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How To Innovate Like A Startup

Lean Startup author Eric Ries discusses what CIOs and other IT leaders can learn from entrepreneurial companies.

If you look at the literature on corporate innovation, this is one of those projects that would never work. You would assume that they would have to go outside the company, create a startup, and then get bought by a parent company. That's the usual way. And this team didn't do that. They built what we call a minimum viable product, or MVP, the first experiment.

The first version they launched wasn't for everybody. It worked only on a very specific kind of tax return. It worked only in the state of California. It was a very limited first version, but it was enough for them to learn how customers actually use it, figure out the pricing, figure out enough so that the next year they could roll it out to more states, to more states and more states, and now I think it's in all 50 states and it's been downloaded a gazillion times.

This is an important story because when you hear stories about corporate innovation, everybody first assumes they bought this company from the outside. Not true. Then they assume, well they must have hired some new innovative people to bring some entrepreneurial DNA to the company. Nope.

Everybody who worked on this project was a long-term Intuit employee. If you look at their resumes from before they worked on SnapTax, you wouldn't have seen anything particularly innovative. They just seem like regular employees. But when you change the context in which employees operate, all of a sudden people's natural creativity and innovative instincts are allowed to bloom. That's a big part of the story here. It is, again, a commitment by the management of Intuit to create that space for the team.

InformationWeek: So in the literature, as you say, there's the example that the InkJet would have never gotten off the ground if it had stayed underneath the LaserJet business unit because it was competing, it was cannibalistic. And so the traditional thinking is that it's really got to spin out. How is it different in this model?

Ries: The most important literature is called The Innovator's Dilemma, that describes this phenomenon. And that literature is correct. Companies that are dedicated to sustaining innovation, to listening to customers, to bringing incremental improvements to market, have a really hard time doing disruptive innovation. But the lesson of The Innovator's Dilemma, I believe, and this is controversial but it is what I believe, is not to then just assume that if you put something out in a black box somewhere in a different location, you'll automatically get a startup.

In fact, if you look at the examples in history that have been the most successful at black box innovation, think about the IBM PC, a secret team in Boca Raton, Florida, away from mainland IBM. That can be successful ... once.

But those companies have rarely been able to have follow-up innovation, because once you take the lid off the black box, you just sent a memo to every manager in your company that says, "Listen, we are a company that keeps secrets, and if you're not on the inside, you could be ambushed." Because remember, we pay general managers to protect their turf. That's their job, so you can't get mad at them for stifling innovation. You're paying them to stifle innovation.

The key, I believe, is to treat your company like a portfolio. You say, "Look, we have bond managers and stock managers." Think about the different kinds of financial managers in your portfolio. The managers who run your disruptive innovation project--it doesn't have to be a secret, they just have to be protected from interference. And I propose a method in the book of creating what we call a sandbox for innovation, where the disruption innovation managers have the freedom to experiment, but the results of those experiments can be shared widely throughout the company, and if any general manager feels threatened, we have special protections.

It's not about protecting the startup from the parent company. It's exactly the opposite. How do we protect the general managers from feeling threatened by the new innovation?

Once you do that, as they did in the case of Intuit, then you create a context where innovation can happen. And here's the most important part of the SnapTax story. I interviewed the team for the book, and they said, "You know, the best thing about working at SnapTax is we had an island of freedom where we basically could experiment as much as we wanted. We were never asked to give reports unless we had something to report, so we didn't have to give regular reports. So when we discovered something new, we got to tell our management. And we had these great tools to run these experiments."

I said, "OK, how did you get the island of freedom, where did it come from?" And they said, and I'll never forget this: "Huh ... never thought of that. I don't know." They didn't have a clue where it came from because this is the thing that managers get wrong. It is not the job of the innovators to create those platforms. That's the job of senior management.

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