In many large companies, corporate start-ups are founded in order to achieve innovative agility and try out new ideas in an "unencumbered" environment in order to bring them to market maturity. There are however various potential traps that can lie in wait here. In this post, we will tell you which traps your audit team should be on the look out for when conducting an innovation audit. You will also learn about the most important pitfalls related to corporate start-ups.
Attorney Jan Schnedler reveals what the audit team has to pay attention to when conducting an innovation audit and where the usual traps lie when corporate start-ups are part of the innovation process. We present some of the 13 reasons why corporate start-ups fail below.
In our last blog post, we reported on the first 6 potential traps you need to look out for. In this blog post, I will present another 7 possible pitfalls regarding corporate start-ups:
7. Employees are not sufficiently incentivized
When all is said and done, at the very least, a virtual employee stock option plan or a bonus program should be considered to incentivize the employees of the spin-off. Employees should be in the same boat and at least feel a little bit like shareholders. A successful spin-off or start-up requires a commitment on the part of the employees that goes far beyond that of an employment relationship. The employees should be incentivized accordingly. Apart from a virtual stock option plan, there are numerous other ways of incentivizing innovation.
Tip: Consider incentives for employees in the spin-off.
8. Own accelerator programs produce mediocre spin-offs
Corporate accelerators, which are exclusively concerned with their own spin-offs, are usually not particularly successful, because an accelerator program can only really accelerate innovation if very good employees are employed and high-quality mentors are available. Due to the high costs involved, however, this usually runs contrary to many corporate strategies that concentrate on cost reduction, etc.. A good infrastructure is usually not economically viable for many own start-ups.
Tip: Cross-company pooling of accelerator activities.
9. The wrong consultants
A spin-off requires completely different consultants than an established company. Often, however, the same consultants (The Big Five) with whom one has always worked to date are also made available to the spin-off.
Tip: Appoint specialized consultants for start-up activities.
10. Entrepreneurship is a necessity
Entrepreneurship is not a job title or a profession. It is rather a motivation and a mindset, which however can be difficult to find or “set free” in mature, hierarchical organizations. Therefore, it is often worthwhile to bring external entrepreneurs into the spin-off, who can bring the right spirit with them.
Tip: External entrepreneurs can inspire spin-offs because they introduce new and agile thought patterns that they have not just simply read about in some text book.
11 Innovation culture cannot be ordered
A positive but underestimated consideration is the effect that a spin-off can have on the established company. In a number of cases, we have seen very positive effects on the corporate climate of the established company, as many employees followed the spin-off with great interest and it became clear that they would happily like to take part in such an exciting project themselves. This effect cannot be arranged in advance, but simply has to be left to develop of its own accord thanks to a clever setup and providing the right breeding ground.
Tip: Spin-offs can become role models. Make use of the indirect effects for your traditional innovation culture.
12. Processes must be left out of the equation
A spin-off company must not be subject to the same routines and regulations as the traditional daily business. Spin-offs must have the opportunity to experiment and fail, preferably quickly and cheaply. Certified processes put the handcuffs on any form of creativity.
Tip: Leave room for the creation of your own new processes. Do not over-regulate the structure and process organization of the new unit.
13. Spin-offs have gone out of fashion
Often, after a while, the management loses interest in spin-offs or entire spin-off programs are stopped after two or three unsuccessful spin-offs, even for those spin-offs that still had potential but had not yet got so far.
Tip: Be patient. Statistically speaking, more startups fail than become successful and success always takes longer than failure, so that in most cases a few insolvencies or liquidations have to be coped with before the entire program should be called into question.
About the author
Jan Schnedler is a qualified lawyer and the author of “Startup-Recht”. In his book, Schnedler not only provides a comprehensive overview of the legal aspects relating to all manner of different start-ups, but also explains it all in a form which is clear and easy to understand. After reading it, founders of start-ups should be in a position to make informed decisions, avoid mistakes or at least correct them. The spectrum of topics covered ranges from corporate forms and logo finding to investor contracts.