Act Like a Startup: 5 Lessons Bigger-Company CEOs Can Learn From Entrepreneurs

3. Convince your board to let you take risks
When Hovsepian took over at IntraLinks, he immediately ramped up investment into research and development, now topping $40 million, with the long-term goal of being a 15-20 percent growth company. Investing more in R&D meant temporarily lowering the profitability of the company—something not all boards are keen on. “You’re in a constant pressure cooker to deliver more growth and more profitability,” Hovsepian explains. “What you have to do is step back at points in time and say, ‘Look it, this market we’re in is getting into a next-generation growth phase. We need to invest.’”

The numbers suggest that it was the right call. Where historically, IntraLinks has had only a handful of patents, it now has hundreds of innovations for which patents will be filed over the next 18 months. The company’s market cap has climbed from $325 million in 2011 to $500 million today. He credits the board with giving him the right amount of leeway. “The board let us fail. Version 1.0 was not perfect. Agile development methodology is all about fast learning, and I want our company to be a fast learner. You want always to be learning and improving while knowing that you’ll never reach perfection, you’re always still striving for it.”

Trevor-Owens4. Take it outside
One way to imitate startups is to hire their people away. But mature companies need more than gimmicks to attract entrepreneurial innovators to the mother ship. For starters, entrepreneurs like to have a lot of skin in the game—more than what a few hundred stock options can provide, says Trevor Owens, co-author of The Lean Enterprise: How Corporations Can Innovate Like Startups. “When you’re starting something from nothing, you very closely identify with what you create. Ownership is the reason you stay up all night thinking about a product, and stock options in a huge company are just not going to feel like ownership.” That’s one of the reasons some companies have only limited success with “innovation labs” inside the company. “It sounds like something that’s in the basement,” says Owens. “A lot of these innovation labs look like projects just for corporations to show how cool they are. ‘It’s there and it’s ours and it’s in service of us.’ But the innovators don’t have the autonomy and they can’t move fast enough through the bureaucracy.”

Instead, Owens says, companies need to set up an environment that essentially is a startup, independent of the company providing its seed money. “When doing disruptive innovation, that type of work has to have different rules. There needs to be autonomy and employees need to be compensated with equity. The rules of engagement are different—it’s the Wild West.”

He recommends the concept of the innovation colony, where the innovation is happening entirely apart from the company. One model is to set the colony up as a limited liability corporation with the parent company taking just a limited partner role. The LLC employees are tasked with creating something that the market wants, and the parent company hopes it is something that will fit its portfolio of products and services.

But there are no guarantees. The LLC can raise capital from outside investors, including venture capitalists, who may eventually make a bid for the company. “It happens all the time that a venture capitalist takes the project away from the company. But a lot of the projects aren’t really good fits.” The bottom line, says Owens, is that you can’t start with the task of creating a product that fits with the company’s portfolio; to really succeed, the team has to start by designing products the market wants. “And when one of them fits into your strategy, then you can bring it back inside.”