Innovation Differences – Big vs. Small Companies

by Stefan Lindegaard

Innovation Differences - Big vs. Small CompaniesAnyone who has worked for both a large corporation and a small, entrepreneurial company can talk endlessly about the differences in the two cultures and mindsets. The differences can be stark. Let’s look at a few that impact the way the two types of organizations approach open innovation:

1. Speed of Decision-Making

Large corporations, with their abundance of silos and bureaucratic levels, often require considerable time to make decisions. Analysis paralysis is not uncommon, with decisions that seem simple to an outsider taking ages to make. In contrast, in smaller organizations decision making can be fairly rapid.

Thus, when these two types of organizations come together in open innovation, the smaller company may find the speed of progress frustratingly slow. At the same time, the people from the large corporation may be troubled by the constant please of the smaller partner to move faster. Both sides may be left feeling the other side just doesn’t understand them.

Intuit, a California-based maker of financial software, understands that the reply time they can offer potential partners in their ecosystems is critical for how they are being viewed on their efforts. As a result of this understanding, they try to provide a clear go / no go within just 48 hours when they stage their Entrepreneur Days. This can take weeks or even months for many other companies.

2. Attitude Toward Risk

How large and small companies feel about risk-taking can vary considerably. Particularly where the smaller company is a start-up or still in a fast-growth stage, the organization at all levels may wholly embrace risk because, at this point, the whole business is a risk. However, in a large corporation that has been around for decades, people may be far more vested in keeping things are they’ve always been than they are in trying something new and potentially risky. Here again, this difference can lead to frustration on both sides when two such organizations engage in an open innovation partnership.

3. Allocation of Resources

In a small company, every penny counts. Resources, which can be scarce, are allocated based almost solely on whether they will boost the bottom line. This bottom line focus may not be so distinct in a larger corporation. With more abundant resources – at least in comparison to smaller companies – people in corporations may be relatively free spenders, although this is certainly not always the case and hasn’t been in recent years as the recession has taken its toll.

However, the small company may expect their larger partner to foot every bill and not understand that even big companies have their limits. The result of such a relationship can be similar to problems that arise when two people with very different attitudes toward money and spending get married.

The list is much longer. What would you add?

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Stefan LindegaardStefan Lindegaard is a speaker, network facilitator and strategic advisor who focus on the topics of open innovation, intrapreneurship and how to identify and develop the people who drive innovation

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  1. Stefan

    In the past few months, I have been at the helm of an battery charging startup. We have recently begun negotiations with large companies, so this is subject of which I have a strong POV now, which will get even stronger in the near future. I agree wholly with what you say here, and I would add my usual perspective of resources as far as lawyers are concerned.

    One thing I have noticed with my own company is that there can be a real disconnect between the meaning of “innovation” between small and large companies. Some–perhaps most–large companies view innovation as a “super” product development team. These are the folks who look for breakthroughs, but these so-called “breakthroughs” are expected to slot into an existing product or project at the company. In contrast, at a startup the “innovation” is their whole business, and developed wholly independently of the products and timelines of the large company.

    We have already seen this when a Fortune 500 company selected us through an open innovation portal. The company was supposedly looking for innovations like our technology, but they effectively wanted it to fit into their existing infrastructure without much modification. They didn’t see that our technology could change the game for them because they were playing a different game than us. But even if they had seen that we were different, they wouldn’t have cared because they liked the game they were playing.

    Fortunately, we were able to see that this Fortune company was not going to be a good partner, and we didn’t burn much time on them and moved on quickly. (They seemed a bit surprised when we effectively told them “we’re not that into you.”) We learned much from this experience, and have modified our potential partner intake to specify “strong innovation mindset” because we recognize that unless a company is already wired to understand the opportunities that our technology will provide their company, they have a low likelihood of being successful in getting to market with our disruptive technology. And, if they aren’t successful, we won’t get paid.

  2. Hi Stefan,

    Great article you wrote there. I totally agree with your views on the difference between small and big companies in innovation. Would like to add on my personal view of another factor differentiating this two extremes. It is indeed very useful in terms of how different size companies respond to innovation.

    Perhaps another difference is the ability to adapt with changes from innovation. Smaller companies have a less rigid structure whereby the people usually have multiple skills and work cross functionally (matrix approach). Whenever there is a need for a change, it is easier to reshuffle their job scope and responsibility. As for larger companies, since most of their roles and responsibilities are very well defined (task function approach), it does not facilitate well with changes (perhaps it would take much longer and political issues may arise).

    Just my 2 cents!

  3. Stefan, great article, thanks for putting it together. As a former serial entrpreneur (4 tech startups, one of which did an IPO) who now works for a 22,000-employee privately-held financial services firm, I clearly see both sides of this equation. In addition to the differences you noted, I see at least two other significant differences.

    First, entrepreneurial firms have a laser-like focus on their business, while big companies explore lots and lots of different projects, effectively diluting their efforts.

    Second, while small companies generate revenue based on how good their innovations are, big companies are often forced to choose between funding an innovation or a “run-the-business” project. I see big companies striving to quantify ROI for innovations, but are unable to fund the entire project and never experience the full ROI they expected. Instead they choose to make baby-step efforts that may start down the path but don’t achieve the full business value of the innovation.

    Keep up the great work!

  4. Stefan,

    I blogged about some roadblocks a couple of weeks back at my blog: http://managewell.net/?p=1118. Though not explicitly on the lines of differences between big and small companies, but many of those roadblocks get obvious, or even aggravated in larger companies.

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