It is hard to build an agile, innovative startup inside a big corporation. But not impossible. Setting boundaries and defining your terms carefully will help minimise the risk of failure.

If you’re running a startup inside a corporate right now, change management consultant and author of intrapreneurship bible This might get me fired Greg Larkin says you should expect the “f*** you, pay me” meeting with the chief financial officer to land in your diary any day now.

I’ve been there as an intrapreneur growing a startup inside a corporate and also as a CFO making decisions on internal startups and I can report that this “innovation crisis” — this tension between the desire to innovate like an agile startup and the realities of how corporates operate and are measured — has always been there.

Sure, the current economic climate is making those tensions worse and there will be casualties. But I believe that, fundamentally, corporates are going to continue to invest in some internal startups, accelerator programmes and their intrapreneurs. That’s because they know it’s key to attracting and retaining tech talent to otherwise fusty businesses, and it can — managed right — accelerate the innovation they need to stay relevant in fast-moving markets.

Making this work — surviving the culling of internal innovation that has already begun, and successfully achieving your intrapreneur goals within your parent company — is hard. Harder, I would say, than being an entrepreneur in a regular tech startup because:

  • Regular startup founders can fundraise in the market. Corporate intrapreneurs can typically only access internal R&D budgets — there’s less leverage and usually less money
  • Startups get the grace of time from their investors before they need to be cash positive. Internal startup teams are often marked from the get-go against the corporate’s regular, established revenue-generating divisions. There’s typically a lot less time to find your product market fit and prove your value.
  • Startups can hire in the market, attracting the best talent to fit their goals. Internal startups often inherit existing corporate resources or worse, have to timeshare on key team members, so there’s less ability to shape the team to meet objectives.
  • Internal startups often have to use internal corporate functions like finance, marketing, PR and legal, and they have to get in the queue behind established revenue-generating parts of the business. It’s not so much “move fast and break things” as corporate brakes on full lock.

But it’s possible to make this work. I led the development of Boku Identity as an internal startup within mobile payments business Boku, and launched a set of identity verification products to the market. We secured global customers and then, two years into that journey in March this year, I led the acquisition of Boku Identity by Twilio.

While there’s no hard and fast recipe to make “intrapreneurship” work, I do have five tips to make sure your internal startup returns value to your corporate master and avoids the innovation graveyard.

1. Separate Church and State

Your startup might sit inside a bigger corporation but believe me, they’re not the same — so don’t let them be treated alike. That means establishing your internal startup’s own governance framework — one that gives it the freedom to be agile, risk-taking, and do what’s necessary to grow. This can’t happen if you’re tied into the same metrics as existing revenue-generating divisions and product lines in the business. Invest in negotiating these terms up front with the board, or chances are you’re collectively investing in failure. If you’re growing a startup inside a publicly listed business, be crystal clear about what you’re signalling to investors and avoid setting unrealistic expectations on your future revenues.

2. Definitions matter (never call it a “project”)

It’s crucial for everybody involved in your internal startup — from those on the ground all the way up to the mothership — to share the same understanding of your internal startup’s specific mission. This means both the mission for your customers and the internal mission for your corporate. Be clear about the strategic link between your satellite and the mothership or focus on how diversification is good for the wider business.

Defining your identity as an internal startup is important. Call it a project and people will treat it like it’s going to finish at some point or think that it’s extra-curricular. Recognise your endeavour as a startup within the business — with its own brand identity, strategic goals and firewalled team — and it becomes something that can take on a life of its own. Make sure you have some fresh talent in the team to avoid group-think bleeding across from the corporate business.

3. Bring in an external CEO — but build trust with the internal board

The boundaries outlined in the last two bullet points are there to give your internal startup the freedom to execute and succeed. Don’t slap the shackles back on by electing a board-appointed company suit as the internal startup CEO. Outside perspective and experience scaling early-stage are mission critical, as is a willingness to hold off intrusion and fight your corner when the going gets tough so your startup can find its feet and build trust with other parts of the wider company.

This was part of my role at Boku identity. I was a barrier and a bridge between the startup and the boardroom. With a diverse background in small technology startups, I had genuinely useful insights to offer and was experienced enough to know the damage that just relaying the corporate line can cause — all while maintaining good communication with those upstairs.

“Treat your board like your lead investors.”

Because a trusting, mutually supportive relationship with the corporate board is vital. As the startup CEO, it’s your responsibility to secure buy-in from the company CEO and CFO on the mission, level of internal investment required, and a different set of KPIs. Plug into and nurture your relationship with the next level of management to protect your internal startup if (when) there are changes at the top. Treat your board like your lead investors and remember transparent communication and regular reporting are key. Give them the data they need to satisfy their stakeholders.

4. Ring fence resources

Too often, corporates look to reduce an internal startup’s budget by mandating it uses internal resources. But remember, an internal startup is looking for the flexibility to move fast. Competing against other departments for legal, finance, sales and marketing support is time-consuming and usually results in defeat in favour of established teams with proven ROI. Strive to ringfence a multi-functional team and resources from the beginning as part of your budget. Having to share R&D talent and budget is a fast route to obsolescence.

5. Reject conventional wisdom on things like location

Accepted thinking will be toxic to your development. Take location, for example. It used to be ‘known’ that separate locations for internal startups were the way to avoid corporate groupthink. If it was true before, it’s not now. We’re in an age where most of us dial into meetings even if we’re sitting a few yards from each other. What’s more important is setting a separate, robust culture and framework. While we’re at it, feel free to add heavy-handed programme management, slow and methodical product development approaches, and overbearing governance and approval frameworks to the list of things your startup should ignore.

Corporates will continue to invest in internal startups. There is a big opportunity to drive innovation from within corporates — especially if they become more hesitant to invest in external startups in a turbulent market.

However, with the economic winds now blowing, you can expect to find corporate gatekeepers more selective on what they invest in, more demanding on time to market and revenue return — and far more willing to wield the axe if metrics aren’t met.

Success depends on you taking all the benefits of corporate sponsorship (brand, budget, knowledge, network and resources) to drive new products and solutions — while building firewalls from the start to keep the corporate bears at bay.

Stuart Neal is the former General Manager of Boku Identity, acquired by Twilio in April 2022