An Interview with Michael Docherty
I had the opportunity to interview Michael Docherty recently to get his views about disruptive innovation.
Michael Docherty is CEO of Venture2 and the author of the new book Collective Disruption: How Companies and Startups Can Co-create Transformative New Businesses. Mike brings unique perspective to his work, having been a successful senior corporate executive, entrepreneur, and venture capitalist. In this interview, he shares his insights about the opportunity for established companies and startups to collaborate earlier and more deeply in co-creating new business opportunities.
1. Let’s start with the book’s title – it’s an interesting one. What’s behind the title of Collective Disruption?
If you ask professionals, especially executives within large companies, what images and thoughts come to mind with the word ‘disruption’, it’s usually not good. Disruption is too often thought of as something that you didn’t see coming – something that happens to you by outside forces, especially by startups. It doesn’t have to be that way. Collective Disruption is about changing that paradigm and learning to embrace disruption through collaboration.
I know that the term disruption is also an overused one these days. And it’s certainly taken on a broader definition than Clayton Christensen’s original definition. In the book I frequently refer to transformative innovation. Whatever label we give it, I’m addressing the type of innovation that can redefine companies and industries and is about helping to transform companies by creating whole new businesses or growth platforms. Transformative innovation is therefore not sustaining or incremental innovation aimed at maintaining today’s business.
Part of my thesis is that we need an innovation portfolio that includes a healthy weighting toward core business innovation and adjacencies, but at least a small portion of our efforts aimed at transformative innovation – our future core businesses. But that doesn’t come naturally to large companies. So, this book outlines a new path through collaboration with entrepreneurial partners.
2. There have been a lot of books written over the years on the topic of open innovation. Isn’t what you’re calling for just another spin on open innovation?
This isn’t another book about open innovation, but that foundation is important for my premise: that large companies and startups can co-create transformative new businesses.
In my view, open innovation programs have been too focused on “transactional approaches” and incremental core business efforts. Corporate R&D teams are writing scouting briefs, posting them to their websites and to the same online marketplaces, and asking for next-generation packaging, ingredients, or form factors. Where’s the long-term competitive advantage in that? It’s much easier to look for solutions for near-term to midterm core business problems and insert them into our product/ service development processes than it is to develop deeper and earlier- stage collaborations with startups and entrepreneurs who might be the same ones to disrupt our business from the outside.
3. What was your motivation to tackle this subject of co-creation between corporates and startups? Why are you writing this book, and why now?
I’ve been working at the intersection of corporate innovation and entrepreneurship for several decades. I’ve been a corporate executive, startup founder and venture investor, so I’ve had the benefit of seeing first hand how some of these new approaches are emerging. I really believe that we’re on the cusp of a transformation in the way innovation and new business creation is accomplished.
Large corporations need new sources of growth, but struggle to embrace entrepreneurial, high-risk opportunities. Many startups are great at using speed and agility to incubate breakthrough ideas, but lack access to brands and distribution for scale. Large companies and startups need each other like never before. Together, they can collaborate earlier and more deeply in creating and scaling transformative innovation and new business opportunities. But it’s not easy. It’s going to take new skills and new approaches to win at this new game.
4. You mentioned that companies need to recommit a portion of the innovation portfolio to transformative innovation. From your research and work, what’s going on in companies with transformative innovation and how does that tie into the need for corporate/startup co-creation?
Incremental innovation to support today’s core business used to be enough to grow the business. Now, this is what it takes just to stay in the game. So, companies need to make sure they are devoting a portion of their efforts toward transformative innovation and new business creation.
But here’s the problem: all the things that make large companies great at managing today’s business, make them terrible at creating tomorrow’s transformative new business opportunities. That’s where co-creating with startups and entrepreneurs come in.
In the first part of the book, I focus on how the innovation game is changing and how it’s playing out across big and small companies. I discuss the difficulties large companies are having in generating and implementing big new ideas and how entrepreneurs may hold the solution. I discuss open innovation, with a focus on how to move beyond transactional approaches to more relationship-based approaches including innovation networks.
In the second part of the book, I look ahead to the ways in which collaboration and co-creation can be harnessed for new business creation and transformative innovation. Adapting lessons from venture capital firms and the lean startup movement, I detail the ways in which large companies can embrace this ecosystem concept and move forward and make it a reality. I provide a framework for collective disruption, and support that with numerous case studies from Cisco, Unilever, Jarden, Lowe’s and others who are succeeding with these approaches today.
5. There’s a lot of interest in corporate circles in “lean startup” principles being applied in the enterprise. How does that fit with your collective disruption model?
Lean startup approaches apply an iterative process termed “build- measure-learn” to take an idea from light bulb moment to marketplace fruition. Far from the seat-of-the-pants imagery that many of us have when it comes to entrepreneurship, the lean startup method prides itself on being a scientific process. Efforts are launched and measured. Data are gathered and processed so that they are instructive. Learning is validated at steps along the way so that a new idea doesn’t just fly or crash but moves through the growth process in a systemic way.
Can it work for the Big Guys? The answer is yes. The answer is not only yes but also yes and it’s already happening. However, far too many big companies stumble when they attempt to apply lean startup principles, largely because they attempt to do it in a big-company way that is wholesale. That simply won’t work.
That’s where the need for adapting comes in. Lean has to be applied differently to meet the needs and parameters of the bigger firms.
In the collective disruption model, big companies need to adopt many of these lean startup methods in order to work at the same cadence of entrepreneurial partners. That said, I’m not telling big companies to try to become startups. Large companies do many things better than startups, and we don’t want to lose sight of these strengths as we pursue transformative innovation. Large companies’ ability to bring business discipline, market focus, and scale is a competency that startups can’t duplicate. Startups can sometimes be chaotic, and some of them focus too much on technology development and not enough on the market and on strategic goals. We want to harness the best of both worlds in creating new sources of growth.
6. So this is about earlier and deeper levels of collaboration with startups and entrepreneurs. What are the biggest challenges companies are facing in undertaking this kind of work?
There are a lot of benefits to the approaches I’m highlighting, but definitely some challenges as well.
Co-creating between corporates and startups compounds control and intellectual property issues. Who owns the idea? Who is first in line for the payoff? Who’s on the hook in the case of a lawsuit? These are easy issues to address when dealing with either a company or a startup. But when collective disruption creates an ecosystem fluid with hybrid arrangements, the lines blur. Sorting out the legal issues around these approaches can be a complicated process. I don’t have an easy answer, but there are some practical approaches to mitigating these risks that I talk about in the book. And others are navigating this landscape successfully.
Collective disruption requires the mixing of cultural mindsets. While it sounds exciting to have young innovative technologists sitting down with your brand managers, keep in mind that those two mindsets aren’t always a match. Managing communication between the cultures and facilitating an environment of mutual respect are key challenges.
Another challenge for corporates is that you don’t own the talents that you are nurturing and influencing to achieve your goals. In the end, the truth must be faced: your ecosystem does not work for you. You may have contracts that bind you, memos of understanding, licensing agreements. But, ultimately, that talent may take a new direction without you one day. It is a risk that the old walled castle R&D approach never had to face, but it is a truism of the new landscape.
7. In later chapters, you provide some interesting business incubation models for companies and startup collaboration. Can you provide some specific examples of these models in practice?
Companies are finding new ways to incubate businesses by bringing entrepreneurs and startups into their businesses or moving transformative innovation to the outside via accelerators and other models. In chapter 8, I discuss and provide examples of how incubation can be done in at least three ways:
- Inside-in (e.g. integrated): This model is a focus on internally managed efforts and is not mutually exclusive of the choices below. A corporate team internally manages transformative innovation efforts but has the autonomy, skills, focus, and partnerships to create breakthrough opportunities and new businesses. This is a difficult model to pull off, but it can be done. For example, IBM has been managing its Emerging Business Opportunities (EBO) group since 2000 and has delivered $26 billion in new business since it was created.
- Inside-out (e.g. accelerators): Dedicated corporate accelerators and corporate tie-ins to existing accelerators are hot trends today. In the book, I provide practical advice on the pros and cons of the corporate accelerator model and some examples of several variations on the model. Coca-Cola’s Founders Program is a unique model where Coke is making its assets available to a select group of recruited entrepreneurs to co-create new businesses. Wonolo is one of these startups. It’s focused on providing on-demand staffing for hourly/daily jobs, such as retail shelf restocking.
- Outside-in (e.g. embedded entrepreneurs): Another model that can work is imbedding external partners and entrepreneurs within corporate ventures. It’s difficult to pull off without the right entrepreneurs who can navigate the corporate landscape and avoid the landmines. Jarden Corporation was interested in leveraging their Crock-Pot brand to move beyond durable products and into gourmet foods (in a direct-to-consumer model). Since they lacked this expertise, they hired a proven food-tech entrepreneur and embedded him within Jarden to lead the venture through the initial incubation phases.
8. From these examples, it sounds like this is a movement that’s already underway. Where do you think we are in the lifecycle of companies adopting collective disruption models and where is it all heading?
I think we’re early in a long-term trend toward the collective disruption model. But, as I show through the many examples from P&G, Unilever, Jarden, Cisco, Whirlpool, Coca-Cola and others, it’s already underway today.
The future of growth and innovation is not via a singular focus on internally developed ideas nor is it big companies simply acquiring external technologies and commercializing them. The coming virtual enterprise is one that’s connected in a web of relationships with customers, suppliers, and a curated group of entrepreneurs and startups who matter to each other—all of this supported by crowdsourcing and open innovation for access to even larger groups of ideas and resources in the world at large.
I’m very excited to be part of this. I don’t think that there’s ever been a better time to be a corporate innovator or an entrepreneur!
Thank you for taking time out of your busy schedule to do this interview about the content in your new book.
In a quick skim of the content it looks like Michael has done one of the best jobs so far of anyone in laying out a coherent approach to doing open innovation successfully (and I’m pretty picky).
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Braden Kelley is a popular innovation speaker, builds sustainable innovation cultures, and tools for creating successful change. He is the author of the five-star book Stoking Your Innovation Bonfire and the creator of a revolutionary new change planning toolkit coming soon. Follow him on Twitter (@innovate) and Linkedin.