Why does the corporate love affair with “startup culture” refuse to learn its lesson?

Pat McFadden, the Cabinet Office minister in charge of cross-government coordination, came out last week and spoke about the need for the UK civil service to behave “more like a startup”.

This isn’t the first or last time that someone at the helm of a large organisation has taken inspiration from Silicon Valley as they try to improve the legacy structures and cultures that make efficiency or growth hard.

But has the corporate love affair with startup culture ever really worked? I’d argue, no.

For the very rare examples of success, there is a graveyard of initiatives that failed — and a wake of confused, disengaged and frustrated employees who overcame their instincts to adopt racy new methodologies to no avail.

At the risk of sounding cynical and conservative, I’ve never had a greater belief that, whilst startup methods and ideas make great books, they are never going to achieve the wholesale transformation that executives (and their consultants) often preach at corporate away days.

The cost of getting it wrong

In a startup, failure is often seen as a learning opportunity. In fact, startup culture encourages “failing fast” and views failure as a necessary starter to a main course of success. But the reality is the stakes are pretty low. If a startup fails, a few VCs might lose a bit of cash (which is par for the course), maybe a handful of customers will need to move elsewhere, founders will find it hard (before claiming it as a badge of honour) and employees will lose their jobs (but will more often than not bounce straight onto the next).

In contrast, large organizations, especially government bodies, operate in a world where the cost of failure can be devastating — and where the cost might not only be financial. When people like Pat McFadden describe a “test and learn culture”, they are inviting failure. In some cases that might be OK — if the enemy is perfectionism, time to change or other cultural biases towards inaction. In my experience of massive corporate attempts at innovation (including a few £50m+ bets), inaction is not the enemy — complexity is.

Startup methodologies (e.g. lean, agile, customer-led) quite often don’t grasp the nettle on complexity. They either ignore it, “fake it” or kick it into the long grass for a subsequent (if ever) “hardening” phase. That’s fine if you are creating software that can choose its customers (and flat refuse to serve ones in the “too hard” box), but is something entirely different when you can’t.

Take a problem that impacts millions of people’s money, or health. The cost of getting it wrong is huge, and you could argue the cost of “learning” too high.

In regulated markets, this might also incur enormous fines — take, for example, TSB’s disastrous migration away from its legacy infrastructure, which ultimately cost it >£300m, ~£50m of fines and the same again in fraud, a high price to “learn” (shortly after going on record with its “startup culture” and boasting innovation credentials).

In the public sector, where society is the stakeholder, the risks of wrongly embracing an experimental approach are even higher. Take the disastrous reforms to the Probation Service, which ultimately cost the taxpayer ~£500m, led to significant re-offending (a 22% increase than pre-reform) and even loss of life. The promise of “thinking more like a startup”, being radical, fast and disruptive and ignoring the calls of the “deniers” backfired entirely — with the benefit of hindsight, these moves are seen as deluded, rushed and reckless, and the people that were seen as enemies of progress have been vindicated.

(You could easily say that I am cherry-picking examples to make a one-sided argument, but I could genuinely list several gross wastes of time and money for every 1 positive example).

Systemic interventions

There is undoubtedly a huge amount of waste in large companies, and probably even more in government. Big companies spend millions solving eminently avoidable problems every year (‘failure demand’) and are often incredibly inefficient in purely rational terms — but most are fairly effective.

At the scale of thousands of employees and millions of customers, organisations behave more like systems than businesses, which is why they are very hard to improve with startup methodologies. To effectively intervene in a system to create efficiency and growth, you need a system-wide understanding — to properly grasp how things hang together. This requires a properly nuanced understanding of the problem to solve — which in turn means that insight has to be a prerequisite to, not an outcome of, initiatives.

Mislaid assumptions are the shaky foundations on which most initiatives are built. Whilst there is a lot of merit in finding inventive and cheap ways to ratify those assumptions (a la startups), the hurdle for certainty has to be higher to progress into the next stages of product development.

Turkeys and Christmas

The technical and functional challenges of innovation and growth initiatives might be tough, but the cultural battle is often the hill upon which most initiatives die. Behaviour change is the main ingredient to most of the successful transformations that I’ve seen — changing the behaviour of service users by nudging them to interact differently, and, as importantly, changing the behaviour of the colleagues involved to make sure they not only change the way they approach things, but ideally become advocates for the new way of doing things.

As well as having the luxury of choosing new technologies to create and scale products, startups also have the luxury of choosing the teams they build to develop them. Incumbents don’t have that luxury, which means they have to motivate change within their organisation.

People don’t like change — it creates anxiety of all types. Championing the “new way” takes time, consideration and incentivisation. Whilst large organisations (presumably including the Civil Service) are getting better at incentivising change of their customers (defined pretty broadly), very few have cracked how to incentivise their own people to make the change happen.

Adopting a “startup like culture” isn’t for everyone — it can be filled with uncertainty, pace and radical empowerment. Having spent half my career working with rapidly scaling companies, and half with incumbents, there is a massive difference between them culturally, and the people that thrive in both. And without creating the internal advocacy needed to create a cultural transformation, “creating a startup culture” within large organisations actually just becomes trying out a few new methodologies and cutting out a bit of governance — never the full-blown change that leaders like McFadden talk about in keynote presentations.

Right in the heart of the periphery

For all of the very good reasons above, when it comes to choosing where and how to apply an innovation mandate (aligned to the startup mentality of “starting small”), most of the large organisations I’ve worked with in an innovation capacity start in quite a random place. As a natural byproduct of the fear of getting it wrong, and in the desire to “get some runs on the board” the temptation is to choose slightly tidier problems that are less contentious and carry less inherent risk.

Instead of tackling systemic issues or addressing the root causes of inefficiency or dysfunction, organisations end up focusing on the low-hanging fruit. Some might even align their first efforts to the best “stakeholder environment” — a more innovation-fluent executive, smaller team, or easier to isolate customer cohort. This is often underpinned by the (misplaced) belief that innovation is contagious, and doing it well somewhere will automatically infect the organisation around it with the drive to do things differently.

Whilst this makes the first job easier, it more often than not leads to isolated “projects” that, although they may have been faster, better or more innovative than anything the organisation has done before, rarely have the effect of changing an organisation. Almost every large organisation has a handful of projects of this description. Some will carry on as organisational outposts with a slightly different DNA to the mothership, some will get killed off quietly, some will get folded into other initiatives — very few, if any, will set the template for all efforts to follow.

Falling in love with the problem

It’s so tempting to view “the startup way” as a solve-all to sluggish, slow and traditional legacy organisations. On paper, it promises agility, speed, and innovation. In reality, throwing a manifesto at legacy challenges will never work. Rather than chasing the fantasy of replicating startup culture, large organisations should learn to master it to the extent that they are able to apply the best bits of it selectively (just as they might apply a more risk-averse, waterfall mentality where it works).

There is huge scope to start experimenting, asking hard questions and taking a healthy dose of pragmatism, but that has to happen within the cultural context of the organisation. Large-scale transformation will always require careful planning, thoughtful risk management, budgeting lifecycles and a very high (possibly unrealistic) desire for certainty. The context and constraints in big organisations is the challenge, not an annoying barrier to solving it — and the most transformational leaders I’ve met embrace that first and foremost.

That might not make the most appetising edict or keynote speech, but chucking startup thinking at the situation and hoping it works is purely wishful thinking.

Nick Parminter is Founding Partner at Class35.