”
They’re not “Innovators”
High performers believe they need to work on an innovation project to progress (because management explicitly or implicitly communicates this). But when they finally get their chance, they struggle. The project falls behind schedule, struggles to meet objectives, and is quietly canceled. They see this as a failure. They believe they failed.
But they didn’t fail. They learned something very uncomfortable – they’re not good at everything.
Innovation is different than Operation. When you’re operating, you’re working in a world full of knowledge, where cause and effect are predictable and “better” is easily defined. When you’re innovating, you’re working in a world full of assumptions, where things are unpredictable, patterns emerge slowly, and few things are defined. Most people are great at operating. Some people are great at innovating. Extraordinarily few are great at both.
Innovation is a hobby, not an imperative
The problem with innovation efforts like hackathons, shark tanks, and “20% Time” is that people pour their hearts and souls into them and get nothing in return. Sure, an award, a photo with the CEO, and bragging rights motivate them for a few weeks. But when their hard work isn’t nurtured, developed, and brought to a conclusion (either launched or shelved), they realize it was all a ruse.
They are disappointed but hope the next time will be different. It isn’t.
They stop participating to spend time on “more important” things (their “real” work). But they still care, so they keep tabs on other people’s efforts, quietly hoping this time will be different. It isn’t.
They grow cynical.
They choose to stay and accept that innovation isn’t valued or resign and go somewhere it is.
Their potential is bigger than your box
“I felt like Dorothy in the Wizard of Oz. Before the training, the world was black and white. After, it was full color. I don’t want to go back to black and white.”
For this person, the training had gone wonderfully awry.
The training built their innovation skills but motivated them to find another job because it opened their eyes. They realized that while they loved the uncertainty and creativity of innovation, their place in the organization wouldn’t allow them to innovate. They were in a box on an org chart. They no longer wanted to be in that box, but the company expected them to stay.
But are these “truths” true?
As Mom always said, actions speak louder than words.
Who does your company value more – innovators or operators? The answer lies in who you promote.
Is innovation a strategic priority? The answer lies in where and how you allocate resources (people, money, and time).
Do you want to retain the person or the resource? The answer lies in your willingness to support the person’s growth.
Speak the truth early and often
If a top performer struggles in an innovation role, don’t wait until the project “fails” to reassure them that operators are as (or more) important and loved as innovators. Connect them with senior execs who faced the same challenges. Make sure their next role is as desirable as their current one.
(Or, if innovators are truly valued more than operators, tell them that, too.)
If innovation is an imperative, commit as much time and effort to planning what happens after the event as you do planning the event itself. Have answers to how people will be freed up to continue to work on their projects, money will be allocated, and decisions will be made.
(Or, if innovation really is a corporate hobby, follow the model of top universities and let people participate f they want and give everyone else time off to pursue their hobbies).
If you want to retain the person more than the resource, work with them to plot a path to the next role. Be honest about the time and challenge of moving between boxes and the effects on their career. And if they still want to break out of the box, help them.
(Or, if you want them to stay in the box, tell them that, too.)
Don’t let Innovation! drive away your top talent. Use honesty to keep them.
Do you sometimes feel like you’re living in an alternate reality?
If so, you’re not alone. Most innovators feel that way at some point.
After all, you see things that others don’t.
Question things that seem inevitable and true.
Make connections where others only see differences.
Do things that seem impossible.
It’s easy to believe that you’re the crazy one, the Mad Hatter and permanent resident of Wonderland.
But what if you’re not the crazy one?
What if you’re Alice?
And you’re stepping through the looking glass every time you go to work?
In Lewis Carroll’s book, the other side of the looking glass is a chessboard, and all its inhabitants are chess pieces that move in defined and prescribed ways, follow specific rules, and achieve defined goals. Sound familiar?
Here are a few other things that may sound familiar, too
“The rule is, jam tomorrow and jam yesterday – but never jam today.” – The White Queen
In this scene, the White Queen offers to hire Alice as her lady’s maid and pay her “twopence a week and jam every other day.” When Alice explains that she doesn’t want the job, doesn’t like jam, and certainly doesn’t want jam today, the queen scoffs and explains the rule.
The problem, Alice points out, is that it’s always today, and that means there’s never jam.
Replace “jam” with “innovation,” and this hits a little too close to home for most innovators.
How often do you hear about the “good old days” when the company was more entrepreneurial, willing to experiment and take risks, and encouraged everyone to innovate?
Innovation yesterday.
How often do you hear that the company will invest in innovation, restart its radical innovation efforts, and disrupt itself as soon as the economy rebounds, business improves, and things settle down a bit? Innovation tomorrow.
But never innovation today. After all, “it’s [innovation] every other day: today isn’t any other day, you know.”
“When I use a word, it means just what I choose it to mean – neither more, not less.” – Humpty Dumpty
In this scene, poor Alice tries to converse with Humpty Dumpty, but he keeps using the “wrong” words. Except they’re not the wrong words because they mean exactly what he chooses them to mean.
Even worse, when Alice asks Humpty to define confusing terms, he gets angry, speaks in a “scornful tone,” and smiles “contemptuously” before “wagging his head gravely from side to side.
We all know what the words we use mean, but we too often think others share our definitions. We use “innovation” and “growth,” assuming people know what we mean. But they don’t. They know what the words mean to them. And that may or may not be what we mean.
When managers encourage people to share ideas, challenge the status quo, and take risks, things get even trickier. People listen, share ideas, challenge the status quo, and take risks. Then they are confused when management doesn’t acknowledge their efforts. No one realizes that those requests meant one thing to the managers who gave them and a different thing to the people who did them.
“It takes all the running you can do, to keep in the same place. If you want to go somewhere else, you must run at least twice as fast as that!” – The Red Queen
In this scene, the Red Queen introduces life on the other side of the looking glass and explains Alice’s new role as a pawn. Of course, the explanation comes after a long sprint that seems to get them nowhere and only confuses Alice more.
When “tomorrow” finally comes, and it’s time for innovation, it often comes with a mandate to “act with urgency” to avoid falling behind. I’ve seen managers set goals of creating and launching a business with $250M revenue in 3 years and leadership teams scrambling to develop a portfolio of businesses that would generate $16B in 10 years.
Yes, the world is moving faster, so companies need to increase the pace at which they operate and innovate. But if you’re doing all you can, you can’t do twice as much. You need help – more people and more funding, not more meetings or oversight.
“Life, what is it but a dream?”
Managers and executives, like the kings and queens, have roles to play. They live in a defined space, an org chart rather than a chessboard, and they do their best to navigate it following rules set by tradition, culture, and HR.
But you are like Alice. You see things differently. You question what’s taken as given. And, every now and then, you probably want to shake someone until they grow “shorter – and fatter – and softer – and rounder – and…[into] a kitten, after all.”
So how do you get back to reality and bring everyone with you? You talk to people. You ask questions and listen to the answers. You seek to understand their point of view and then share yours.
Some will choose to stay where they are.
Some will choose to follow you back through the looking glass.
They will be the ones who transform a leadership problem into a leadership triumph.
That is one of the very few pieces of advice that seems to apply to everything, including spandex workout clothes, movie tickets, and bank fees.
And innovation.
Just because you can invest in innovation doesn’t mean you should.
Yes, I know this is borderline blasphemy in a VUCA world. It’s also downright shocking from someone who spends every day trying to help companies innovate.
But it’s true. And the state of corporate innovation would be infinitely better if executives stopped spending on innovation simply because they can and started exploring if they should.
You can start that exploration with these 5 questions:
1. What is the current state of the business?
If the business fundamentals aren’t solid – you’re hemorrhaging cash, customers are abandoning you like a sinking ship, and you can’t make or deliver a quality solution to save your life – DO NOT INNOVATE! Do not spend $1 or 1 minute on anything other than fixing your fundamentals.
While innovation theory is very clear about the importance of building your core business and creating new ones, it does not apply in this situation because, in this situation, you won’t be in business long enough to reap the rewards of your innovation investment. Instead, invest in re-building your business into a viable and sustainable enterprise. Then invest in innovation.
If your fundamentals are solid, go to the next question.
2. Why is innovation important?
There is no wrong answer to this question. But your answer has massive implications on what you do next and the results you should expect.
If innovation is important because it enables or accelerates a strategic priority, creates or reclaims a competitive advantage, or fundamentally alters the basis of competition in your industry, then invest in it like the Mission Critical endeavor it is and expect game-changing results.
If innovation is important because it builds your reputation as an innovator while helping you attract and retain customers, employees, and investors, then it’s a marketing or PR tactic. Invest in it as you would other marketing and PR tactics and measure success in awareness, trial, and loyalty.
If innovation is important because investors are demanding it, take time to understand why. The answer is probably one of the two reasons above.
3. What does it need to deliver, and by when?
What gets measured gets managed. If it’s measured, it’s important. If it’s not measured, it’s a hobby.
You would never enter a new market, invest in a new plant, or launch a new product without success metrics and KPIs. You start with a plan for measuring success because these investments are important.
If innovation is truly important, you need to do the same thing – determine what you will measure (how we will quantify success), how (specific metrics and tools), and how often (monthly, quarterly, annually). And then do the work of measuring (and managing).
4. How much are we willing to invest before we get ROI?
Innovation takes time to generate meaningful results, but very few executives have the patience to wait years for results, mainly because they know that every dollar or person they allocate to innovation is a dollar or person not generating (almost) guaranteed results this year.
Be honest about when you expect meaningful results and whether you’re willing to continue to invest money and hire people for that long before you get results. If there’s a gap, close it by moving the time to results in (and adjusting expectations) or moving your investment horizon out.
5. ???
I want to hear from you.
What’s a question that you wished leadership asked before investing in innovation?
Drop your suggestion in the Comments, and I promise to respond (plus others will thank you)!
At this point, my husband, a Navy veteran, is very likely to moo (yes, like a cow). It’s a habit he picked up as a submarine officer, something the crew would do whenever someone said something blindingly obvious because “moo” is not just a noise. It’s an acronym – Master Of the Obvious.
But HOW did things change?
From what, to what?
So what?
It can be hard to see the changes when you’re living and working in the midst of them. This is why I found “Benchmarking Innovation Impact, from InnoLead,” a new report from InnoLead and KPMG US, so interesting, insightful, and helpful.
There’s lots of great stuff in the report (and no, this is not a sponsored post though I am a member), so I limited myself to the three charts that answer executives’ most frequently asked innovation questions.
Question #1: What type of innovation should I pursue?
2023 Answer: Companies are investing more than half of their resources in incremental innovation
So What?: I may very well be alone in this opinion, but I think this is great news for several reasons:
Some innovation is better than none – Companies shifting their innovation spending to safer, shorter-term bets is infinitely better than shutting down all innovation, which is what usually happens during economic uncertainty
Play to your strengths – Established companies are, on average, better at incremental and adjacent innovation because they have the experience, expertise, resources, and culture required to do those well and other ways (e.g., corporate venture capital, joint ventures) to pursue Transformational innovation.
Adjacent Innovation is increasing –This is the sweet spot for corporate innovation (I may also be biased because Swiffer is an adjacent innovation) because it stretches the business into new customers, offerings, and/or business models without breaking the company or executives’ identities.
Question #2: Is innovation really a leadership problem (or do you just have issues with authority)?
2023 Answer: Yes (and it depends on the situation). “Lack of Executive Support” is the #6 biggest challenge to innovation, up from #8 in 2020.
So What?: This is a good news/bad news chart.
The good news is that fewer companies are experiencing the top 5 challenges to innovation. Of course, leadership is central to fostering/eliminating turf wars, setting culture, acting on signals, allocating budgets, and setting strategy. Hence, leadership has a role in resolving these issues, too.
The bad news is that MORE innovators are experiencing a lack of executive support (24.3% vs. 19.7% in 2020) and “Other” challenges (17.3% vs. 16.4%), including:
“Different agendas held by certain leadership as to how to measure innovation and therefore how we go after innovation. Also, the time it takes to ‘sell’ an innovative idea or opportunity into the business; corporate bureaucracy.”
“Lack of actual strategy. Often, goals or visions are treated as strategy, which results in frustration with the organization’s ability to advance viable work and creates an unnecessary churn, resulting in confused decision-making.”
“Innovations are stalling after piloting due to lack of funding and executive support in order to shift to scaling. Many are just happy with PR innovation.”
Question #3: How much should I invest in innovation?
2023 Answer: Most companies are maintaining past years’ budgets and team sizes.
So What?: This is another good news/bad news set of charts.
The good news is that investment is staying steady. Companies that cut back or kill innovation investments due to economic uncertainty often find that they are behind competitors when the economy improves. Even worse, it takes longer than expected to catch up because they are starting from scratch regarding talent, strategy, and a pipeline.
The bad news is that investment is staying steady. If you want different results, you need to take different actions. And I don’t know any company that is thrilled with the results of its innovation efforts. Indeed, companies can do different things with existing budgets and teams, but there needs to be flexibility and a willingness to grow the budget and the team as projects progress closer to launch and scale-up.
Not MOO
Yes, everything has changed since the pandemic, but not as much as we think.
Companies are still investing in incremental, adjacent, and transformational innovation. They’re just investing more in incremental innovation.
Innovation is still a leadership problem, but leadership is less of a problem (congrats!)
Investment is still happening, but it’s holding steady rather than increasing.
