3 strategies for launching a nimble startup inside your company

Considering an operational startup within your enterprise? Better proceed with caution.

When Nathan Sivagananathan, chief growth officer at Sri Lanka-based The MAS Group, realized in 2012 that he needed to revamp his workforce to capture new business opportunities, he took a page out of Lockheed Martin’s playbook.

During World War II, the aerospace company was tasked with building a fighter jet for the U.S. government, and it did so under a new, unconventional working group dubbed Skunk Works. Since then, the term has come to refer to any special team within an organization that breaks away from the larger workforce to think laterally and originally about projects. 

Sivagananathan created “operational startups” that allowed the $2 billion apparel manufacturer “to be ambidextrous with focus and structure,” while helping “create future revenue streams fast,” says Sivagananathan. While declining to say how much the company has made in sales thanks to the teams, Sivagananathan says he’s confident the time savings had specific benefits in terms of faster time to market with new projects.

Many senior executives who want to create a culture of continuous change to drive digital transformation are mulling similar operational startups. The fruit of a group’s labors can be a new product design, new business processes, or other innovations that might more easily take root in a group freed of the usual corporate oversight.

However, while launching startups within your existing organization can bear fruit, they should be introduced with care. Indeed, Sivagananathan advises against operational startups that focus too much on innovation, as existing core businesses can be neglected and their workers demoralized.

Balance is the key for us. We allocate 70 percent of the resources to incremental innovation, 20 percent in transformative innovation, and 10 percent to disruptive innovation.

Nathan Sivagananathan Chief Growth Officer, The MAS Group

“Balance is the key for us,” he says. “We allocate 70 percent of the resources to incremental innovation, 20 percent in transformative innovation, and 10 percent to disruptive innovation.”

Here are three key things to bear in mind when launching an operational startup in your company.

1. Avoid overreach

Michael Schrage, a research fellow at the Center for Digital Business at the MIT Sloan School of Management and noted expert on innovation, and John Hagelco-chairman of the Deloitte Center for the Edge and mastermind of multiple Silicon Valley startups, both strongly recommend not overreaching with your first efforts at building an internal startup.

Specifically, they caution against using the work these groups accomplish as a major driver of transformation for the entire enterprise. They insist that operational startups intended as engines or catalysts of transformation will be broadly looked upon by other workers as a repudiation and rejection of all they are doing. 

“The thinking will be along the lines of ‘Fine, I have my job, but the startup is in charge of innovation,’” Schrage says. “The message sent to talented people is that they now are not the future, but represent sunk costs.”

Hagel is even more blunt, saying these operational startups “do not transform the core of the business, period.” Most workers, he says, will reject what they feel is new thinking being crammed down their throats by some elite transformation team.

Both Hagel and Schrage advocate a hybrid approach to operational startups that emphasizes so-called centers of excellence.

Also known as competency or capability centers, these groups don’t usually perform operational tasks but instead discover best practices and then propagate them to other parts of the enterprise. However, the work done in a center of excellence is not free-form or freewheeling but rather specifically focused on predetermined goals. 

2. Build a team of unequals

When it comes to finding the best individuals to build startups focused on innovation rather than transformation, Sivagananathan, the startup practitioner, says diversity is key — in terms of expertise, experience, and age.

“It’s not just about having younger, fresher thinking employees, but rather coupling them with experienced people to guide them,” he says. “So we look for a mix of dreamers, thinkers, and doers.” He also suggests bringing outsiders onto the team to further challenge insiders with new thinking.

Hagel advises recruiting “for passion rather than pure skills.” He suggests combing through various departments and operations to find individuals with “sustained extreme performance improvements,” or what Deloitte calls the passion of the explorer. These are born risk-takers with a questioning disposition, who are also disposed to seeking input and help from others to solve problems. Hagel estimates that no more than 12 percent of the workforce in a typical U.S. enterprise has this passion.

Matthew E. May, noted business consultant and author of the best-selling book Winning the Brain Game, chimes in with the suggestion that team members not be cherry-picked, but rather selected from individuals that apply to be team members. Further, he suggests tagging some members intentionally as “gremlins,” whose job is to regularly disrupt the work of the team with a barrage of questions, what ifs, and even sabotage that mimes real-world disruptive forces. May notes that this gremlin strategy was successful in NASA’s vaunted Mars Pathfinder project 20 years ago.

3. The driver in the corner office

Experts agree that a vital component of building internal startups is that efforts are driven by senior executives, if not the CEO. Moreover, these executives really need to manifest the same qualities and characteristics sought in team members: They need to be self-driven, out-of-the-box thinkers who are highly networked, entrepreneurial, and unafraid to push the boundaries. As MIT’s Schrage points out, these are the executives that must articulate the business goals and strategies that will direct the outcomes of the startup.

The problem, as May points out, is that many of these executives are heavily vested in "the old ways that made the enterprise successful in the first place," meaning they’ll resist change, not embrace it. The sobering reality is that true entrepreneurial senior executives that "really want to get back to the future" are not the norm today, he says.

The bottom line

As Deloitte’s Hagel notes, innovation and transformation are often the leading points of discussion in boardrooms and strategy sessions everywhere today. Operational startups backed by risk-taking CEOs and guided by clear business goals can be a welcome source of some of the innovations in practices and processes, if not actual product designs that are key components of digital transformation.