Why are successful companies turning to startups? Because innovation is hard—and it often gets harder when success increases. As big companies get bigger, bureaucracy tends to stifle the ability to innovate. Conversely, while startups are bursting with creativity, they typically don’t have the resources to bring their ideas to fruition. This delicate dynamic demonstrates the “Goldilocks” circumstances required for innovation, and highlights the need for a new type of relationship between those with new ideas and those with resources.
To prevent the loss of creative edge, many mature companies implemented programs similar to Google’s now iconic 80/20 policy, which granted employees 20 percent time for creative side projects. Call it bottom-up innovation: this “open sandbox” approach gives employees an accessible way to share their ideas, theoretically letting the best rise to the top. With the introduction of social media, lots of companies began experimenting with open innovation initiatives. Crowdsourcing and hackathons are some of the more prominent manifestations of this trend, letting companies reach out not only to their employees for good ideas, but also to the broader community. These platforms give individuals recognition for their creative contributions while allowing the larger community to modify and otherwise help evolve the ideas.
Thinking Big, Acting Small
While social media allowed companies to cast an even wider net, the cult of “small” remains strong. Essentially, big companies want to capture the magic of startup culture. Incubators are a way for companies to bring in smaller, more innovative startups, and steer them toward the core business (or perhaps acquire them down the line). Intrapreneurship takes the idea to an individual level, empowering employees to act like internal entrepreneurs.
Creative side projects, while well intentioned, often fall to the wayside as existing projects get prioritized. Same story with incubators: without defined time limits and major commitments, individuals often lack motivation to get things done.
Scarcity Drives Innovation
Instead of giving employees a box of Post-it notes and carte blanche on creativity, perhaps companies should be adding more constraints. It sounds crazy, but scarcity tends to drive innovation. Accelerators build upon the unbridled creativity of open innovation and intrapreneurship, but add some critical constraints: primarily, a fixed duration (usually three months). Best exemplified by Y Combinator and Techstars, the standard model offers startups investment, mentorship, introductions to investors, and workspace (usually for up to ten employees) in exchange for 6–8 percent equity. These programs rely on the economies of scale—from the investor’s perspective, helping a group of companies is much more efficient than helping one or two at a time.
Venture as a Service
Other organizations, like PCH, Dragon Innovation, and Safeguard Scientifics, specialize in building startups from the ground up. More than simply developing a product, these companies take a firm hold over the startup throughout its entire lifecycle. The so-called studio model takes an idea and moves it through design, prototyping, engineering, manufacturing, packaging, distribution, and retail—frequently with the host taking over operations of the company for a period of time.
R/GA entered the space in 2014 with an initiative that combines the hands-on approach of a studio model with the efficiency of an accelerator. But there is a twist: each program is driven by a theme and matched with a corporate partner. This hybrid model is one where startups not only get the financial capital they desperately need, but get to work within a program that is strategically designed to help them build the best possible version of their company.