Startups Are Overrated: Intrapreneurs Are Better Bets
Startups are great because they create growth and lots of jobs so let’s pour lots of private and government money into programs that create more startups. Entrepreneurs and startups kick ass!
This is the common wisdom in most countries. Does it hold? I do not think so and an article in Borsen, a leading business daily in Denmark provided some interesting facts that support my view on this.
In short, the article argued that gazelle companies – defined as companies that have created growth each of the last four years and in total have more than doubled their revenues in that time span – create more jobs than other company categories. This is not much of a surprise as growth companies almost per definition need people to create growth.
The article showed a list of 50 companies that during 2005 to 2008 each had grown from 102 % to 2172 % in terms of revenues and created from about 20 to 900 jobs. More interestingly, only 5 companies had less than 5 employees in 2005 indicating they were pure startups. 45 of the 50 growth companies already had a platform to grow from leading to my point; established companies create more revenue, more profit and more jobs than pure startups.
What I really would like to see is that private and government funds currently used on startups are diverted to established companies setting up intrapreneurship programs. I am not saying that we should give giants such as Hewlett-Packard, BASF or Lego a lot of money and support to set up such programs. The big companies can – or should be able to – do this by themselves.
But the innovation community as well as governement people should take a better look on how we can help small to medium-sized companies develop a better understanding of intrapreneurship and help them set up programs aimed at identifying and developing not only ideas, but also intrapreneurs; the people driving innovation.
As some of you might not have heard of intrapreneurship before I have inserted this definition from Wikipedia:
“Intrapreneurship is the practice of using entrepreneurial skills without taking on the risks or accountability associated with entrepreneurial activities. It is practiced by employees within an established organization using a business model.
Employees, perhaps engaged in a special project within a larger firm are supposed to behave as entrepreneurs, even though they have the resources and capabilities of the larger firm to draw upon.
Capturing the dynamic nature of entrepreneurial management (trying things until successful, learning from failures, attempting to conserve resources, etc.) adds to the potential of an otherwise static organization without exposing those employees or self employed people to the risks or accountability normally associated with entrepreneurial failure.”
Imagine all the jobs and thus growth and prosperity we can create if not only the large, multinational companies, but also the smaller, mid-sized and yet established companies really knew how to develop and nurture intrapreneurship.
Everyone working with intrapreneurship – including myself – have an interesting business case as well as a worthwhile cause to pursue. Let’s go for it…
I've heard the same from studies (by the Flanders DC knowledge center at the Vlerick Management School): Gazelle companies are the ones governments should focus on for growth, both in jobs and turnover.
I work in an intermediate (not government, not business, but in an entrepreneurial creativity enhancing agency, ahum). So I get a good view on innovation policy.
There is a caveat in this story however. Governments are not a B2B company, they cannot segment becauxe they are supposed to be neutral. Every firm should be able to apply for funds. So, how are you going to distinguish between gazelles and non-gazelles? Do they first have to prove that they can grow by themselves, without aid? You get a chicken-egg story. What comes first?
Off course governments can aid companies in certain growth-related activities as R&D, innovation (expoloration/implementation), internationalisation and training/networking of employees with other innovation professionals, scientists and crazy creative people (once in a while).
But where should the big money go?
To a promising startup with brand new technology, but not yet break-even? Or to big companies who decide to do things and then hire a consultant to look whether their initiatives can be subsidized to gain some nice to have extra income?
I haven't got the right answer either. All things are simple until you realise their complexity…
The real issue here is risk and reward for the individual and for the government. My apologies if I sound like an American – which I am. I love the concept of intrapreneurship within large organizations. It is an absolute necessity for their continued growth and profitability. The individuals participating within these enjoy al the resources and market position of the bigger organization without assuming the risk or reward a true entrepreneur endures. In this economy, it will be the large organizations that will assert themselves in the marketplace at the expense of small business.
The recession punishes inovation by pulling capital from the small business and entrepreneurs. I disagree that by eliminating start-up funding and focusing only on successful mid-sized companies the government will get a bigger bang for its buck. You will, in essence, be killing the goose that lays the golden eggs. That 10% of the successful companies in the study were start-ups supports my point. All companies were start-ups once and only the best survive. It's a pretty good system as is.
Intersting angle on the subject – however I couldnt disagree more!..the actual "help" that startups get from governments is meer a fraction of whats needed to build a succesful company – and the hazzle of getting to the "pot of gold" (paperwork, numerous meetings, 100 pages plans) are really not worth the effort!….asides from that – and now I am really putting my xxx on the line – the persons at these governmental funds are – to say the least – not skilled enough, and the majority have never tried to start up anything!…Actually it is my belief that all the success stories would have done just aswell without governmental help.
Then giving help to SME`s to establish intrapreneurship is even further away in my optic!…If an SME is not capable of spurring and culturing intrapreneurship by themselves – they have a much bigger problem; Bad Management……!
Only solution to above; Money Talks!….spend the funds to establish "tax friendly" incentives for both the start up and the SME, to encourage them to start their intrapreneurial ventures – then you will see direct results!
Hi Orin,
I agree that we need the golden eggs, but they could just as well come in the form of separate spin-offs from the established companies. They will just have better chances of success. I agree that you need to recognize and reward individuals on intrapreneurship. This might be difficult, but the better a company can do this the better intrapreneurs they will get and the better success they can get.
Michael,
I would prefer not making this a tax-issue. In some countries, taxes do play a role, but I have never heard of an entrepreneur quitting because the taxes were too high. They threathen about this, but it stays a threat. For real entrepreneurs money comes second to the pursuit of making a difference and overcoming challenges. If established companies can provide the right level of individual reward to intrapreneurs and maintain the challenge and possibility to make a difference everyone wins. Michael, the way you present the current scenario nobody wins. I agree on this. That is one reason for trying a new approach.
Stefan
Stefan,
No – they dont quit – they move their operation to a more tax friendly environment, or establish a company formation that does equal…Now, dont get me wrong, I am not opposed of taxes – but experience has shown me that any kind of government involvement in spurring innovation amongst start ups, smes – or even enterprises – fails – and will fail again no matter what approach is used. Simply because they cannot attract and maintain the right people to administrate funds. Therefore a tax relief model on innovation is much more attractive, hence it is an offer that will be much more lucrative to all parties. Even if it would be as low as – lets say – 25 % deductable on development costs, it would definately mean that many more intrapreneurs would stand a chance….
Apple, Ford, P&G, Amazon all start ups at some point, not corporate spin offs. Is the corporate new product/service success rate any better or significantly better that that of start ups?
The distinct difference in innovation in a corporate environment vs start up, probably lies in the "restrictive" mindset held by corporate R&D…Most corporate R&D´s are innovating on basis of existing knowledge=products, while start up`s are innovating on basis of an unique idea and/or service. So in essence most corporate innovation are actually spinoffs, while start up innovations are containing more uniqueness. Thus, corporate spinoffs can become unique; ex. the Sony Walkman (launched in 79`), was actually a spinoff from a small Sony taperecorder "the pressman" which Sony`s R&D paired with their assumptions about a market opportunity in "all the young people, that wanted to hear music 24/7";-)….Whilst competitors were thinking big stereos – Sony thought portability and volume…Thus beeing a corporate spinoff, I would definately , today, consider the walkman, a unique innovation.