Why legacy companies need to tap into their inner startup

Psychologists speak of the power of tapping into an adult’s inner child, which Stephen Diamond describes as “our childlike capacity for innocence, wonder, awe, joy, sensitivity, and playfulness.” Just as accessing one’s inner child often plays an indispensable role in healthy emotional development, it behooves legacy companies to plumb the depths of their inner startups.

Startups’ verve, creativity, and relentless commitment to innovation provide just the antidote many large, established firms need to overcome organizational stasis and resistance to change.

The annals of business history are filled with the stories of once-dominant players that failed to embrace change and saw themselves displaced by nimbler competitors. Still, many companies are setting themselves up to follow in the footsteps of their ill-fated predecessors. For example, 70% of legacy companies have moved less than a fifth of their key systems to the cloud, with two-thirds planning to maintain at least some of their legacy systems, despite the digital transformation unfolding across industries.

Companies hoping to avoid the fates of Kodak or Blockbuster would do well to pay attention to their scrappier counterparts—and with more than 700 unicorns globally boasting a cumulative valuation of nearly $2.4 trillion, there are plenty of successful examples to heed.

Your legacy company can surface its inner startup by following two complementary approaches. First, you should reshuffle organizational resources to align with market needs.

Second, and no less important, your company should pursue organizational “genetic therapy” to ensure that its corporate DNA becomes more like that of a growth-minded startup. Here’s how to make it happen.

Resource Reallocation Done Right

Napoleon is said to have once remarked that while “amateurs discuss tactics, professionals discuss logistics.” Indeed, organizational logistics are the cornerstone of success for any enterprise, and paying proper attention to them is crucial when pivoting from a legacy to a startup mentality.

How is this expressed? Start with capital allocation. While organizations should channel the appropriate amount of funds into any new venture—the cost of digital transformation, for example, is on pace to reach $6.8 trillion by 2023—other existing capital (like time and talent) also needs to be marshaled for your organization to blaze new trails.

That will require a change in mindset for many companies, particularly publicly traded ones where boards expect quick returns on each investment. Investments in innovation usually take time to bear fruit, but a willingness to play the long game is what separates companies that last from those that end up in the dustbin of history.

Meanwhile, it’s worth asking whether you’re making the most of your company’s human capital. Too many companies are underutilizing their agents of change. For example, while CIOs are the linchpin of organizational change in an era defined by digitization, they’re often not given enough responsibility to shape overall business strategies. Does your company have a glut of engineers? Find ways of reallocating them so that they’re deployed optimally and both new and old initiatives prosper.

Don’t give in to the temptation to keep doing things a certain way because that’s how they’ve always been done. In a world whose only constant is change, such complacency is the enemy of success. The more your company stays on its feet, the likelier it will be to make smart decisions about where and how to invest its resources.

The Corporate Genome Project

Plenty of ink has been spilled about the importance of organizational DNA. But what does it actually mean?

It’s expressed in a variety of ways, but one of the most important is how the organization views successes and failures. To a startup—or a startup-minded organization—failures represent an opportunity to learn, recalibrate, and improve. Hitting and missing, in other words, is an inevitable part of the game. It’s all in how you apply the lessons of your mistakes when you make your next play.

Which KPIs a company prioritizes also helps illuminate its genetic makeup. Legacy companies that have long seen steady year-over-year growth will generally approach these differently than startups focused on achieving rapid growth. But that doesn’t mean your established company doesn’t stand to learn from its counterparts in the startup world.

Instead of focusing like a laser solely on revenue growth, for instance, consider zooming out and looking at your activation rate (i.e., the number of customers who are onboarding). How many customers who have your product are actually using it? The answer will reveal a great deal about whether your product or service fills an important role in the market, or whether it’s at risk of slipping into irrelevancy.

Moreover, rather than focusing on revenue concentration, or how revenue is spread out over your customers, emphasize customer lifetime value (LTV)—how much money your customers spend over the course of their interactions with your company. LTV provides a much better indicator of the long-term sustainability of your business.

All of these corporate genetic changes tie into a greater cultural shift that’s essential for any legacy company tapping into its inner startup: It must prioritize the long term.

The Costs of Ignoring Your Inner Startup

What happens when companies squelch their inner startups? They risk two big consequences: First, missing out on opportunities to bring valuable new products or solutions to market, and second, making themselves vulnerable to disruption by competitors who are doing the work that real innovation requires.

Kodak is a classic case study. Once in control of more than 80% of the U.S. photographic film market, the company was so complacent about its success and so closed to innovation that it spurned its own engineer when he invented the digital camera, telling him that the product would cannibalize Kodak’s film sales. This marked a failure on two levels: Not only was it shortsighted, but it also reflected an undervaluing of Kodak’s human resources.

The firm eventually declared bankruptcy in 2012.

Kodak’s fate need not be yours. You don’t need to be a startup to think like one—you just need the same sense of possibility, hunger, and ingenuity. Somewhere within your organization, there’s an inner startup waiting to be unleashed.

Elad Peleg is the deputy CEO, CFO, and vice president of business dvelopment for Tadiran Group, an indoor air quality purification company.