What I learned about innovation & risk while scaling a startup

During the last few weeks, I’ve thought a lot about innovation. I wanted to explore new ways to foster it and listen to others, their experiences on keeping it alive and what it means to them. When I was going through those great articles and podcasts, I felt like there was an essential part missing from many of the public discussions about innovation. Very few mentioned the harsh reality about its cost and risks, and how and why it often is lost throughout a growing company’s lifetime. So I wanted to take the opportunity and reflect a bit about my view on the the matter, and nature of innovation.

Innovation has been part of my daily business for several years now. In 2013, I joined a small startup of fewer than ten people, and since then, we have scaled it to an 200+ people company with millions of users around the globe. During those 7 years we ran through many phases, from learning our lessons about agile development through different methodologies up until modern agile and design thinking. We also always tried to pay close attention to our culture, team spirit, and innovation. With this in mind, I wanted to share some things I’ve learned about innovation and culture while scaling and how these can develop with increasing headcount.

Early startups

When people talk about radically new, innovative products, startups often come to mind, and there is a good reason for that. When you are part of a small startup looking to find new solutions, often there is only one way forward — innovation. If there is nothing old to rely on, you are forced to come up with something new. Startups consisting of focused & driven people are the perfect recipe for making innovation seem easy because it is the only reasonable choice. In addition, the notion of dedicating your time to something that you believe to be more important than yourself helps a lot when dealing with necessary setbacks. It takes a particular mindset and culture to make that happen. Creating those solutions is challenging and usually requires a lot of trial and error, which is why most startups fail and do not survive. If you are lucky and have the right team, sometimes it works out, and you maybe find that you want to scale your company to enable yourselves to get more done and solve problems more efficiently for a bigger audience.

Scale, scale & scale

After you found your niche, and your product/service proved itself, and the company grows, you might find at a certain point that some small things start to change. The challenges you face as a fifty-something people company are not the same as those at a lower headcount. For me, it was easiest to see every time I realized we need a new process for something that used to “just work” in the past. Things like alignment and prioritisation that just happened naturally suddenly need more attention. Changes like these are by no means negative, but we need to be aware of them, and their implications on the team and culture, and thereby the ability to innovate.

It’s true, when you grow, close partnerships, and tackle more problems at different levels, it will enable you to do a wider variety of things. However, suddenly there seem to be more options, needs, and choices where you could spend your time and energy. More options on the table always mean that some will seem “safer” than others in terms of immediate business value and risk since they are already validated and proved themselves in the market. New ideas are often risky, and most of them fail, so validation is painful and costly. This circumstance creates obstacles when bringing new ideas to the roadmap. At this point, innovation needs to become an active choice rather than the default mode of operation. New ideas get measured against proven ones that have a high chance of generating business. Innovation suddenly has a less risky alternative, and establishing a balance between those forces is a new challenge. No matter how much you validate, incubate or design sprint, new innovative ideas will almost always be high risk.

The ugly truth

Why do 95% of startups fail? Why do only those with a good team who pivot often enough to make their idea work succeed? Because the truth is that real innovation is demanding, complicated, and risky, and that does not change with company size. It’s a high risk — high return game. It needs quite some dedication and a certain amount of insanity if you ask me. Investing money and time into ideas you know are likely not going to work out over and over again takes a lot of courage. It’s risky, and you need to keep a careful balance in your portfolio to afford it.

Apart from a couple of other things, I think innovation, first and foremost, requires a choice. I stopped believing that every company needs to work on new innovations at every stage and point in time. It’s a risky game and requires time, the right people, and suitable structures to be played well.

Since my job is also to foster and enable innovation, I always try to educate myself about new and better ideas to implement it at scale. There is absolutely no shortage of opinions and methods that lead to the promised outcome. There is the 20% rule, internal incubators, innovation hubs, design sprints, agile innovation teams, and so much more. We have looked at so many of them, but processes only can support and pave the road for a culture that already exists and is ready for it. No company suddenly became innovative by implementing the 20% rule. Too many companies fall prey to the belief that establishing innovation can be achieved by introducing a new process alone. Some of them, if you look closely, were genuinely not ready to take the risk. If you are not honest with yourself and your employees, your people will feel it. Talk is cheap, they say.

So, what now?

While a process is not the whole solution, I do believe that new ideas need protection. Ideas often can sound a bit weird and unreasonable at first. It is necessary to give them the space and room to grow, stumble, fall, improve and change, as well as to fail and die. They may not seem worthy or even sane at first, and they maybe never will, but they need time and effort even to have a chance to develop. I often find that innovation nowadays is romanticized. When companies try to become more innovative, people get excited about lots of post-it’s, positive spirit, fancy notebooks, and of course, good coffee. But few talk about the enormous risk and investment involved. It’s the same notion that founding a successful startup is easy and always fun when usually this is far from the truth. Innovation bares real risk involved in, and if not done with care, it can easily put a company in danger. Kodak was once dominating the photography industry, but failed to develop their portfolio and lost their dominant position to the digital revolution. Even Apple was days away from bankruptcy because they focused on wrong and outdated products.

Above all, I believe keeping innovation alive while scaling is not just a matter of process. It takes a certain amount of risk-averseness to invest in many small failures in order to develop something new and original. All techniques and processes will only support a company that is willing and able to carry this risk. Personally, I believe it’s not only worth it, but also critical for many enterprises. However, this does not mean you should blindly work on any new ideas without any guidance and plan. The only choice is to find a good strategy for establishing a balance of risk and return on innovation. I have not come across a one-fits-all solution to achieving that balance yet, and I don’t think there is a simple one. It seems way too intricate to me and highly depends on the company, culture and structure, the size, and first and foremost on the people.

I don’t want to end this article without giving at least a brief couple of points on which I think a company could focus on to foster innovation. Please don’t understand this as a complete list, but rather as suggestions on where I would start.

• Take conscious risks and talk about innovation — it will not work out if people feel like they are not supposed to innovate or their boss is not really in favor of it. Make it a visible priority. Put your money where your mouth is. Lead by example on every level of the hierarchy.
• Find a strategy to mitigate the risk to a meaningful extend — Try to make sure you work on promising ideas and find a process to reduce the risk as much as possible. Be very careful about taking away too much freedom to fail and not to limiting the scope too much. These two things seem contrary to each other but achieving both in balance is critical.
• Motivate people to participate and provide as much guidance as possible — Make sure your risk mitigations are not shutting down ideas. Processes can only ever support your goal, having a process cannot be the goal. Support all employees how to think critically, explain the value of failure and carefully assist throughout the whole process. Don’t expect it to be a priority for everybody by default.

Of course these cover only a small part of what there is to say about innovation, there is a lot more to culture, methodologies, and leadership but, those deserve separate discussions and will be the topic of the future articles.

Let me know what you think in a response!