Corporate startups. First findings

I've got a few comments and emails to the blog I published comparing typical and corporate startups. A special thank to Richard Jones who wrote a lengthy comment answering each of my 10 questions. Driven by the desire to understand the matter I read Corporate Entrepreneurship by Vijai Sathe which sheds some light on the problem. The book is a great guide for corporate entrepreneurship and although it looks at the situation from an enterprise's standpoint nevertheless with hundreds of references and numerous examples bears on the discussion.

So after reading the book and cumulating the emails I want to add to the comments an answer to the first question "What benefits does the corporation get from the venture or why the idea of its former employee should prevail over somebody else's who comes from outside?"

Will Herman brings three theoretically possible options: the company wants to save the employees who otherwise may go on their own and by doing something similar become a competitor, the company wants to free the employees from internal bureaucracy, the company wants to attract startup-like people that otherwise won't join a big company.

The first reason is is about the people, not the product or the project so, it seems, it falls out of the startup category described in the original blog. The second reason is very possible. Indeed, Clayton Christensen in his Innovator's dilemma brings this reason as one of the most important for spinning a division off the corporation. The third reason probably makes sense for anti-corporate folks (which I know a lot in person) but I doubt there is a star on Earth worth opening a "startup" just to accommodate her hatred of the corporate world.

The question I found a suggestion in the book was the third question in my blog. What disadvantages does the company get investing into an idea of its employees (at least in a form of an internal team)? A risk here is the rewards the group may get. Vijay is highly opposed to the idea of giving the "Silicon Valley" conditions to the new venture's folks (although he talks about creating new ventures inside the company in this case). He warns that "the perceptions of inequity hurt employee morale and collaboration within the division". So the only case when Vijay sees the "Silicon Valley" conditions possible is when 1. the group of people is clearly separated from the mothership and 2. their success or failure is perceived as solely dependent on their own (they don't use the corporate's resources).

In a case when the division isn't separated Vijay brings examples of exceptional bonus programs for the participants making the bonus conditions as challengable as it can be in a real startup. Make net profit in 4 years of X dollars and get your double salary. Increase the profit by 10% and get other 100% of bonus, 20% - other 100%. So although the financial incentives are not as rainbow as the team could get in a normal startup. looking at them together with the low risk the team takes (and high opportunity cost for them to leave the corporation and start something from scratch) it probably makes it quite comparable to the typical startups.

I don't have all the questions answered yet and lack of examples of corporate startups (in my definitions) so you're welcome to comment or bring links to other sources. Meanwhile I continue researching the topic. Thanks to all who commented.

Technorati tags: startup, corporate venture, internal startup