By: Chuck Frey
In his excellent book, Leading the Revolution, author Gary Hamel […]
In his excellent book, Leading the Revolution, author Gary Hamel points out that most companies are extremely risk averse when it comes to developing and nurturing ideas and innovations. Too often, nascent ideas are strangled by corporate policies that tend to kill, rather than nurture, promising new ideas and business concepts.
As an alternate approach, Hamel recommends drawing upon the successful new business model pioneered by Silicon Valley. Despite last year’s technology market crash, Hamel maintains that the venture capital method of funding new companies and innovations is actually quite efficient. Even the most successful venture capitalist can’t predict which entrepreneur’s idea will become the next Google or the next Microsoft. So it picks those ideas and companies that look like they have the best potential for success, based on some very pragmatic criteria, and invest a modest amount of “seed” capital in each opportunity. It then watches each company and provides advice, connections and additional, incremental funding as it deems appropriate.
This model is based on the fact that out of investments in 20 fledgling ideas and companies, perhaps only one or two may become big successes. But at this early stage, it is impossible to predict which ideas will be the winners. But by building a portfolion of innovation opportunities, the venture capitalist is more likely to find one huge opportunity, which will more than cover the losses on those business concepts that didn’t pan out.
Hamel recommends that organizations develop an internal version of this venture capital funding model. He suggests organizing an evaluation panel, which would select the best potential ideas from all parts of your organization. It would then determine which innovations have the best potential of success, and would give each project team a small investment to begin fleshing out a business case and a potential implementation plan.
In this way, companies can encourage, rather than discourage, the seeds of innovation within their employees, and can nurture them without a big outlay of funding. It’s also a very practical alternative to the tendency of large companies to either ignore promising new opportunities or to “bet the farm” on one idea or innovation — both of which involve unacceptable amounts of risk. “To find a breathtaking breakout opportunity, every company must build a portfolio of business concept experiments,” Hamel explains.
Hamel lays out this strategy in great detail in Leading the Revolution, providing a valuable, practical blueprint that organizations large and small can benefit from.