7 strategies for launching a digital startup inside your enterprise

These days, you’re going to find technology-driven internal startups in the least-expected places. They can even be found within some of the world’s postal services — seen as staid, quasi-government organizations lumbering along on their long-time missions of delivering physical goods.

Recently, as part of my work with Forbes Insights (the research arm of this publication), I had the opportunity to speak with Joseph Brophy, who has been helping to lead the formation of New Zealand Post Digital, which is essentially a digital startup that has been launching new business lines within the 134-year-old organization that was last reorganized in 1987. (Full report here.)

The postal service established an internal team of digital “intrapreneurs” to explore and establish new channels to reach customers. “We were searching for new business models in what everyone sort of recognizes as a declining postal business model worldwide,” says Brophy. “Our goal was to accelerate growth in e-commerce and parcels and logistics.” Ultimately, Brophy adds, the goal of the initiative is to leverage digital approaches to enhance the customer experience and introduce design thinking to the nation’s postal service.

With the wide availability and easy accessibility of cloud-based services, everyone across enterprises are in positions to essentially launch their own information technology-based ventures. Startup culture, it seems, is only a click away.

Peter Sondergaard, Gartner analyst, proclaimed that every business unit is now, or should be, a “technology startup,” noting that “digital startups sit inside your own organization, in your marketing department, in HR, in logistics and in sales. Your business units are acting as technology startups.”

Is it a fair statement? That seems to be where the money is. Gartner estimates that 50 percent of all technology sales people are already actively selling direct to business units, not IT departments. That being said, there’s good reason to keep any “startup”-like ventures shielded from the rest of the business. For one, most startups fail — the vast majority do not develop into dazzling new Facebooks or Ubers.  Most established enterprises will quickly pull the plug on any business unit that bleeds money. One in four don’t make it past the first year, and a majority don’t make it after three years, recently compiled research shows.

Secondly, startups do not remotely resemble established businesses, or, for that matter, small businesses. Steve Blank, who has been studying and pontificating on startup culture for some time now, says startups are in a class all by themselves. “A startup is a temporary organization designed to search for a repeatable and scalable business model,” he writes. “A company is a permanent organization designed to execute a repeatable and scalable business model.”

So, before enterprises get too excited about injecting “technology startup culture” into their organizations, they need to wholeheartedly get behind the true meaning of startup. Here are some tips to begin the journey:

Keep it separated. It’s important to keep things separate from the main enterprise, writes Briana Fabbri, a member of the founding team that launched NetCredit in 2011 as an internal startup at Enova International, a global financial services provider, in Boston Business Journal. “Set up a separate, autonomous team to ensure that the new business gets the proper focus and is not overly burdened. Empower them to ideate as if they were an independent company, and not to be limited by internal cannibalization concerns.”

Don’t fight failure — embrace it. The key to innovation is the ability to keep testing and experimenting. The ability to do so rapidly — what is now referred to as “fail fast” — will keep the venture on top of its game. Of course, this is an anathema to standard enterprise thinking.

Don’t get too attached to business plans. I had the opportunity to speak with Steve Blank a couple of years back, who explained that business schools and investors have “treated startups like they were smaller versions of large companies,” including the requirement that a five-year business plan be followed.  That’s not the way to foster and grow new businesses, he continues. “Business plans and five-year plans work quite well in existing companies, where you know your customers, and you know your competitors, and you know your channel, and you know all this other stuff. What we never realized is in startups, there’s a series of unknowns rather than knowns. While large companies might have to execute a known business models, startups actually search for them.”

Get out and build the startup with customers. Large enterprises tend to get separated from their customers by three degrees of separation. “If you’re searching for a business model, there are no facts inside your building,” says Blank. “You need to get out of the building and use the collective intelligence of your potential customers.”  The key is to work iteratively with customers, developing ideas and products with their input every step of the way — versus taking the attitude of “build it and they will come.” For NZ Post Digital, Brophy reports that his startup team started with a blank slate, focusing first and foremost on customers. “We spent a lot of time developing customer experience and design thinking,” he says.

Move things fast. Don’t let startup teams languish, or spend weeks and months agonizing over features in their offerings, or worse yet, the back-end infrastructure. It’s more important to get things out to customers as rapidly as possible, working with them on features that are important.  The first focus has to be “on the product itself and the customer acquisition channel and the conversion funnel,” says Fabbri. “Put your focus there from day one. If you get distracted with supporting things up front, you might miss some pieces. We didn’t need retention emails for customers on day one.”

Cut the venture loose from the usual measurement. Don’t obsess over profits — at least initially, Fabbri also advises. The focus needs to be on learning, and shaping the product or offering to meet the needs of the customer. Don’t even employ standard key performance indicators (KPIs) or other measures, Blank advises. “Staff functions in finance, human resources, legal departments and business units developed key performance indicators, processes, procedures and goals to measure, control and execute,” he says. “Paradoxically, these very KPIs and processes, which make companies efficient, are the root cause of corporations’ inability to be agile, responsive innovators.”

Don’t get mired in a technology platform. Platforms — and cloud services — all have their own limitations or ways of doing things. Don’t wed the new venture too closely to a platform where it could get locked in — or to the centralized systems of the main enterprise. There are many cloud-based service offerings that provide multiple alternatives, enabling intrapreneurs to quickly spin up servers and applications as needed, then retire them as circumstances change.

This article was written by Joe McKendrick from Forbes and was legally licensed through the NewsCred publisher network.

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