Three Lessons to Get the Best of Both Worlds: Part 1

For most large companies, the need to protect the core business is a strategic straitjacket that makes them vulnerable to startup companies. But what if it was possible to combine the best of both worlds in one organization?

Here are three lessons that big companies can learn from startups that can help them make this a reality:

1. Ability to Focus

Due to very limited resources, startups operate with the perpetual fear of running out of money, people and time. Their only path to success is to focus on doing just one thing very well.

2. Composting

Ironically, they do that one thing very well by doing it badly at first; but they learn quickly by giving a minimally viable version of their product to customers, getting feedback and making ever-better versions until the market accepts their product.

In big companies, failure is a career killer. By contrast, startups view failure as an opportunity to learn. According to the co-leader of Stanford’s Launchpad class, Perry Klebahn, startups consider a couple of $100 mistakes, as “learning $200,000 worth of information.” This learning is something that Klebahn’s co-teacher Michael Dearing has dubbed “composting.”

3. High Clock Speed

Ultimately, the factor that separates the startup winners from losers—and big companies—is how quickly an organization can come up with an idea, build a prototype, get market feedback and respond—what Errol Arkilic, a program manager at the National Science Foundation, calls “clock speed.” If feedback is positive, the company invests in the product; if it’s negative, the team comes up with a better idea and tries again.

Clock speed varies inversely with a leader’s perceived remaining resources. If a leader believes that the company has or can get more than enough money and people to turn a technology or innovation into a robust business, then the company’s clock speed will be very slow. Conversely, if the leader fears that the available resources are quickly coming to an end—driven by loss of funding, revenues or the founder’s house—the company’s clock speed will be that much faster.

The only way for a large organization to get high clock speed is to create the credible belief that it will soon run out of cash, people and technology, and that its cont

inued survival depends on its ability to commercialize a new product. Accomplishing this feat is so rare that the only company I can think of that has consistently done it is Apple.

But if other big companies could harness focus, composting and high clock speed, they could get the best of both worlds: organic growth and innovation coupled with the deep resources needed to survive an economic plunge. In the second post of this series, we will examine how actual startups have applied these three skills.

Editor’s Note: In his 11th book, Hungry Startup Strategy: Creating New Ventures with Limited Resources and Unlimited Vision, forthcoming November 2012 from Berrett-Koehler Publishers, Peter will delve into the topic in greater detail.

In the second post of this two-part series, Peter illustrates the lessons of focus, composting, and high clock speed with stories from actual startups.

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