Get out of the Innovation Sandbox

A couple of months ago, I was at Techonomy 2014 and I am still digesting a fantastic interview with Peter Thiel and Reid Hoffman. Interview done by David Kirkpatrick from Techonomy Media.

The full interview (about 38 min) is worth every second, and the full transcript is available here.

There is a great section about innovation and innovation teams in big corporations, and Reid says:

I think the challenge in practice is, I often think of the people that are able to drive innovation in one way or another as being quite weak at the political games, and the political processes—the more political processes you set up, it always seems to empower the wrong people.

To a question from the audience on how innovations teams can avoid this, Reid Hoffman says at minute 28:40 something that made me fundamentally rethink how companies should get organized around innovation, or disruption, or whatever the latest buzzword of the year is.

Well, the short answer there is, having a head of strategy, a head of innovation and a small group is almost always—I’ve never seen it work, it’s usually a disastrous failure. The question is, you actually have to be, we’re going and building this product, we’re going and doing this, and it has to be essentially funded, and as an isolated group.

And there’s a lot of different ways of doing an isolated group. I don’t know them all, throughout all the industries. One was how Jobs did it, which is, he basically said, okay, he pulled people into a project and put them in a room where only their badges would work. He would go work with them. Part of a thing that happens at Google, and, you know, there’s variation, like there’s when Andy Rubin was building Android, only the Android folks’ badges were working, going into the Android, and basically Larry was like “Look, Andy, just go, this is important to do, just make this happen.”

I think the common pattern is, it has to be a product-oriented group, it isn’t a group that says we’re producing a strategy, or we’re producing an innovation plan.

We’re building something, we’re making it happen, and it’s empowered by the CEO, and it is completely disconnected from any political process from the rest of the organization.

And I think thus far, those are the only patterns I’ve seen work. The CEO often has to have an opinion on the product, on the merits of the product, so it’s not a portfolio, it’s not a financial portfolio, a hundred different innovations without any details on any one particular.”

This is something very different than the so called “experimentation sandboxes”, or “innovation labs”, or “customer innovation centers”, or “accelerators”, or “incubators”.

Leandro Herrero recently writes:

Carve out space and time, protect them, and free them from the standard corporate rules. You can do this with a small team or a big one, a few rooms, one room, or a building. Do it forever, or for 3 months. Experiment with your own version of Lab126. Social engineer the environment until you see the fruits. Kindle ideas! We shape the spaces so that spaces may shape us.

I am not so sure this works. Austin Carr wrote in Jan 2015 a great post in FastCompany about the Fire Phone debacle that was developed in that same Lab126.

Yet is there something new going on with Amazon, something dangerous on a whole new level? Or is this the latest installment in what Bezos has always been selling about his company: that it is so different in its outlook, its operations, and its potential that it should be judged differently, too? The criticism this time goes beyond the fact that the CEO prefers to invest heavily in what might drive business tomorrow rather than reap profits today. This time, say the critics, Bezos has lost his focus. This time, they say, he is pursuing global domination at the expense of his historic drive to improve the customer experience.

To make a long story short, I don’t believe anymore in open innovation, and I don’t believe anymore in sandboxes.

Many sandboxes are “me too” versions of a hype for being perceived or associated with the next Google or the next Apple. Let’s be realistic, the chance that your company ever gets close to those top players is close to zero. Same for the incumbent turning around itself for the next paradigm: there is historical evidence that the chance to succeed is also close to zero. If you disagree, please give me 1-5 examples of companies who did succeed.

But don’t get me wrong. Innovation is needed, especially in incumbent large organisations. To create real lasting innovation in big corporations, you need:

• High quality alignment about the strategic options and the innovation agenda at the level of the board, and the executive committee. All organizations struggle with this. It creates illusions of innovation busyness and quasi satisfaction of having ticked the box
• Willingness to invest in several real options, and actually do something beyond analyzing and prototyping to death.
• You need to SHIP product

Let me say that again: you need to ship product.

It’s about focus based on quality alignment. The focus to put the energy of a multi-disciplinary team through the full A-Z process of designing, creating, marketing, distributing a product service in the hands of the customer who gets value and is willing to pay for it.

Let’s apply this to FinTech. Fintech is red-hot.

• With 3-6 Billion dollar investment per year in startups, depending on the source.
• Investments by VCs, Corporate Venture Funds, pooled resources in accelerators, bootcamps and incubators.
• And with almost every major bank having their own innovation outpost or lab or accelerator in Silicon Valley, and increasingly also in APAC, Tel-Aviv, London and Berlin.

Their challenge is to find the best startups. Depending on the source, more than 3,000+ FinTech Startups compete for the money and the attention. Investors are looking for the best ones. Banks are looking for the best ones. But their motivations are different. From pure ROI and fast and profitable exit to complementarity of the existing portfolios.

One way to find the best ones are FinTech Startup competitions. We at Innotribe run one ourselves quite successfully. Nothing wrong with Startup Challenges.But I believe the industry needs to move beyond competition and prize money. Beyond the searchable database or heat map. Beyond the hackaton. Beyond the prototype, the sandbox, the accelerator or the lab.

The keyword is embedding and creating deep, sustainable, repeatable relationships on the long term.

Accelerators, Bootcamps, Incubators, and Sandboxes: I get it. It’s all super cool there, it’s fun, young, dynamic, exciting, etc but show me the results from an innovation point of view, aka actually shipping of actual innovations by big corporations/banks. I am not asking for investment results, etc. I am trying to find systemic evidence that sandboxes help companies innovate in or outside their core.

My discomfort is that the motivations of the different players are not aligned:

I do see the value for the sandboxes, accelerators, incubators. For the startups joining, in many cases some form of cheap equity or other string is attached. Cheap for the investor that is. The startup immediately loses 10% or more of its shares in return for this generous gift.

• It is for sure a very lucrative sector for the angels and investors.
• Some “labs” are real estate in disguise, creating scarcity and competition for office space.
• This also creates an unhealthy competition and “win-loose” relation between the startups.
• Some are pure investors looking for a fast exit
• Some are pure matchmakers that take a commission
• But many are NOT in for the long hall. Accelerators that claim they are in it for the long hall I call BS”

I do see the value for the startups. Investment, visibility, mentors etc.

• But that is just the start, that is just the sandbox.
• When – and if – they come out of an incubator etc, the journey just begins.
• The only thing they have learned is to pitch better and to better iterations of MVPs, at best.

But I do not yet see what meat is left on the bone of those who invested in these sandboxes?

• Did any ever succeed in actually shipping a new product/service?
• Indeed, I am looking at this space from the standpoint of the organization who owns the sandbox/accelerator/incubator and what value it provides to that organization in better serving its customers.

I am getting convinced that sandboxes “out there” – as an outpost that is – don’t work. Work in the sense of getting products shipped with the core. I am getting convinced that organizations don’t need one sandbox but thousands (ok, ten’s) of sandboxed deeply embedded in the organization.

The sandbox then is not just about experimenting but about actually shipping a product, and show/inspire the others in the company in a super-transparent way how that is done, so that next time they want to be part of the project too.

However, in many cases sandboxes are lipstick on a pig. I love this Financial News article about everybody cool and running hackatons:

“So they are engaging with the outside world for new ideas and inputs. They really, really want to look like a cool place to work at. They seek to be perceived more like large tech companies.”

In many cases it’s all about perception, only.

But perception is not good enough. It is needed, but not good enough. In my opinion, if a company cannot innovate in its core, it has a problem. Innovating without the complexity of the core is relatively easy, especially of you can throw 100M at it. But does it leave innovation meat on the core bone? I doubt it.

Innovation by committee does not work. The false certainty of the committee kills it.

Real innovation happens when you have a dedicated multidisciplinary team going after a big bet. Real innovation does not happen in sandboxes. I have seen it in my SWIFT life several times. Some were successful like Alliance Lite and more recently the Real-Time Payments win in Australia. Others failed to deliver or got killed (the death and killing of innovative projects and the lessons learned will be the subject of another post in this Innovation 201 series).

To come back to the start of this blog post and the insights of Reid Hoffman. The successful innovations are not the credit of a central innovation team. They are the credit of a dedicated core team.

But a team alone won’t cut it. This team, the “execution engine”, is only one of the 3 innovation engines needed in an organization. The other two are 1) the behavior (culture) engine and 2) the catalyst engine. More on them in a subsequent post.

One thing is for sure: ALL organizations struggle getting stuff out of the sandbox. Maybe the problem is with the whole idea of sandbox in the first place. If it never gets in, you don’t need to struggle to get it out.

Embedding or Sandboxing: I think embedding is the answer. So let’s get out of the innovation sandbox and let’s get some real stuff shipped?

Some modesty is at its place here. I have been working as a change agent – sometimes rebel – in many organizations in the last 30 years. And still, I don’t know the perfect answer. But I think I have a little clue on what does not work, and what could work. I would love to open the conversation with the Heads of Innovation to share what sticks and what not. I am so curious to hear your voices, comments, insights and your lessons learned.

This blog post is part of my series “Innovation 201”