Innovation, Risk and the Intrapreneur

Innovation, Risk and the Intrapreneur

Scott Gatz picks up on the conversation he started on Intrapreneurship with a thoughtful summarizing post. I had noted that Intrapreneurs take less personal risk than Entrepreneurs. While I thought my point was largely true -- following strong opinions, weakly held as blogging practice -- I've second guessed myself firt, and with a mind open for others.

What also bothered me is that what I do for a living at Socialtext is help those in large organizations who take risk get promoted. Some are Intrapreneurs who instigate a purchase and champion a tool, but many more simply stick their neck out by being transparent and on the side of a truth.

There is no question that Intrapreneurs take risk. As Andrew Fife pointed out, your salary can fall to zero. I disagree with him that being part of a large company opens more doors for you than a startup, just being there only counts for television, which further supports my original point that all companies should enable Intrapreneurial activity. Intrapreneurship is a big hairy audacious mechanism to foster innovation.

Today I gave a talk before the executives of a prestigous R&D unit. I was followed by none other than William Miller who has modelled The Valley better than anyone, gave me some key informal advice when starting Socialtext and helped me frame what we live and work in as a irreplacable marketing function. But more than anything, to me, he was the one who realized that the Culture of Failure.

Based on the points in Bill's Habitat for Entrepreneurship, we were discussing what a large organization could do to model the engine of innovation we call The Valley. Quoting one point in full:

4. A business climate that rewards risk-taking and does not punish failure is a prerequisite for an entrepreneurial high tech community. Most high tech ventures fail, so a climate in which the stigma of failure hangs over the unsuccessful entrepreneur serves as a powerful deterrent. This is especially true if the rewards for risk-taking are not sufficiently high. In Silicon Valley, there are many examples of entrepreneurs who have failed and successfully started over. These entrepreneurs view failure as a learning experience.

On the failure side, bankruptcy laws that provide limited liability—that is, laws that limit liability to the invested capital and do not permit creditors to “reach beyond” the company—permit entrepreneurs to be more venturesome. Similarly, the availability of limited partnerships for venture capital firms encourages their formation, and in turn, their capacity to engage in the high-risk business of high tech ventures. Japan, Korea, and India are moving in this direction, or have already done so.

On the success side, security laws that bestow equity credit for ideas, organization, and hard work give larger rewards to the entrepreneur. By contrast, a security law environment that requires company founders to pay the same amount as investors for each share of stock does not result in a large enough payoff for the former. This situation often results in large initial dilution of the founders’ stock, making them reluctant to take further investment — and dilution —to grow the company quickly. In fast-growing markets and markets characterized by increasing returns to scale, rapid growth is essential to survival. Changes in these kind of securities laws are currently under consideration in Japan and India.

A culture of failure is a prerequisite for success, and is based upon both legal structure and business norms. Liability must be limited and risk respectively distributed. Corporate venturing and M&A are a proven models for a large company to couple itself with the risk taken and the innovations of entrepreneurs.

Intrapreneurship, in my opinion, is less developed. Primarily because organizational cultures do not reward failure. I am interested to hear of a large companies that have structures and norms for personal risk taking by employees. By personal risk, I mean organizational, social and financial capital where the more you risk, the greater the reward. Liability is inherently limited within an organization, which is the conservative strong suit. But the undiscovered incentive, which goes against the grain of most corporate culture, is the ability for an individual, or team, to play an internal market with their own risk and reward. And when they fail, be rewarded as well, with the chance to succeed.

Innovation, Risk and the Intrapreneur