Intrapreneurs: stop trying to be like entrepreneurs

Starting something new inside a company is a completely different challenge

By Antonio Ribeiro

Photo by Alice Yamamura on Unsplash

Silicon Valley’s brand of innovation is hailed globally as one of the greatest forces for creativity of the modern era and corporates are often under pressure to reproduce this playbook to keep new competitors a bay.

But this leads to disappointment and failure. The challenges of an intrapreneur are completely different.

Generating corporate returns is a different challenge

Firstly, the performance benchmark for corporate venturing is the rate of return of mature, business-as-usual (BAU) activities. In other words, intrapreneurs pitching for capital will have to reassure their business that their venture will exceed the opportunity cost of that capital.

As a result, many intrapreneurs never get their shot (or are prematurely terminated) because they fail to convince their employers to divert funds away from business as usual.

Entrepreneurs and early-stage investors don’t have this problem. As Joe Richardson, head of intrapreneurship at L Marks, a company that helps corporations develop innovation programmes, puts it, “the business structure and access to funding are completely different when comparing intrapreneurial and entrepreneurial ventures”.

Intrapreneurs might be better served learning how to navigate how management allocates resources than trying to act more like entrepreneurs.

Profitability vs valuation

Large corporations, unlike startups, tend to focus on profitability, rather than valuation. Corporations want to innovate to keep new entrants at bay but they are held to higher and more regular (quarterly) performance and profitability standards than the small, usually private, startups that they are up against.

Intrapreneurs are funded by backers who are structurally incentivised to generate profitable top-line growth. The middle and senior-level managers making the decisions about funding intrapreneurs are judged at the end of the year on the incremental profit they generated.

Entrepreneurs are backed by venture capital investors who make money when they exit an investment at a higher valuation. Profits are a bonus.

Entrepreneurs, meanwhile, are backed by venture capital investors who make money when they exit an investment at a higher valuation than that at which they entered. Profits are a bonus, as valuations are driven by top-line revenue (amongst other things).

A 2017 TechCrunch report helpfully illustrated that the average VC fund needs to generate at least a 3x return to satisfy its investors. This largely explains the number of tech unicorns who are perennially unprofitable (e.g. Dropbox, Airbnb, Lyft, WeWork).

In a rush

Lastly, intrapreneurs must deliver returns on much shorter time horizons. Most venture capital funds perform to a 10-year horizon. By contrast, corporate venturing is often funded by the same yearly budgets that underpin all of the business’ other activities. Managers with profit and loss account responsibilities expect the same speed of return from their ‘blue-sky’ investments as they do from core investments.

Managers expect the same speed of return from their ‘blue-sky’ investments as they do from core investments.

This accelerated return horizon constrains not only what ideas can be funded but also the business models new ideas are built on. So, whilst many corporates want to unlock new markets with new functionalities, many of them set themselves up for failure. Intrapreneurs can try to push for more time for their ventures, but they are often constrained by the environment in which they operate.

It’s clear then, success means fundamentally different things inside and outside corporates. Jamie Baker, senior strategy lead at Bow & Arrow (Accenture), reminds us that “trying to push innovation through big businesses is hard. The cost structures and core revenue-driving activities mean the starting position for most stakeholders is cynicism.”

In many ways, intrapreneurs appear to be on something of an impossible mission. Advice given to them has to be nuanced and context-specific.

Building for re-integration

So, how should intrapreneurs operate? Key advice would be to build businesses that can be re-integrated into the corporate mothership. This isn’t something that entrepreneurs need to consider. But intrapreneurs regularly battle with the ‘corporate immune system’, people within their corporations that threaten the life of their venture.

Intrapreneurs must be masters in understanding how their employers make budgeting decisions.

Corporates are well versed in optimising existing lines of revenue. However, those same measures can be fatal to the viability of new initiatives. Intrapreneurs then are better advised to become masters in understanding how their employers make budgeting decisions.

From the outset, intrapreneurs must create a venture that is strategically aligned not only to the wider corporate strategy but also with the specific business unit funding it.

Entrepreneurs can tackle any customer problem — intrapreneurs must find one that their employer has an interest in.

This creates a series of challenges. Entrepreneurs can tackle any customer problem — intrapreneurs must find one that their employer has an interest in.

Not only that, in most cases, they must also leverage distribution channels and business models that align with the vision of the business unit’s P&L holder. Jamie Baker, senior strategy lead at Bow & Arrow (Accenture), emphasises that after the initial concept discovery process, intrapreneurs need to focus on “aligning and selling their venture back into the business”. Stakeholder management is crucial in any successful corporate venture.

“The best intrapreneurs know the rules…and break them where they can.”

Rather than trying to adopt a Silicon Valley mentality of ‘moving fast and breaking things’, intrapreneurs would do better to invest time in understanding exactly what informs resourcing decisions inside their corporations. Richardson at L Marks believes “the best intrapreneurs know the rules, requirements and processes within the organisation, knowing how to navigate them and break them where they can”.

Join the conversation

avatar
  Subscribe  
Notify of