MANY startups are sceptical of claims that big corporates understand small business. It certainly suits an image, but the reality is often different. A recent inquiry found, for example, that small and medium-sized businesses were owed a record £35.3bn in late payments at the end of 2012, with big firms the main culprits. Many startups find it difficult to access the supply chains of the likes of Tesco or Next.
But there are signs that things are changing. Some corporates are waking up to the need to do real business – not ephemeral PR work – with smaller firms (which make up a larger chunk of the UK business landscape than they did in 2000), and a wider rise in entrepreneurial values is having an impact on internal structures. Emma Jones of Enterprise Nation notes that US software giant Intuit is run on Lean Startup principles. Fujitsu has now promised to pay small business suppliers within five days. And as Jeremy Schwartz, UK and Ireland country manager at L’Oreal, put it to me, “we are all looking for talent. We’re not adverse to outsourcing if it brings speed, competitive advantage, or access to technologies.”
L’Oreal is also experimenting with intrapreneurship – the act of behaving like an entrepreneur while working for an established firm. According to the Intrapreneurship Institute, it means employees outside the R&D department can “use their creativity... to create new products, services or divisions” with the full backing of management. At 3M, for example, employees can spend up to 15 per cent of their time working on ideas they think may benefit the firm. If an idea is viable, 3M funds it. It’s not a new trend, but its benefits now seem to be better acknowledged. A survey by Nielsen of 30 large US-based consumer goods firms found that those with less senior management involvement in the creative process generated 80 per cent more new-product revenue than those with heavy management involvement.
But this is not a recipe for disorderly corporate mess. Nielsen also found that companies with strict “stage gates” – points when a new idea must pass formal criteria to move forward – average 130 per cent more new-product revenue than firms with looser processes. And subverting a traditional structure to allow internal entrepreneurship to let rip doesn’t necessarily work. Sears Holdings, the US multinational where hedge fund billionaire Eddie Lampert is chairman, was splintered in 2008 into 30 units. Unit presidents must compete for Lampert’s attention and money, and while the idea was that internal competition would improve all parts of the company, sales have declined.
This suggests that, despite similarities, intrapreneurship isn’t a true alternative to entrepreneurship. Schwartz says that the “compromise of innovating within a firm is that you don’t have 100 per cent ownership of an idea. You have to lean into the assistance of other people in the organisation to make it realistic.” But while entrepreneurs sacrifice “security and take big risks, intrapreneurs take zero personal risk and could gain the backing of a large organisation.”
Yet there are signs that the sentiment that intrapreneurship reflects may be making larger firms more willing to do business with the minnows. Schwartz thinks so. And with the advent of business-to-business platforms like Blur, which allows sole traders or startups to pitch for contracts with the likes of Harvey Nichols, and with the government now allowing firms to search for procurement contracts online, the trend may soon be institutionalised.
Tom Welsh is business features editor at City A.M.