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innovation

How to create an entrepreneurial culture

by David Woodward

Creative self-starters who are given free rein to experiment can offer big rewards for innovative companies. But do the benefits of entrepreneurial cultures outweigh the hazards of a potential talent exodus?

Richard Reed is proud of his drinks company's uncanny knack of producing entrepreneurs. So strong is the network of firms started by ex-Innocent employees that the phenomenon has earned its own nickname, the School of Innocent. "I think it's inspirational," says Reed, co-founder of the business. And he means it. Not many chief executives would tolerate such an outflow of talent so cheerily, but Reed sees it as a natural flipside to running a truly entrepreneurial company.

The list of entrepreneurs schooled by Innocent founders Reed, Adam Balon and Jon Wright includes former executives Mike Stevens and Dan Shrimpton, who founded the chewing gum firm, Peppersmith; former head of HR Bronte Blomhoj, who co-founded London restaurant and deli Scandinavian Kitchen; ex-directors Gareth Helm and Giles Brook, who launched the snack firm, Bear; and former head of PR Ailana Kamelmacher, who left to set up her own communications company, Story PR. "Most of her clients are people who have left Innocent to set up their own natural, healthy, fresh-food businesses," jokes Reed.

It might seem counterintuitive, but Reed says the advantages of employing energetic, creative self-starters far exceed the potential "brain drain" of talent. "We've always set out to attract people who are entrepreneurial," he explains. "We ran a job advert where the headline said we were looking for people who will want to leave us." This is only slightly disingenuous. "Ultimately, we want them to stay and carry on being entrepreneurial within Innocent," adds Reed. "But the inevitable result is that many will want to go and do their own thing. We help and support them with that wherever we can."

The poster child for entrepreneurial cultures, says venture capitalist Fred Destin, is the internet payments company PayPal. Before selling out to eBay in 2002, founders Peter Thiel and Max Levchin hired a profusion of diverse, entrepreneurial talent, including Elon Musk, who went on to found Tesla Motors; Reid Hoffman, who later started LinkedIn; and Jawed Karim, Chad Hurley and Steve Chen, who co-founded YouTube. "PayPal's alumni network is astonishing," says Destin.

The closest UK equivalent is probably Acorn. The Cambridge computer manufacturer was founded with an entrepreneurial culture and some of the brightest technical minds at a time when the Fens led the world in consumer electronics. Under the stewardship of Hermann Hauser, its long list of alumni includes Stan Boland (Icera), former technical support employee Alex van Someren (nCipher plc), Andy Hopper, who has since founded several technology companies including Ubisense, and Steve Furber, credited with developing the ARM 32-bit RISC microprocessor. ARM, still based in Cambridge, is now the dominant supplier of processor technology to the smartphone industry and Acorn's most valuable legacy.

There are relatively few examples of truly entrepreneurial cultures. The reason? Apart from the recurring pressure to rehire from a limited stock of talent, entrepreneurial companies are also affected by a more fundamental pressure: growth.

As Vijay Govindarajan and Chris Trimble write in their book, The Other Side of Innovation, growth refocuses the minds of entrepreneurial leaders away from innovation and towards reliable profitability: "To satisfy investors, companies strive for productivity and efficiency, and their organisations evolve to deliver it." But as they become older, entrepreneurial cultures tend to self-destruct.

Take Google, once considered among the entrepreneurial elite, but now facing growing pains that threaten to undermine its ability to innovate at speed. In the past, the search firm has won praise for fostering an entrepreneurial culture, including its 20 per cent time, which allows engineers to work on pet projects for a day a week. But a recent New York Times report claimed a proportion of its engineers had become frustrated with rising levels of bureaucracy and were leaving for smaller, more agile competitors, including Facebook.

The balance between efficiency and innovation is tricky to manage, says Neil Davidson, joint chief executive of software firm Red Gate. The nuts and bolts of software development aren't all that entrepreneurial, he says. "A lot of the stuff we ask people to do every day is about working out product improvements and knuckling down: months of time on very focused tasks." Being entrepreneurial "is almost counter to that", he says. "It's about showing people that it's OK to be a bit different, to try stuff out. And it's OK to fail."

The life cycle of the average software product requires extreme shifts in cultural behaviour. "Version five of a piece of software doesn't really require an entrepreneurial approach," says Davidson. "It's low-risk. The last thing you want is for people to have lots of wacky ideas and derail what is a straightforward project. On the other hand if you're doing version one, or you're not sure what the market is, that requires a different approach. It's quite hard to hold those two different mindsets together in the same organisation."

Red Gate's structure allows entrepreneurial skills to be accessed when needed. Employees are divided into semi-autonomous groups, by product category, each with a marketing, sales and development staff. Developing new product categories, such as mobile or cloud computing, leads to mini, self-contained start-ups emerging. The goal is high-risk, low-cost development, funded and resourced on site by the parent company. "It's like having a start-up with a sugar daddy," says Davidson.

Entrepreneurial product units encourage the cross-pollination of ideas. Marketing people talk to developers, sales staff talk to product managers. "Great ideas come from people talking," says Davidson. It's why Red Gate pays for all 200 of its staff to have lunch together every day. "There's a starter, and sometimes a pudding," he says. "It's about encouraging interesting conversations. People come up with ideas that they wouldn't come up with if they were just talking between themselves."

Red Gate is perhaps best known for Springboard, the firm's start-up incubator programme. Its launch was a "complete accident", says Davidson. Having moved into a new office, the company realised it had a large amount of free desk space. Rather than let it go to waste, Davidson and co-founder Simon Galbraith decided to advertise the space to local start-ups, free of charge. "We said if we can get a bunch of smart people running start-ups into the building then good things might happen."

Davidson calls it "the people cocktail". It's an effect prized by entrepreneurs, a consequence of having to rely on the network to solve problems rather than a corporate sponsor. Web company Forward Internet Group uses "lunch and learn sessions" to try to force silos to collaborate. "We have presentations from different business units on key problems they are trying to solve," explains founder Neil Hutchinson. And there's a knock-on effect. "If you're encouraging that kind of culture then organically you get people starting to spend a day here or there at different parts of the business because they hear of similar problems that they know how to tackle."

Forward Internet Group also has its own version of Google's 20 per cent time, in which all developers are given 20 days "innovation leave" in addition to their standard annual entitlement. "There are no guidelines other than it has to be of interest to the company in some capacity," says Hutchinson.

The system has become a launch pad for products. Robin Landy, an information architect at the firm, wanted to investigate the possibility of creating a price comparison tool for Web browsers. He took his idea to two developers, persuading them to use their innovation leave to help him develop the project. The resulting prototype, InvisibleHand, quickly became popular, giving Landy the chance to pitch the idea to the board to try to gain new investment. "After a year it looked like a major project and we assigned a team to it," says Hutchinson.

Forward's strategy is designed to mimic a bootstrapped start-up in which new concepts are tested quickly and cheaply. "We don't want to invest £500,000 in something based on guesswork. We want to see results first," says Hutchinson. "We get it to market quickly, to see how consumers react, and adjust accordingly."

The firm's retention rate is good, adds Hutchinson. Entrepreneurially minded people aren't inclined to leave the company when their creative instincts can be honed and supported as an employee. "The whole philosophy is to innovate every day, to move quickly, to not fear failure, to test things. We have a very flat management structure. People get a lot of autonomy. When we look at how to keep people incentivised, we look at things like giving people freedom to do the things that ordinarily aren't considered core to their everyday work."

Ultimately, says Hutchinson, the key to managing creatively driven employees is to allow them to work on things they feel passionate about. Not only does their work quality improve, but they also feel more fulfilled. It's the perfect antidote to itchy feet, says Hutchinson.

A strong appetite for risk is a chief ingredient of entrepreneurial cultures, although it isn't easy to manufacture. At Innocent, explains Reed, "if you've tried something and it hasn't worked, well that's something that should be celebrated. If it doesn't work then fess up, share the learnings and get on with the next thing."

To Reed, an entrepreneurial culture is about employing people who never give in, who "find a way that works". He encourages people to make decisions when they are only "70 per cent sure". Don't be reckless, he warns, "but don't wait until you're 100 per cent convinced it's going to work, otherwise it will never happen." Which isn't to say Innocent is all ideas and no execution. "We can't have a million people doing a million different things all the time. But a great entrepreneur knows that they have a finite amount of time and energy and therefore to spend it where you can get the biggest and boldest results."

Product launches at Innocent tend to come from the Innocent Nursery, a start-up incubator programme for new ideas. Typically, one employee reporting directly to the chief executive's office will be given "full autonomy" to develop a product for Innocent to take to market. It's allowed the firm to produce a range of vegetable snack pots, branded water, and fruit smoothies for children. "We tend to not say no to things," says Reed. "Sometimes time is wasted, but overall some of the things you might typically turn down have been the biggest successes."