The innovation gap between small businesses and big businesses

In a Harvard Business Review blog post, Ron Ashkenas asked the question “Can a Big Company Innovate Like a Start-up?”.

At the time the post was written (a month ago), Google’s Eric Schmidt was stepping down as CEO and Google’s co-founder Larry Page was taking the role instead. Based on the official statements that followed, it became clear that Google was trying to get back to a place of nimble innovation that it once occupied.

On the HBR blog, Ashkenas wondered if it was possible for large companies to achieve the fast, bleeding-edge innovation that start-ups are more commonly known for. And he correctly points out that employees of big businesses probably don’t innovate as often because they have a different set of risk/reward measurements.

WHY SMALL BUSINESSES INNOVATE MORE SUCCESSFULLY THAN BIG BUSINESSES
I see this all the time in the companies of my own clients: The small business entrepreneurs and start-ups are passionate about the business and totally bought-in to the opportunities that exist through innovation. On the other hand, the big business employees are more focused on success in their own specific functions, and in job security, and the CEOs of these companies are often insulated from the innovative side of the business.

As companies grow, they become risk-averse, partly because their employees are no longer bought in to the company in the same way that the early start-up employees were. I’ve been part of start-ups and we were willing to work around-the-clock for next-to-nothing to see the company succeed. There was something thrilling about being part of that creation process. I’ve also been part of big, entrenched companies, and that just doesn’t exist.

Big companies also become risk-averse because their brand has much more equity, and a wound from negative press can cut deeply. Compare that to the start-up that has a brand but very little brand equity. They can make mistakes and they know they’ll get over those bumps.

In the HBR blog post, Ashkenas offers three pieces of advice for big businesses that want to innovate like small businesses: He says they should (1) Set up a venture group, (2) Carve off skunk-works, and (3) Hold innovation contests. (You can read the blog post here: Can a Big Company Innovate Like a Start-up?.)

ADDITIONAL OPPORTUNITIES FOR BIG BUSINESS TO INNOVATE LIKE A SMALL BUSINESS
I think those are great ideas but I also think that big businesses can do so much more: It starts with revising the corporate culture so that all employees are motivated to see the company as a whole succeed but are also willing to accept risk to a greater degree. To make this cultural change, HR’s hiring processes and payroll metrics will need to change. In other words, don’t hire “lifers” who want a salary; hire aggressive entrepreneurs who would prefer to shine while also enjoying a greater degree of control over their remuneration. (I’ve seen this work very successfully in a multi-billion dollar organization).

Another opportunity where big businesses can change is in decision-making. In many of my big-business clients’ hierarchies, decisions rest at the managerial level and the worker-bees end up focusing on job security because they don’t have the authority to take action on innovation opportunities. Grass-roots innovation (the best kind of innovation!) can take place when people have the authority to act quickly.

Which leads me to my next idea: Big businesses need to define innovation appropriately: We tend to think of innovation at the product/service level. However, innovation opportunities exist everywhere. If a front-line staffer discovers a faster way to do their job, they can save the company a small amount of money. But if that innovation is shared among other front-line staff, the company can enjoy larger savings. And that’s just one example. Businesses can innovate in their processes, in their sales funnel, in their technology, and so much more. People will naturally innovate to find ways to make their jobs better; a large organization just needs to pay attention to what its staff is already doing.

Lastly, employees in big businesses are scared of innovating because it could risk their job security. (“What happens if the manager walks by and sees me doing my job this way? It accomplishes the same thing faster but it’s not how I’ve been told to do my job… AND my manager doesn’t have the patience or foresight to allow me to explain why I’m doing it this way”). What businesses need to do is create a framework for evaluating innovation successes and failures in order to empower employees to make changes without fear of reprisal (within reason, of course).

Big businesses can be innovative, and I think they can be as innovative as small businesses. Unfortunately, it requires such a massive cultural shift, I suspect it is next to impossible to achieve.

Build your business around your sales funnel for greater success and profitability

I hurt my back this fall while playing sports. At first I thought I could just walk it off or ice it, but it persisted: I could barely walk, I could barely sit, and I slept with great discomfort. Fortunately, the doctor gave me some pretty serious meds which, along with some careful exercises, got me to normal.

During the couple of weeks that I was recovering, I noticed something pretty surprising: We use our back for basically everything. Now, maybe that sounds funny to some of you, but it’s something I always took for granted before. I’ve always been in generally good health and only had one minor broken bone, so I never paid much attention to what parts were at work when I was performing various tasks. But once I pulled some muscles all down one side of my back, it became quickly apparent exactly how much my back is involved in everything I do. Even while I sleep, my back is the supporting framework for my body, keeping everything where it should be.

Now, I can stub a toe or get a headache, and I can continue to function without a lot of disruption, and only that part of my body hurts. But when I hurt my back, it was noticeable all the time because of the central role my back plays.

In the same way, your business’ sales funnel should be the “back” of your business! It should be the framework or central element around which your entire business is built. Now, lots of businesses will build their business around an idea or a tagline or a brand. These are important elements, but on their own they do not produce a sale. They are merely tools and resources in a business.

Rather, the one and only part of a business that is as critical to the function of your business as your back is to the function of your body is your sales funnel. Your sales funnel brings in leads and propels people through until they become customers, depositing revenue into your business, which pay the bills and contribute to your profit.

You can take away the idea or the tagline or the brand and you will still have a business. It might not be as attractive or as successful, but you can still operate. However, if you take away your sales funnel, you have nothing. You do not have a business!

So, how should you build your sales business around your sales funnel?

If you are just starting out in business, the answer is easy: With the help of competitive research and strategic planning, you can create a sales funnel that works smoothly and effectively to quickly move contacts through toward a profitable sale. Spend a lot of time and resources up-front to create your sales funnel. Once you have your sales funnel in place, add the other elements in: Tie in marketing across each stage in the sales funnel. Tie in sales activities in the prospects stage of the sales funnel. Tie in customer service activities across each stage in the sales funnel. Tie in purchase fulfillment and accounts receivables at the point where your prospects become customers. Tie in accounts payables and administration to each stage. Tie in Human Resources to all stages, too, so that they are hiring staff according to the activities that need to be performed at each stage.

If you are already running a business and you realize you need to create a sales funnel because you don’t really have one that is strategically designed, you’ll have to retrofit it. That’s okay, I’ll show you how to do it but you’ll have to come back tomorrow to read how!

Just read: ‘Success Can Make You Stupid’ at FastCompany

If you were awesome once, you can’t help but be awesome again, right?

Dan and Chip Heath (of Made to Stick) say no. In this interesting article, Success Can Make You Stupid, the Heath boys show how many of Hollywood’s movie successes are self-fulfilling prophecies — based on established links of trust between directors, producers, actors, key grips, and theater chains. Their premise is this: People who have worked together and found success once will be more likely do another project with those people, spending more money and marketing more diligently, thus creating the self-fulfilling prophecy of a successful movie. (Without explicitly stating it, they are asserting that if the same amount of money and time and effort were put into other movies, they would be as successful).

It’s an interesting idea, and very accurate and it’s a phenomenon that happens in business, too. Chip and Dan remind us that it happens in HR all the time, where the star performers are TOLD they are star performers (and better enabled) and thus become star performers. But it happens elsewhere, too: Strategic initiatives, new products and services, marketing systems, you name it.

In other words, if you decide some aspect of your business is going to be successful and you invest in it (either investing in it more than other aspects of your business or to the exclusion of other initiatives) it will very likely become successful.

We see it in the stock market, too: A stock that everyone is talking about becomes a stock that everyone buys. And when more and more buyers buy a stock, the stock goes up in price… and people talk about it more and buy it more.

So, how can you use this concept to your benefit? It comes down to deciding to focus on one element of your business as the key opportunity that will make your business more successful. Then focus on it. Spend money on it. Work on it. Build it.

Role-plays versus case studies: Which is better?

During my career in sales, and during my stockbroker and MBA studies, I encountered both role-plays and case studies as tools for teaching and learning. Later, as a writer who occasionally writes training content, I have the opportunity to use both. I always prefer case studies. Here’s why:

Role-plays are good in theory and they are supposed to give the learners practical experience in a safe learning environment. For example, in both my sales and stockbroker training, the role-plays we had to do were always about elements in the selling process (like how to uncover needs, how to transition, how to close, etc.).

Case studies offer a scenario (theoretical or historical) that outlines the situation and presents a problem that the learner must solve. For example, in my stockbroker studies and my MBA studies, I read numerous case studies where I had to identify the best investment portfolio mix or perform financial analysis or uncover an organizational problem.

WHY CASE STUDIES ARE BETTER
The problem is, role-plays are usually conducted by like-minded people for a single purpose and to exercise a single skill or technique. For example, the role-plays I experienced were conducted between two salespeople (one acting as the customer, the other as the seller). In role-plays about overcoming objections, both parties were already convinced of the value of the product and the person playing the customer gave half-hearted objections that were easily countered with by-the-book responses from the seller. Role-plays, you might say, are too neat and tidy. Role-plays become a way to parrot the best practice rather than develop a skills.

Case studies, on the other hand, push the learner to learn. Case studies, especially those drawn from real life, are complex and messy and sometimes there is more than one possible answer… and sometimes there are problems that cannot be solved. Case studies push the learner to go deeper, to get creative, to bring all of their skills to bear on the situation to arrive at a solution. Case studies aren’t “safe” and there is a lot of room for error. But I like them because they require all skills to be used.

IN MY DEFENSE
[Some of you might point out that role-plays and case studies teach completely different skills: That role-plays maybe teach the mechanics of a solution while case studies might offer a more theoretical application. But I disagree. Most of the occasions that I’ve encountered role-plays and case studies (and I’ve encountered them both as a learner and as a writer) they were used in similar ways: To teach a particular methodology, whether that methodology was breaking the ice, overcoming objections, analyzing a business problem, or performing financial analysis. The occasions when a role play serves a different role is when it is meant to build a skill-set through repetition. In those cases I would use the term “practice” instead of role-play.]

WHAT DOES THIS MEAN FOR BUSINESS OWNERS?
When you develop training for your employees, consider carefully the tools you’ll use to teach them. I don’t believe that role-plays are nearly as effective as case studies.

Identify the skills or methodology you want to teach and create case studies that require those skills or methodology to solve. Add other details — sometimes to act as red herrings and sometimes as a “foothold” for your learners to use to solve the situation. Encourage creative solutions but make sure that they are paying attention to the details of the case study.

Teaching your people in a way that requires them to use all of their skills to creatively solve a problem is the best way to create an effective workforce. Case studies help you do that.