Innovation DNA: How Legacy Companies Can Think Like Startups
Large, established corporations often struggle to innovate with the speed and agility of young startups. The processes and structures that helped stabilize them often restrict the creativity and experimentation needed to grow. Yet it is possible for legacy companies to adopt some of the approaches used by startups to rapidly develop and test new ideas. By combining techniques learned from startups with the support and credibility of the core business, large, legacy corporations have even greater chances of achieving innovative success.
Moog’s Strategic Innovation Journey
Consider the case of Moog, Inc., a worldwide designer, manufacturer, and integrator of precision control components and systems for aerospace, defense, industrial, and medical devices. Moog is an engineering-driven organization with innovation in its DNA.
However, about seven years ago the company’s engineers were deeply enmeshed in product features and technology. This resulted in a complex tangle of several innovation projects throughout the company without a plan for building a business around the innovation investments.
By making strategic choices and separating startup units while maintaining their connection to the core, Moog shifted focus to three innovative businesses to successfully launch and grow to the scaling stage.
Outthinker Networks President, Claudio Garcia, interviewed Moog’s Chief Strategy Officer, Prasad Padman, who shared his insights on how any large, incumbent corporation can learn to innovate like a startup.
Separate the startup, but stay connected to the core
One of the first lessons Moog learned was to separate the new startup team from the legacy business while maintaining a degree of connection to the core. This allows the startup to move fast without being bogged down by existing processes but still benefit from core resources.
Initially, Moog attempted to run innovation projects as part of the core business. But this approach led to projects being treated as science experiments rather than strategic initiatives.
Next, they tried to pull the startups entirely out of the core. That didn’t work either. “We realized when you pull the businesses out of the core, you lose the unique advantages that the core brings in,” said Padman.
The breakthrough came when they separated the new ventures from the core but kept them under corporate control while closely monitoring progress. They assigned top-performing P&L managers to run the new business and hired fresh talent from the startup ecosystem. This provided more freedom while maintaining accountability.
“We realized when you pull the businesses out of the core, you lose the unique advantages that the core brings in."
Bring in outside perspectives
Realizing that their transformation journey required learning from external ecosystems, Padman’s strategy and innovation team engaged with startups in Boston and Silicon Valley. They sought to understand how successful startups operate and bring those insights into their organization. Their approach emphasized the importance of blending the startup way with the corporate environment.
One of the crucial steps was creating a separate advisory board for the startups, composed of venture capitalists, industry experts, and strategic consultants. These advisors provided invaluable guidance, helping the startups navigate the challenges unique to their growth stage.
Experiment, test, and pivot quickly
Legacy corporations are used to judging performance annually and want predictable growth. Startups often take time to find product-market fit and demonstrate scale. Corporate leaders must be patient with startup teams and allow time for validation and experiments, without demanding immediate hockey stick growth. Think long-term about the future opportunity.
Many legacy companies will put together a five-year plan and march ahead with very little deviation from the plan. Startups iterate frequently based on constant feedback and data from the market. Corporate startup teams should similarly pivot quickly based on what they learn from customers and partners.
Have a process to periodically review priorities and change course as needed. Avoid rigid long-term roadmaps. The startup will likely need to evolve.
Make choices and develop an exit strategy
Moog knew it could not pursue 30 plus innovation projects at once. The senior leadership team made strategic choices to narrow down and focus on the three ideas with the most potential for growth. This step allowed them to allocate resources more effectively and prioritize the projects with the highest likelihood of success.
Finally, corporate startups should consider potential exit strategies, even as they launch. If the business succeeds and scales, the default exit option is to integrate the new venture into the core. But integration with the core need not be the only exit strategy. The new venture may no longer fit strategically within the core company. Who could acquire the unit? Could you spin it out and later buy it back? Having exit options offers more flexibility as corporate startups develop and grow.
Padman’s journey in running innovation projects within a large, legacy corporation offers valuable lessons for strategy and innovation leaders:
- Combine the startup mindset with corporate resources: Transitioning to a startup mindset within a legacy company involves separating innovation projects from the core business while providing access to corporate resources– including customers and expertise– to accelerate startup success.
- Learn from external ecosystems: Seek inspiration and insights from external startup ecosystems to infuse fresh ideas and strategies into the organization.
- Experiment, test, and pivot: Recognize that the timeline for startup success differs from corporate quarterly earnings and annual revenue reports. Embrace failure, capture learnings, and pivot quickly.
- Make choices and have an exit strategy: Prioritize projects with the highest potential for growth and develop clear exit strategies.
Running innovation inside a large, legacy company is not without its challenges, but with the right strategic approach, organizations can turn innovative ideas into profitable ventures while leveraging the strengths of both the startup and the corporate worlds.
The Outthinker Strategy Network is a global peer group of heads of strategy at $1B+ companies who are determined to move their organizations to the next level. Members engage in curated learning, practical conversations, and networking opportunities to be more successful in performing their roles, solving their top challenges, and keeping their organizations ahead of the pace of disruption.