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Driving Innovation in Small Companies: A Collection of Perspectives and Resources

by Stefan Lindegaard
August 17, 20148/17/14 35 Comments

Most companies around the world are small and medium sized (50-250 people) and yet the main attention of innovation is geared towards startups and big corporates.

This paradox was raised as I recently opened up for the opportunity for you and others to ask me questions on innovation through my LinkedIn group.

Simon Green, Head of Business Support at Newcastle Science City started off with this question:

“There is so much focus on innovation in startups and corporates that the mid-sized businesses tend to be ignored. How can we best drive innovation in businesses with 50-250 employees, which tend to be the biggest creators of jobs?”

This is a huge topic and I can’t cover this in a single blog post (although this is a long one), but I can share some of my perspectives and then we can have a discussion based on this. Here we go…

Differences between big and small companies:

Let me start off with a short list on the differences between big and small companies when it comes to innovation (see the full version here):

• Speed of decision-making: Slow, bureaucratic meets rapid, lean = tensions!
• Attitude towards risk: Vested interested versus nothing to protect, everything to win!
• Processes or lack thereof: There are pro’s and con’s to this!
• Following rules versus breaking rules: Real progress often requires you to break / bend rules. Big companies can’t really do this; smaller ones can.
• Differing definitions of innovation: Do we speak the same language?

The last point takes me to the next one…

Is it innovation or entrepreneurship?

Do we speak the same language?

I often argue that entrepreneurship is do or die based on market necessity, opportunity and ingenuity. A startup only has one shot and if this does not succeed, you no longer have a company.

As a company grows and develops business areas (more product or service lines), you get more options. This also holds true in the context of innovation and this is why I often say that you only innovate in a corporate setting (SME’s or multinational) when you have strategic choices to make.

Hence startups don’t really innovate; they try to survive and get to the next level.

Bringing new products and services to market are very different things for startups, SME’s and big corporates and this require very different approaches.

The challenge for many SME’s is that they are stuck in the middle of this. The company has grown to a significant size due to an entrepreneurial spirit (usually driven by the founder), but this is no longer enough as the company has grown to big – or has become too rigid – to be able to rely on this drive. They have lost some of their entrepreneurial spirit and now they struggle on how to turn innovation into a capability and later on even a culture.

Necessity, Opportunity and Ingenuity:

Although it is getting to be a bit old (and does not really incorporate open innovation), I like this report by Intuit in which they identify three main drivers for innovation for SME’s. They are:

• Necessity: No small business can stay alive without constantly changing to meet the shifts in their marketplace. Look back at your product or service or how you operated five years ago or ten years ago and compare that to what you are doing today. You will see that a world of change has occurred in many aspects of your business. So while you may not call what you do innovation, it is still innovation.

• Opportunity: Small businesses know how to strike while the iron is hot when it comes to taking advantage of a new opportunity. With relatively flat organizations, decision making is fast and opportunities are quickly seized upon.

• Ingenuity: Many small businesses are started by people who are frustrated by not being able to find a product or service to meet a need they have. The ingenuity that enables them to fill that need means they have the creativity to support innovation. In addition, while many people can spot a need, it takes a lot of drive and passion to devote yourself to coming up with a new solution to meet that need. This drive and passion are key elements required to be successful at the long, hard slog that innovation often entails.

Intrapreneurship as a platform for growth:

SME’s can go through some of the same steps as big corporates when it comes to developing their innovation capabilities. I am touching on this later on.

Intrapreneurship is an option that can work well in this middle ground between being a startup and a corporate that defines many SME’s in the context of innovation.

Intrapreneurship can be defined as starting new businesses within the current business. Basically, you already have a platform in place (think people, facilities and access to markets). You can use this to expand your product portfolio within your current business areas taking us back to my thoughts on entrepreneurship versus innovation where the latter happens when you strategic options to make.

However, some companies might be in a situation where they have to or want to expand into new business areas that are outside the current core and then you can consider some of the key reasons for implementing intrapreneurship:

• Intrapreneurship increases revenues and raises profits; short and long term.
• Intrapreneurship improves the corporate image for recruiting purposes.
• Intrapreneurship is contagious.

Every organization of a certain size has people with the potential to drive innovation forward, but how do you identify them? And once you’ve found your potential “intrapreneurs,” how do you train them and support their success?

Although they have fewer resources, smaller companies might be better prepared than big companies for intrapreneurship as they are closer to the entrepreneurial spirit and thus could be in a better position to answer the above questions.

You can read more about intrapreneurship in these posts:

• Intrapreneurship: An Overlooked Tool for Corporate Growth

• Intrapreneurship: Creating New Ventures within Established Companies

• Open Innovation and Intrapreneurship for Small and Medium Sized Companies

This quote is worth having in mind when looking into intrapreneurship:

“…an intrapreneur must have the ability to see and pursue possibilities by piecing together innovations across three or more business functions simultaneously.”
Paul Campbell, former VP, HP

The mindset and key skills for innovation:

Very few companies (regardless of size) can grow fast in a sustainable way if the executives do not understand the need for training and educating employees on innovation. Just read this short story and you will know why:

“A CFO is wary about investing in the training and education of the employees.

He asks the CEO: ”What happens if we invest in developing our people and then they leave the company?”

The CEO is a bright person and replies: ”What happens if we don’t and they stay?”

I have written several blog posts on innovation training programs including this one: Innovation Training Programs – More Important than Ever!

SME’s should look into how they can develop such programs and since they have fewer resources than big corporates they could consider working together with other SME’s. Such partnership can also help create a platform for job rotation within different companies, which is a good way to learn new things.

SME’s should also look into identifying and developing these key skills for innovation.

1) Intrapreneurial skills
2) Networking talent
3) Communication skills
4) Strategic influencing
5) Adaptive fast learner
6) Balanced optimism
7) Tolerance for uncertainty
8) Passion

Today’s era of (open) innovation requires much more communication efforts and skills hence the high ranking of communication in a broader sense (skill 2, 3 and 4).

This blog post on innovation talent is also worth looking into and so is this white paper on The People Side of Innovation.

7 steps for building a top-class innovation-based company:

What would be a good approach to create an entrepreneurial and innovative culture in a big company? What are the elements, processes and tools that a large organization can typically do to become a top 100 innovative company.

I pondered on these two questions as I prepared for a presentation on innovation culture, which is something everyone talks about, but only few companies manage to develop and sustain in a successful way.

There are no off-the-shelf answers to the questions as every company has its own issues, challenges, strengths and weaknesses, but you can still outline a set of thoughts and ideas for becoming a top innovative company.

My recommendations are rooted in these 7 steps:

1. Start with a strong vision.
2. Secure executive commitment.
3. Create momentum and instill a sense of urgency.
4. Go for a full innovation upgrade.
5. People first, processes next, then ideas.
6. Communication is key.
7. Open up, experiment and learn from your failures.

You can find a more elaborate description in this blog: 7 Steps for Building a Top 100 Innovation Company.

You should also check out these resources:

• Whitepaper: Innovation Culture – The Big Elephant in the Room
• Webinar Replay: Innovation Culture – The Big Elephant in the Room

How companies embrace failure in the context of innovation is a key element on developing an innovation culture so the below links are also relevant. You shouls have in mind that you need to reward behaviors just as well as results in order to change a corporate culture!

•  Whitepaper: Embrace Failure to Build a Stronger Innovation Culture
•  Webinar Replay: Innovation Culture – The Big Elephant in the Room

Can we grow more alone or together with others?

This is the key question that small companies must ask themselves as they consider their open innovation efforts. I am biased due to my work, but I think the answer is quite clear. Open innovation is the way forward for all kinds and sizes of companies.

I have written extensively on open innovation on my blog (use the search function for more specific requests) and here you get a short sample of links and resources:

• 15 Examples of Open Innovation Between Big Companies and Startups

• Making Open Innovation Work (a free book focused on small companies and startups; a few years old but still relevant)

• A Game of Open Innovation: Who Wins?

• FREE Books, Papers and Insights on Open Innovation and Innovation Culture

• What is Open Innovation? Crowdsourcing? User Innovation? Co-Creation?

• Why Open Innovation is not for Small Companies

There is a lack of frameworks or concepts on open innovation and the two that I can mention are primarily focused towards large companies (but still of interest to SME’s).

The first one is the Want, Find, Get and Manage model by Gene Slowinski and the Strategic Alliance group. You can listen to this video explanation by Slowinski.

The other is 7 Steps for Open Innovation by yours truly. The steps are:

1. Common Language and Understanding, Motivation, Mandate and Strategic Purpose
2. Assets and Needs
3. Value Pools and Channels
4. Internal Readiness
5. External Readiness
6. New Skills and Mindset
7. Communications Strategy

I will publish an e-book on this in September. Stay tuned!

Wim Vanhaverbeke also wrote a relevant paper on how small companies and startups can benefit from open innovation strategies.

I could add more thoughts and perspectives on the intersection of SME’s and innovation, but I will stop here. I hope you found this worthwhile.

Currently there are "35 comments" on this Article:

  1. Hi Stefan

    I love the blog and totally agree – open innovation is the way forward for all kinds and sizes of companies. PS. disruptive innovation is even more exciting. see http://www.innovationcentre.com.au/articles-1/dis

  2. […] Driving Innovation in Small Companies: A Collection of Perspectives and Resources | 15inno. […]

  3. Michael O Sullivan says:

    Hi Stefan
    Interesting article and I agree with many of the points you make. Having taken a keen interest in disruptive innovation for a number of years I believe some of the answers about lack of innovation in medium sized companies can be found in the disruptive theory namely.
    1.Small markets don’t Solve the Growth need of Large companies
    2.Companies depend on Customers and Investors for resources
    Point 1 tells us as a company gets larger it requires larger and larger returns to satisfy growth i.e. a $5 million company requires new revenue of $250k to grow 5% while a startup with $250k revenue only needs new revenue of $12.5k to satisfy its growth. It is unlikely a large sized company with revenue of millions would get excited about a $12.5k opportunity if it was not part of there core business and would view it as a distraction. However in a start up this would be seen as a big win.
    Point 2 above indicated that companies as they develop depend on customs hence they work hard at satisfying the needs of their most important customers and winning market share for their product or services. As a result they innovate in a sustaining way improving their product or service to satisfy their growth needs. Some of course are much better at this than others and many of the tools you outline are very necessary to continue this sustaining innovation and I would say that medium sized companies who do not embrace these tools will most likely fail in the long run.
    In large corporations today there is a wide recognition that innovation is necessary to continue success and grow. So many CEO’s have a strategy to support innovation and again the tools you have outlined are part of this strategy. However corporations have more free capital they can bring it to the next level with development teams, virtual games and innovation conferences. However many corporations make the same mistake in terms of revenue to satisfy growth needs. Many corporations today base their decisions on financial models and satisfying the needs of existing customers.
    So to come back to your original paradox why the main attention of innovation is with startups and big corporations. I suggest the following
    Startups innovate because this is the reason they exist in the first place to develop a product or service and develop a market.
    Medium sized companies are limited by the resources they can allocate to innovation and with little free capital it can be seen as a distraction the good ones will embrace the tools of sustaining innovation and continue to grow.
    Many large corporations have a strategy to support innovation and this is why in many instances they innovate or at least have the appearance they do so but that’s another story

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