It has been a little more than two years since the publication of "What Is a Corporate Incubator, and Why Is It a Bad Idea?" in Huffington Post Canada, but with the latest changes in the startup economy, it is a relevant topic to revisit.
With the startup economy reorienting itself to the next greatest trend, a re-examination of what makes a workable corporate incubator is appropriate, particularly considering where the next trends are emerging from.
Increasingly, today's startups are turning their focus from greenfield sectors towards brownfield ones. Brownfield sectors such as transportation and logistics, financial services and biotechnology, come with highly entrenched existing players, increasingly aggressive government regulators and a highly risk adverse consumer base, the old startup tactics that have worked in the past may not translate well to these new brownfield sectors.
With the increasing number of startups entering brownfield sectors such as financial services, one would think that corporate incubators would be prime recipients of startups attempting to navigate these brownfield sectors. While on the surface this would appear to be the case, the reality of the situation again depends on the real purpose of a corporate incubator.
As indicated in the original article "What Is a Corporate Incubator, and Why Is It a Bad Idea?", corporate incubators can be poor conduits for innovation if they don't have a number of key elements including:
(1) Lack of Clearly Defined Goals
(2) Wrong Incubator Personnel
(3) Lack of C-Level Support and Direction
(4) Lack of a Clearly Defined Strategy
(5) Lack of Critical Infrastructure
Time has not changed the need for these elements but merely reinforced their need. Indeed, as the corporate incubator ecosystem continues to evolve from the establishment of new incubators to the closing or restructuring of unsuccessful ones, not only do the elements previously described continue to be relevant but new elements can be added. These new elements include:
(1) Lack of Broad C-Suite Support: One of the biggest misconceptions is as long as a corporate incubator has the support of one C-suite executive all will be fine. Unfortunately, as many corporate accelerators know that is never the case. While gaining the support of one C-suite executive is a momentous occasion, it is the first win in a long term battle. To prevent the corporate incubator from being considered an individual executive's pet project, the corporate incubator must gain broader support across the C-suite to ensure longevity.
While many would state that the constant need to manage C-suite relationships is a draining burden on corporate incubators, it is a necessary one and not unlike a startup managing investor relations. Startups need to constantly manage and build relationships with investors to ensure there is sufficient cash flow to continue to build operations. Corporate incubators need to adopt the same processes and mentality.
By treating the C-suite as a continuous pipeline of supporters much like how startups treat investors, corporate incubators will ensure continued strategic and operational support thus enabling them to nurture innovation initiatives within the corporation. Without this "startup investor relation" mentality, corporate incubators will be caught up in the vagaries of corporate politics.
(2) Direct Bottom Line Impact: The reality for corporate incubators is when convincing finance personnel the value of a corporate incubator, it is necessary to demonstrate direct impact to the bottom line. It isn't surprising that finance personnel have such an attitude as their primary reason for existence is to ensure corporate financial stability. Corporate incubators have done a poor job explaining innovative concepts to finance personnel as demonstrated with design thinking.
While many finance personnel have heard about design thinking, the issue that they have with it is the lack of direct linkage between better design and better profits. True there are some successful corporations such as Apple that have demonstrated the impact of design but for many finance personnel there are still too many steps in-between design thinking and profits. As such, corporate incubators who fail to convince finance professionals of their positive financial impact will find their corporate incubator on the chopping block during difficult economic conditions.
(3) Direct Short Term Results: Like it or not, corporate incubators are part of economic system that thrives on short term focus and results. Indeed, short term results are what drive the speed and pace of the startup ecosystem so having the same pressures impact a corporate incubator shouldn't be surprising.
Corporations aren't post-secondary education institutions nor are they research institutes where employees can ponder existential questions. Corporations have a fiduciary responsibility to their shareholders which means they need to maximize their operations for maximize profitability. Included in this profitability maximization are corporate incubators. If a corporate incubator can demonstrate that it has concretely produced real short-term value, a corporate incubator has a chance at longevity.
(4) Benefit the Core Business: Yes, corporate incubators are supposed to prognosticate the future so their corporate parents are not disrupted by black swans. Unfortunately, though, senior corporate leadership don't necessarily care about that. Their focus is on the short term and as such their judgement is highly conservative.
In their minds, if 99% of current revenues and profits are driven by the current business model, why would anyone take the insane risk of pre-disrupting existing business models and prematurely losing all that revenue and profit? Considering that senior corporate personnel have a fiduciary responsibility to their shareholders, any active pre-disruption would be tantamount to corporate suicide.
(5) Fast Follower Not Bleeding Edge: Like it or not, the best a corporate incubator can achieve within its constrained environment is to be a fast follower. There is no way that a corporate incubator can be on the bleeding edge given the constraints in place. Everything from shareholder fiduciary responsibility to the inherent conservatism within large corporations, corporate incubators at best can make the case internally to introduce new processes that enable corporations to quickly follow the partially proven business models of disruptive startups.
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