Entrepreneurs or not

Here is a key question for banks looking to start an innovation programme. Do you put an entrepreneur in charge, someone with a proven capability to start and run small ventures? The kind of person who knows everything about working on a shoestring and matching limited resources to big problems?

Or, instead, do you hire someone with lots of experience managing portfolios of projects, who knows how to start-stop-continue things, but doesn't have much depth in the intricacies of running anything very much? In other words, a person who thinks like an investor, like a VC.

Most people, given the choice, I'd imagine, would go for the former. It is the easy choice: choose someone you know will at least make the few things they choose to focus on succeed.

But the easy choice is not the best choice. And here's the reason why.

When you are a bank, or indeed any established business, the real name of the game is about distributing risk in your innovation investments. You want to have a portfolio of things going on, because you know that most of them will fail. Spreading the risk is the only way to make certain you have something come out at the end.

An entrepreneur, on the other hand has quite a different perspective. They know that to be successful, their focus has to be laser-sharp on one or two things only. Doing anything else ensures their ventures will probably fail. They take all their risk up-front, and then through force of will make something happen. Most of the time they fail anyway, but sooner or later, with enough attempts, they find a way to success.

Here is the fundamental difference. An entrepreneur spreads risk by accepting serial failures. An institution, on the other hand, spreads it risk by accepting them in parallel. The latter case means that innovation is a scalable activity, one that delivers greater returns with more substantial investments.

But the former case depends absolutely on the commitment and talent of the entrepreneur. In other words, success or failure depends on the quality of the individuals involved. And a bit of luck.

Both luck and talent are in very short supply. Relying on either makes it almost certain that at very best innovation efforts are unpredictable, and at worst are predictable failures. If 80% of new innovations fail (and they do!) and all the eggs are in one basket, quite a lot has to go very, very right for anything to come out the end.

Trust me on this: if you are starting an innovation programme in a bank (is anyone doing that right now?), you want your innovators to be more like venture capitalists than entrepreneurs. You can always hire some competent managers to run new ventures. But the kind of mindset that's needed to make new investment decisions – and to terminate old ones – is quite different.

 

 

 

Comments

[Andrew]

Interesting post James. Ignoring the sweeping generalisations, I think your analogy is nearly there.

I believe for innovation to exist you absolutely do need entrepreneurs - it is the entrepreneurs who will think creatively and look upon a problem as an opportunity.

However, you are also right when you say that you do need your VC. Except the VC isn't heading up the innovation department but should be the institution/bank itself, hopefully spreading their risk in parallel across their innovators.

Have you ever seen a VC in action? You would never put one in charge of a company but they do (most of the time) provide effective oversight over a group of companies.

Cheers.

[ray]

interesting. thanks for sharing. i think you try to create tension from both approaches.
mix things up in a flat structure from your spinouts, ext ventures, venture acquisitions, new tech dev.

[James Gardner]

Andrew: I am not for one minute suggesting that you'd put the VC in charge of individual initiatives, only that you put them in charge of the innovation *programme*. You'd still need good execution to get decent outcomes.