Scenario: One comes up with an intriguing business idea; she starts with user testing early on and customers love it. She wants to go big and convinces allies to start the project right away. Together, they approach decision makers and stakeholders. Some want to see a polished project pitch, others ask for an in-depth analysis of the market, detailed budget plan, and ideally a 3-year business projection with a solid business model backing all the numbers.
This scenario is quite realistic. In the moment when entrepreneurial motivation approaches financial decision power to move forward, reality shows its true face. Even if the project has solid data to prove technical viability, capability or even commercial traction, high analysis standards are demanded for approval. Two projects are never much alike, and that is a challenge for those who will be held accountable after all, the decision makers. Especially in Europe, we try to minimize risk from the start. We are highly risk averse.
There is substantial value in diligent planning by thinking in depth about next steps and long-term, formulating the big picture, and working with and in scenarios. Still, planning in uncertainty has a ceiling for value creation. When decision makers demand too much detail, too much analysis, too much mature structure too early, then they are dumping their insecurity, their risk-averseness on the project. The outcome is overhead and piled administration, which, eventually, delivers transparency into a very distracted project.
An early-stage business idea is exactly that, an idea. Largely some guidance providing brainwriting, leading to common ground documentation, and ideally a few work hypotheses. They are not waterfall plans ready for execution, and they are not suitable for long-term business projections. Genuinely, there is no downside protection for these projects. Hence, we might want to prepare for a total loss each time, but not in sum.
Here’s an inspiration for a potential solution space. Because startups fail 9 out of 10 times within the first years, Venture Capital distributes the fund across a defined number of projects to follow a portfolio approach and mitigate their own risk. It’s simple statistics after all. Enterprises of all sizes can apply the very same logic to in-house innovation projects, because these fail most of the time too. And still, we need that innovation power. Hence, instead of overthinking the project selection process and only financing the winners of such, we should allow innovation to thrive. By defining an R&D budget, financing many early-stage projects within an innovative safe space, allowing them to fail fast and minimizing cost of failure, the organization’s creativity will unlock the business potential needed. And then, trust the natural selection.
Even if Venture Capital is not the perfect role model for enterprise R&D, not just because of their questionable average success rates, today’s technological capabilities allow a brave and more risk affirming approach in the in-house environment.