It’s because that received wisdom no longer applies. From car-sharing companies to online lodging marketplaces and music streaming services, smaller, more agile entrepreneurial businesses are increasingly setting the pace in markets that have traditionally been dominated by large incumbents.
The usual explanation for this change is that these upstarts are just better at exploiting new technologies than their “old school” rivals, but that’s only part of the story. The other, less commonly addressed factor is cultural: entrepreneurial businesses are more innovative fundamentally because they are instilled with the “founder mentality.”
Tone from the top
Businesses with a founder culture are agile, iterate more quickly and are more responsive to customers because they are driven by an urgency and strategic focus that comes from the top — from the founder — and percolates throughout the organization.
In these organizations, innovation is everyone’s job and it’s not confined to one function or department. Small teams often work with limited resources and are pushed to take risks and seek radical new business models, rather than just tweaking the ones they already have.
Flat structures mean minimal hierarchy and few organizational barriers to sharing ideas and experience. Mistakes and dead ends are encouraged as an integral part of the journey to success. One of Elon Musk’s favorite mantras — “make failure an option” — turns the more conventional saying “failure is not an option,” on its head, precisely to make that point.
Incremental, not game-changing
By comparison, innovation in large corporates tends to be the responsibility of R&D. This machinery may be slick and well-oiled, but it is distanced from both the strategic decision-makers at one end and the customer at the other. Consequently, large companies tend to deliver steady, incremental improvements in products and services, rather than big, game-changing transformations.
In a world defined by disruptive change, this is no longer good enough. You could be making the best fax machine in the world, but you won’t last long when email arrives if you cannot adapt, and fast, to a radically new environment.
So the writing is on the wall. Entrepreneurs are better at innovation, they are bolder, more responsive and faster to market, and corporations need to learn from them. That means recognizing and rewarding entrepreneurial qualities like zeal, customer focus and a willingness to take risks.