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Moving from Corporate to Startup Executive: An Executive Entrepreneurship Path Moving from Corporate to Startup Executive: An Executive Entrepreneurship Path

By Phil Gibbs on February 16, 2015



The general consensus is that corporate generated disruptive innovations need to move outside of normal operations in order to thrive. The evidence is clear that a corporation’s current operations and natural commitment to its best customers will suppress and kill most innovations that can drive real growth. This is not a death sentence for disruptive innovation, but does mandate a strategic approach on the part of senior leadership.

Most executives are in their roles because they are good at executing and scaling. But what are the options for those who have entrepreneurial skills and aspirations? They make ideal candidates to lead disruptive innovations that corporations desperately need.

Most corporations fail miserably at transitioning executives to entrepreneurs. In fact, most do not even try. So what are the issues that corporations face in transitioning entrepreneurial executives to disruptive startups? Some might argue that the most difficult challenge is how to move a highly compensated executive from a promising career path to a startup with an uncertain future. The other side of the challenge is how to maintain a cohesive executive team and avoid dysfunctional jealousies when a few executives are given the opportunity to lead a corporate-funded startup with the potential for huge personal financial gain.

At its core, there is nothing new driving these questions. The same combination of risk/reward that accompanies every executive career decision underlies the challenge. The difference, however, is that in executive entrepreneruship the risks/rewards are greatly amplified. And we have little precedent for dealing with these issues because large corporations historically have not been entrepreneurial.

With amplified risks and rewards, entrepreneurial opportunities will be appealing to some executives and not others. Corporations must find the right risk/reward balance to be successful.  If executive entrepreneurship is all reward and little risk, there will be jealousy and difficulty maintaining a cohesive team. If it is all risk and little reward, the corporation will fail at creating an innovation culture among executives.

Executive Entrepreneurship Path

Corporations committed to innovation-driven growth must address this challenge directly and create an Executive Entrepreneurship Path.

The objectives of an Executive Entrepreneurship Path generally will include:

  1. Supporting corporate growth through innovation and entrepreneurship.
  2. Encouraging executives to initiate disruptive innovations in their areas of responsibility, some of which will be spun out as separate entities.
  3. Encouraging disruptive innovation while not distracting the senior team from operations and scaling the current business.
  4. Promoting a culture of teamwork among the executives who choose to remain in the company and the executives the company supports in startup ventures.

When a company makes the decision to fund and spin out an innovation championed by an executive, a number of variables must be considered related to the executive’s employment status and compensation.

  • Does the executive remain in her current role or move to the startup?
  • Is there an option for the executive to remain in his current role while having a role–operating or non-operating–in the startup?
  • If the executive focuses full-time on the startup, does the executive remain on the company payroll or move to the startup payroll?
  • If the executive goes on the startup payroll, is the current level of compensation continued?
  • Is a return to the company with the same role/compensation guaranteed?
  • Does the executive receive equity in the startup?
  • Is there an option for the executive to invest personal capital in the startup?

While every Executive Entrepreneurship Path will be customized to the unique requirements of the particular corporation, below is an example illustrating the elements and issues that must be addressed.

Example

The Executive Entrepreneurship Path is available to AVP’s and above. Validated business concepts will be presented for senior leadership approval and funding twice a year. Up to five executives will be eligible to enter the path each year.

  • Executives present validated concepts to the Company.
  • The Company funds approved concepts as an Innovation Project or company supported Startup.
  • Startups are set up as separate entities.
  • The company maintains significant ownership in the Startup.
  • Startup may or may not seek additional funding at launch.
  • Company has a future option, tied to specific triggers, to repurchase the Startup.

Executive Scenario One

  • Executive remains in current role but serves as a Founder and Chairman of the Startup.
  • Executive’s compensation level and structure are unchanged but tied to performance in current role and performance of the Startup.
  • Executive has no equity in the Startup.

Executive Scenario Two

  • Executive remains in current role with an added responsibility being to serve as an executive in the Startup.
  • Executive’s compensation level and structure are unchanged but tied to performance in current role and performance of the Startup.
  • Executive receives options in the Startup.

Executive Scenario Three

  • Executive remains a company employee, but role now changes to be an executive in the Startup.
  • Executive compensation level and structure are unchanged but are tied to performance of the Startup.
  • Executive receives options in the Startup.

Executive Scenario Four

  • Executive takes a leave from the company to be an executive in the Startup.
  • Return to the company in the same role and compensation is not guaranteed.
  • Executive’s compensation level is reduced by small percentage.
  • Executive receives options in the Startup.

Executive Scenario Five

  • Executive takes a leave from the company to be an executive in the Startup.
  • Return in the same role and compensation is not guaranteed.
  • Executive’s compensation is reduced significantly consistent with Startup stage.
  • Executive receives significant options in the Startup.
  • Executive has the option to invest personal capital in the Startup.

Every company must decide what combinations of risks and rewards will be appropriate for encouraging the type of innovation and entrepreneurship it seeks to promote. Without solving this critical challenge at the senior executive level, it is hard to imagine the executive team, and by implication the rest of the organization, having enthusiasm for innovation.

 

Written by Phil Gibbs

Phil Gibbs is one of the founders of E|SPACES and Principal at The Disruption Lab


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