“Innovation comes from long-term thinking and iterative execution.”

 

There was an excellent blog post by Reid Hoffman a while back about the future prospects for PayPal and what happens when activist investors get involved in a company.  He also comments on the issue of innovation and it’s effects on long term value vs. short term profitability.

While he frames the discussion as Silicon Valley thinking vs. Wall Street thinking, it can easily be viewed through a slightly different lens:  entrepreneurial thinking vs. “big company” thinking.

Good entrepreneurs can survey their market landscape, identify the emerging opportunities to exploit competitive weaknesses, innovate as fast as they can, and implement a strategy to gain market share over time. They are not afraid to take risks or suffer short term sets backs, because they make course corrections quickly. Good entrepreneurs are able to stick to their overall plan because they ultimately believe their vision will lead them to victory.  And good entrepreneurs know that if they have the right product, right market, right strategy and enough time, they can win BIG.

The “big company” approach has absolutely nothing to do with vision. In fact, vision only introduces risk — and the “big company” approach shies away from risk as much as possible. Time and iteration isn’t really a factor, because getting enough consensus to make course corrections take too much time to be really effective.  The only real strategy that is applied is how to execute the best “transactions” — like navigating corporate red tape and politics just enough to yield a short term win, meeting an earnings goal, making a bonus target, or getting a title change. The “big company” approach succeeds simply by not losing.

As Mr. Hoffman highlights, inevitable problems ensue when you have an entrepreneurial business unit being managed by an organization/stakeholders that are risk averse — particularly the risk of losing in the short term. The entrepreneurial approach rewards the believers — the “big company” approach rewards the people who execute transactions the best. By the way, this is why corporate accelerators and innovation labs often fail.  Without being properly nurtured or encouraged to take risks, the entrepreneurial unit or incubated startup can never meet it’s potential.

The sad result which we have all seen happen way too often:  the weight of the transactional approach by the “big company” crushes the vision and sends the believers looking off for the next challenge.  What was once an opportunity for both the entrepreneur and the big company evaporates, leaving corporate road kill in it’s wake. Until big companies recognize this, the cycle will surely continue….

• Reid Hoffman of LinkedIn and Greylock fame shares startup tips
• Long term value vs. Short term profitability
• Why Entrepreneurial Thinking Is For Everyone Now
• Reid Hoffman Tells Charlie Rose: “Every Individual Is Now An Entrepreneur.”