Why do corporate innovation incubator programs often begin with such fanfare, only to die quietly a few years later? One study of 300 programs found that only 47% met their strategic objectives, and only 24% met their financial goals. If they are being honest, the head of almost any successful corporate incubator will admit that the unit has had a tough slog – the work is uncertain, builds few internal allies, and requires new corporate competencies. Yet success is critical to a company’s future, so it is imperative to persevere. By diagnosing the root cause of incubator struggles, firms can take straightforward steps to improve outcomes quickly.
Consider these five barriers to success and their remedies:
1. Problem: Too Little Output
The Underlying Issue: Too many projects and too few resources create backlogs. Staff try to do too many things at once, attention gets divided, and timelines lengthen.
The Remedy: Use a portfolio plan to prune projects and budget resources appropriately. Focus project teams on the 1-2 key risks facing a venture at any one time. Concentrate internal meetings into set events, minimizing the bi-lateral discussions that can consume so much staff time.
2. Problem: Irrelevant Outputs
The Underlying Issue: Companies have big expectations of incubators, but the resulting ventures look small and non-strategic.
The Remedy: Define up-front the realistic outputs expected – how many businesses of what range in size. Set clear strategic parameters for ventures, and use these throughout milestone reviews. Assess whether the incubator is making big ideas small because it is overly risk-averse. Compare, if possible, the incubator’s output to VC-backed firms in the industry and determine how the VC portfolio looks different from the company’s.
3. Problem: Outputs Too Risky
The Underlying Issue: The portfolio becomes concentrated in a very small number of high-stakes ventures.
The Remedy: Compare, if possible, the success rate needed from the current portfolio to VCs’ success rates in the relevant industry. What do the numbers say about the risk taken on? Use a portfolio plan to ensure that there is a balance of quick wins and more speculative investments. Diversify risks by balancing across technical, market, regulatory and other risk types.
4. Problem: Failure In Commercialization
The Underlying Issue: Good ideas get neglected by the core organization once they “graduate” from the incubator.
The Remedy: Involve “ball-catchers” early on – these are the people who will have day-to-day responsibility for commercialization. Involve the heads of ball-catching business units in the governance process. Help defray the costs of “graduated” businesses for a period of time after they transfer over, recognizing that established business units may have little budget flexibility to support ventures that are still in their early stages.
5. Problem: Victim Of Cost-Cutting
The Underlying Issue: Company is supportive but needs to find money fast, and other budgets have nearer-term returns on investment, Avoid over-funding. If ventures are focused on 1-2 risks at any one time, their budget requirements should be modest.
The Remedy: Develop robust success metrics assessing progress even before the first ventures launch in the marketplace. Compare return on investing in new markets vs. creating line extensions in existing markets. If internal numbers are unavailable for new ventures, use VC benchmarks. Calculate the company’s gap between likely growth from line extensions and its overall financial targets for growth over the next five years. Assess the likelihood that other approaches will hit those objectives.
Management systems comprise several dimensions that need to be aligned if companies are to tackle new market opportunities effectively and avoid the afflictions common to corporate incubators.
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