Internal startups and muddled objectives
Why does an internal startup exist? Why would a large company go to the bother & expense of creating an internal startup? There are good answers to those questions. But, this post is about what happens when the answer isn’t clear, or it changes radically depending on who and when you ask.
Let’s review some ways this can manifest:
The mothership isn’t clear why it’s building an internal startup, what it’s supposed to achieve, or how its success will be measured.
Corporate sponsors have wildly different — and potentially incompatible or contradictory — reasons for building the startup.
It’s not obvious the startup is focused on solving high-value customer problems, rather than ‘solving’ a problem for the mothership. The mothership’s problems and customer problems can align nicely, but there’s a pervasive danger of the mothership fooling itself into thinking it’s helping customers while it is actually focused on its own issues.
Internal sponsors or corporate innovation leaders change their minds about which KPIs matter or what the targets should be. This is particularly problematic when minds are changed by internal considerations or their own personal incentives. If sponsors are themselves incentivised by targets which are decoupled from the reality of the startup’s operating position, it can result in perverse or unhelpful new targets getting dumped on the startup.
To put this another way, if the startup is following a course because of their sponsors’ concerns for their own bonuses, career progression or mothership politics, then something has gone terribly wrong. This is an avoidable anti-pattern, but it takes substantial forethought and rigorous discipline on the part of the mothership’s executive team to ensure this scenario doesn’t occur.
The startup is vulnerable to a change in internal sponsor or corporate innovation leadership. This is especially problematic if funding was reliant on the personal belief and patronage of a single internal sponsor — which then disappears when that sponsor leaves or moves to a different role.
It’s worth reflecting on why this is so different to venture-backed startups. Even if the relevant General Partner leaves a VC firm, that firm is (all things being equal) still incentivised to continue supporting that partner’s investments. If nobody else in that firm retains confidence in a specific startup, then that startup’s founder can still approach other VC firms for future investment. In contrast, an internal startup is stuck. If they lose their main internal sponsor, and no other sufficiently powerful internal stakeholder steps in, then they’ve got nowhere else to go.
“Innovation” as the goal
This is a subcategory of the “solving your own problems” issue. It occurs when the problem-to-be-solved is the mothership’s internally or perceived lack of “innovation”. Perhaps a senior executive has read Clayton Christenson and started worrying. Perhaps an activist shareholder is making trouble. Perhaps a subset of valuable current employees are agitating. Perhaps an employer branding agency has reported that the company’s staid image is holding back its hiring ambitions.
The company’s “solution” is then to “do innovation”. Rather than identifying an opportunity outside the mothership’s regular lines of business and pursuing it to solve a high-value problem for customers by leveraging the mothership’s core competencies or unfair advantages; the mothership makes “innovation” itself the goal. It looks for new initiatives it can slot into that category and then publicise. Maybe it even outfits an office floor with ping-pong tables and beanbags in a well-intentioned but Melanesian-style cargo-cult attempt to acquire the benefits of “doing” innovation.
To be fair, this doesn’t have to end badly. The company might get lucky in identifying a passionate internal founder who combines a good idea with strong execution capabilities. But even then, that founder may be held back or sabotaged by any number of the other issues described in this post, and the others in this series.
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This is part 3 in a series on the challenges faced by internal startups inside large corporates and the reasons so many fail or underperform.
Part 1 is about the curse of the mothership’s brand advantage
Part 2 is on founders with one foot in and one foot out
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