Why money is bad for innovation!

Source: Pixabay.com

Author: Lutz Göcke

In their 2011 publication Furr/Ahlstrom ("Nail it then scale it") show that startups and initiatives that operate in an entrepreneurial setting need to focus strongly on the customer problem. Having too much money too early can result in a situation where the project team looses focus, as it gets a feeling of external validation. But the external validation is not truly there. I call this situation a Fata Morgana of Innovation. It feels great, when you receive the internal fundings from Top-Managers, but it is only an illusional success, as there hasn’t been any value created for a customer or the company itself.

The Fata Morgana is existing for startups that get the „false“ external validation from venture capitalists, but also for innovation initiatives in large organizations. Most of the time, initiatives that require entrepreneurial management operate in a context of high market uncertainty. Getting funding from executives in large organizations I argue, that due to their limited know-how in uncertain markets, the risk of falling into the trap of the Fata Morgana is even greater. This Fata Morgana drives initiatives into a wrong direction, as they start losing focus of what is most important to their success. This is not their product, but their strong understanding of the customers‘ problem. A result of the funding is, that the initiative will gain great attention inside the organization. From one day to another, team members are engaged more and more in status reporting, politics and are confronted with envy. At the end, the project team builds up everything to cope with the internal challenges, develops the product, but has no capacity anymore for customer validation. The Fata Morgana of having too much money drains the team from one of the central resources to their existence – customer validation.

The Fata Morgana of innovation is challenging for project teams, as well as for executives. Everyone can slip easily into the trap. Everyone in that situation is acting in the best interest for the company, but is actually encouraging the failure of the project. While writing this post, I’m seeing now the great potential of this topic for Managers in large organizations and I'm curious to learn more.

This post as been originally published on the 17.12.2016 on LinkedIn