Tuesday, February 17, 2009

Innovation and The Three Stages of a Business

In the classic view all companies go through three stages. Each stage is determined by who runs the enterprise: the entrepreneur, the accountants, and finally the lawyers. It is my contention that organizations are at their most nimble and innovative during their entrepreneurial stage, a dynamic and exciting time for everyone involved.

The bell curve shows the rise and fall of almost any non-traditional measure of a corporation. It does not generally represent the profitability or stock price, which rarely reflect the values we treasure as individuals and entrepreneurs.

Many entrepreneurs, and seasoned firms, fail to recognize or acknowledge this life-cycle to the detriment of their businesses. Making yourself appear to be a bigger operation can be good, as long as you don't also adopt the negative practices of a larger enterprise. This is doubly important in difficult economic times.

Examine the successful firms and look at what happens to them when the original visionary leaves, or the company grows into a market dominating force. Does anyone remember Netscape, AOL, or Lotus? What is their market presence today? Is Microsoft as nimble and innovative as it used to be?

Compare those companies to Google. It is the market dominant search platform. Its name is even a verb. And they are huge. From the outside looking in it appears to be nimble and innovative. Remember that perception is reality so how do they do it? If you are looking for a b-school dissertation topic this would be a good one. Here are a few things that I have observed:
  • They are always looking for ways to improve
  • When they goof they don't hide it but do learn from it
  • New product offerings and solutions are released regularly
  • Ideas and prototypes are made available publicly, and feedback is nurtured
  • They acquire innovative tech and ideas, both building and buying
These are great cultural philosophies from one of the biggest and best. And, all of them can be integrated into your business.


  1. Now imagine that you're at Ford. They celebrated their 100th anniversary. So Henry is dead now, right? The leadership puts on a show for the troops in an auditorium. It's internal PR. Not many are fooled, really. They want to believe it. They hear that "sales of the Focus are increasing", and "market share is increasing", not "car and truck sales have plummeted".

    They have Q & A from employees. But they choose to answer questions that can be answered with spin, rather than questions that matter.

    If you walk around World Headquarters, you'll see some Henry quotes on posters. "The future of cars is in plastics". He meant that literally. Plastic fenders don't rust. So, they're cheap and give customer value. But where are they? And poster after poster just makes you want to cry.

    BTW, for about five minutes, Google thought this blog was gone. I couldn't believe it. But for five minutes, it was true.

  2. According to your graph the period of peak and sustained innovation is when the accountants are in control, but you say:

    "It is my contention that organizations are at their most nimble and innovative during their entrepreneurial stage"

    Which is it? I'd agree with the text more than the graph

  3. Edward, I feel that it is inertia that carries an organization a bit higher on the creativity/innovation curve once the accountants take over. The entrepreneurial vigor doesn't end in an instant, it takes time for entropy to settle in.


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