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Growth Through Innovation Series: Internal Incubators
This article is the seventh in a series about decoding the black boxes of innovation and incubation. Each article in the series is intended to be a self-contained unit, so please bookmark the first article in this series, so that you can find any piece you wish to see at any time.
Many companies have made moves to establish in-house incubators in the past decade, and for a number of reasons, those incubators have been tracking varying levels of success. For companies who get it right, it can seem like they just had the right organizational fit for an incubator, or that they discovered the secret sauce. For others, it can appear to be a completely arbitrary set of criteria that determines success or failure of their incubators.
The reality, however, is much simpler, but also not very intuitive. The reality is that in most cases, incubators were established without the understanding of their purpose, or for that matter, what an incubator actually is. It is mostly a symptom of companies with a weak culture of innovation leading themselves through the dark, copying notes from other companies, articles about Frisco (I know) innovation hubs, and even movies in many cases, in the cobbling together of a startup within a conglomerate, whose only goal is to spit out billion dollar products.
To put it cleanly, the purpose of an incubator is to create testable products. That's it. There's also a painfully strong misconception that an incubator is a group of big-brained people sitting on beanbag chairs in a converted industrial building, basking in the smell of nitro coldbrew or freshly burnt nespresso pods, scribbling all over glass walls and whiteboards with dry erase markers all day. There may be a number of companies whose incubators match that description perfectly, and those incubators could be incredibly good at producing billion dollar products. Their problems, however, aren't quite apparent until the real definition of an incubator presents itself. Once again as cleanly as possible, an incubator is a tool.
Understanding the disconnect between the objectives of an incubator and the execution of so many in-house incubators exposes the reasons why so few companies have successful ones. Each of the following are reasons to invest in an in-house incubator, and the extent to which companies understand and target these pillars correlates directly to potential for success.
Culture of Innovation
In-house incubators can be a great way to establish a culture of innovation, assuming they are well-executed. For those who haven't read the piece on establishing a culture of innovation, the major components of a culture of innovation at a company include transparency, collaborative tools, thought leadership, and experimentation. A strong incubator incorporates these ideas and executes a strategy that features them and provides the organization with the opportunity to measure the results of their incubator in ways that are actually representative of success or opportunities for improvement.
When taken at face value, it becomes clear why incubators in the way they've been established by many companies actually do a significant amount to damage internal innovation efforts. One of the key components of a culture of innovation is the transparency aspect, and silos of innovation are incredibly counter-productive in this way, making people feel like innovation isn't their job because there's an entire team of people dedicated to it. In the worst of cases, internal incubators can even breed resentment among people who feel they should be included or who want to work in the company's elite clique of big brains (which is how it can appear to people on the outside). This becomes particularly true when the incubator kicks its projects out to "the rest" of the company to execute.
Streamline Product Development
Perhaps the chief goal of an incubator is to establish a great process for developing new products that actually works inside the organization. For many reasons, companies have run into problems trying to adapt other successful innovation programs to their own structures. This is largely true of companies attempting to spin up their own incubators and modeling them after the likes of Y-combinator and Tech Stars. For companies with excessive resources (like most who have in-house incubators), the "best practice" is to incubate the same idea with 4-5 different external incubators, and then adopt the processes that work best toward the development of your own program.
The actual best practice, however, regardless of budget, is to prioritize the goals of your incubator, then treat it like a product whose objective is to achieve those goals. It's incredibly meta in that way, because anyone who develops a successful incubator has proof positive of the conceptual framework of that incubator. Put briefly, and considerably confoundingly, incubate your incubator, and then use it to streamline product development.
The greatest source of frustration for companies attempting to establish an in-house incubator is that there are so many levers being pulled simultaneously that it becomes impossible to determine which are having beneficial effects and which are actually hurting or holding them back. This is another example of why a focus on these central pillars can help ground the efforts with measurable decisions. Streamlining product development requires a company to know exactly which pieces of their development process need work, and which pieces of their process result in favorable outcomes on the final products.
Test and Learn
Incubators offer an opportunity for companies to experiment, and to learn from successes and failures before investing heavily in them. Many of the most successful incubators rely on a rapid concept to release timeframe that allows them to test assumptions and invest in promising experiments. For many companies that have success developing their own incubators, testing and learning is the primary pillar of those incubators, and that paves the way for having success with streamlining product development and establishing a culture of innovation as well.
At the core of this approach is the understanding that even for the most successful incubators in the world, the hit rate is exceptionally low, and success comes from being able to quickly develop as many ideas as possible and test them to determine which ones are worth further investment.
Perhaps the most effective way to help focus on test and learn as a foundational pillar of an in-house incubator is to start by redefining your organization's measure(s) of product completion. In other words, what does it mean when a product or idea is "finished" in the development process? Every company takes a vastly different approach to measuring a product's level of completion, but the ones that have better success in the new product development process are those who understand that "finished" is a series of milestones that answer specific questions. Those are:
- Is the product ready to test?
- Is the product ready to sell?
- Is the product ready to sell for maximum price?
- Is the product ready to sunset?
Some companies leverage their in-house incubator as a recruiting tool. On the surface, it seems pretty obvious why they would do so, as incubator-related jobs are some of the most attractive to talent that is naturally innovative or "best in class" for their job function. Companies with in-house incubators are more appealing to these types of hires for other roles not associated with the incubator as well, because they get the sense that the company has a strong culture of innovation, at least in the way they invest resources. The promise of potential to work within the incubator ecosystem is a dangling carrot, which, when paired with good compensation, can be exactly what a company needs to syphon top talent out of the marketplace.
Companies looking to use their incubators as a recruiting tool should focus on culture of innovation elements like thought leadership and embracing change in the HR space.
Additionally, companies can leverage their incubators as the perfect form of contract to hire for external candidates, especially those in creative roles like product management, marketing, and design. Because well-executed incubators are testing grounds for ideas, they can be the perfect projects for new hires to work on, as those projects will give them exposure to the organization, a map of SMEs, and an introduction to internal working processes. There is also the added benefit of getting people started with an innovation-focused mentality immediately, which can easily grow into people taking responsibility for a successful test and moving into the company with a sense of ownership over at least one project. Finally, these environments provide excellent opportunities for anyone to prove their product sense and execution skills, which opens the door to talent attraction and talent development equally.
Incubator as a Tool
The most important thing for an organization to learn about in-house incubators is that a good incubator is a tool, and not a group or silo within the company.
An incubator, once properly established within a company, is actually a tool that anyone can use to develop a new product. Contrary to popular misconception, an incubator isn't a team, a department, or a silo walled off from the rest of the company, but an integrated unit whose roots run throughout the organization. While there is certainly benefit to having specialists and highly talented individuals working in an incubator, it is important for everyone in the organization to know that the incubator is available to them when they have an idea, and that it is the way to evaluate ideas and develop them.
True Incubators: Organizing People
Because an incubator is a tool, the ways in which people within the organization interact with it become the roles, and the administration of those roles is the best way for organizations to customize their incubator systems. Rather than constructing an entire organizational department with a budget, hierarchy, and red tape, consider a more flexible structure that includes a steering committee, facilitators, and collaborators.
Role: Steering Committee
The steering committee's job is to make sure the incubator is working for anyone who wants to use it, and that facilitators and collaborators understand their roles. The steering committee's job is also to be the decision makers when it comes to determining which projects will move through the incubator, and in situations that require escalated attention. An incubator's steering committee should be completely flat hierarchically, in order to encourage collaborative decision-making, as well as shared risk and responsibility for success.
The best steering committees include a representative selection of people from different functional backgrounds within the organization. At a minimum, they should include a member of the executive leadership team, a product expert, a marketing expert, and an engineering expert. In most organizations, being on the incubator Steering Committee will occupy half of a person's available bandwidth, making it entirely up to the organization whether or not those individuals are full time incubator-dedicated employees.
In addition to the steering committee, the incubator facilitator role has the ability to become a full-time commitment within a highly active incubator. These facilitators are people who are experts in various parts of the incubation process, and who help ensure that those processes are executed effectively and efficiently. While the role is far more functionally involved than the term mentor would suggest, facilitators often serve as mentors for collaborators working to accomplish the incubation process tasks. Ideal facilitators are often product managers, project managers, and steering committee members with full time incubator roles.
Collaborators are the end users of the incubator system. They can be product managers moving a new product idea through the vetting and development process, or a functional contributor elsewhere in the organization who brought an idea forward. Collaborators can be new hires tasked with working an idea through the incubation process, or an existing team member looking to expand their professional skill set by working with facilitators to learn how to perform incubator processes.
Dedicated Incubator Groups
For companies that still demand an incubator group as a dedicated ivory tower within the organization, whether because the organization is flat-out too big to accommodate a flexible structure, because of strict, prohibitive budgeting, staffing, and accounting segmentation, or because of a stiff dedication to RACI management, there is an ideal version of that structure as well, which involves focusing on three of the four pillars of successful incubators mentioned above.
- Test and Learn
- Streamline Product Development
- Recruiting Tool
As mentioned, incubator silos are inherently contra- culture of innovation central tenets like transparency, embracing change, and collaboration tools. For these silos to not be completely destructive of innovation elsewhere in the organization, they must then focus on doing what they can do exceptionally well. First and foremost, companies whose structures are too prohibitive to have a flexible incubator are also likely to have a significant pool of resources that they can dedicate to making their incubator a truly exceptional innovation machine. Those resources should be invested in pushing as many ideas through the incubator as possible, which means significant experimentation as well as the development of an actual incubation machine (streamlined process). The byproduct of success in those areas is a higher hit rate (more successful projects), and the opportunity for thought leadership and talent attraction.
The Tool: A New Product Development System
Ultimately, in-house incubators are the best way to bring ideas from concept to launch, and companies who understand the fact that an incubator is a tool should have only one question left: "what does a good product development process look like?"
In short, a good product development process is repeatable, accessible and intuitive to anyone with an idea, scalable to the depth and bredth of the idea, and combines those elements to reliably deliver something testable or eliminate less viable concepts. Every company's incubator should include validation processes that help them identify time sinks and concepts with unsustainable risk to reward ratios as easily and reliably as it produces favorable results from good ideas.
The Tool: Overview
New product process phases are called different things across different organizations, but ultimately, they are pretty much the same major phases:
Each of these phases breaks further into task groups, individual tasks, and role responsibilities, and varies from company to company rather drastically. Whatever these phases are called, they are the significant lanes for developing new products within any organization.
Idea and Concept Lanes
These two concept development lanes are responsible for answering critically important questions related to the product idea; 1) "Is this idea worth thinking about?"; and 2) "Is this product concept worth designing?"
The Idea lane involves evaluating the strength of a potential innovation opportunity. These ideas come from a variety of sources, including both external and internal sources. Companies with a strong incubator collect these opportunities and feed them into a pool, where the steering committee evaluates them regularly to determine which are worth thinking about (moving into the Concept lane). It is important to document all of the decisions made on each individual opportunity, whether a yes or no, in order to educate people and to have a basis for quickly re-evaluating ideas when certain factors change in the future.
Once an idea moves into the Concept lane, it goes through an entire battery of vetting processes to determine ideal product/market fit, competitive research to understand its ideal strategic direction, and concept validation to determine its viability, all in the interest of answering the next question: "Is this product worth designing?" The Concept lane is where a number of organizations keep their secret sauce, but also where most companies choose to outsource work to consulting firms. Other companies lean on the strength of their product managers in this phase, which is perhaps the most predictive indicator of a company that hires the best product talent in the industry.
Discovery work involves the alignment of concept and design to ensure proper functional and architectural definitions for new product concepts. Design processes then translate the product concept, discovery background, and architectural framework into an actual MVP definition, which can be evaluated for development scope. All of these pieces come together to create a clear picture of resource requirements and value, which lead to the next question in the development process: "Is this concept worth testing?"
Each organization's build process is going to be different, and the timelines will vary drastically. During this process, however, the incubator's role shifts to the future phases, and prepares the things that will be required to run successful tests when the product is ready to launch. Done in concurrence with the build effort, a number of processes to guarantee the most successful launch possible include internal support infrastructure and training, marketing preparation, launch experiment definitions and success criteria, and a number of other things that go into a complete product launch. These processes also vary tremendously from company to company, but an incubator should be able to accommodate the management of those processes while the product is in Build.
Launch and Growth
Barring exceedingly rare circumstances, every project that makes it to Build will proceed to Launch, where the experiment can be executed (test and learn) with the goal of answering the final question in the incubation process: "Is this worth further investment?"
This is the part in the process that requires the greatest flexibility of mind, but which should put into perspective the entirety of the incubator as a tool concept. Driving back to the beginning of this article, the purpose of an incubator is to create testable products. Referencing another section in this article, the levels of completion for a product are: testable, sellable, sellable for maximum price, and sunset. Each product that makes it to launch is a success story for the incubator, and whether or not the product moves to Growth is the final question. The Growth phase is the point at which the company has decided to invest in a product in its journey through the other stages of completion, and the point at which the incubator can set it free.
Because an incubator strives to be a repeatable system, it stands to reason that just about any idea can be passed through the incubator as many times as necessary to move it further along each time. Perhaps one idea makes it through design only to be deemed not worth testing because of the development effort resource requirements. Documenting that decision allows the steering committee to reconsider these projects in the future, either when technology changes, or if they feel it's worthy of re-doing some of the work in the concept phase, or in D&D to get a better position. Having a repeatable set of tasks allows people to streamline the iterative process of designing products, new or existing. In that regard, products in growth never actually leave the incubator until they are ready to be sunset.
Thinking of product growth as another process that can be made better by the incubator system, it becomes much easier to understand why a truly successful in-house incubator is actually a tool, and not a team, silo, or department. The incubator system helps companies turn ideas into realities, using a series of prescribed processes to test, learn, launch, and grow the best ideas. It is a system whose roots penetrate every aspect of a company with a strong culture of innovation, and it leverages the power of an organization's innovation potential to maximum benefit.
Each article in this series is a self contained unit that is intended to help companies of any size become better innovators and cultivate more innovative teams and work environments. If we can provide any additional clarity or assistance with any of the content you find in these articles, please reach out any time and reference the Growth Through Innovation Series.