Randy Komisar is a Consulting Professor of Entrepreneurship at Stanford University. He is the author of a best-selling book on entrepreneurship, The Monk and the Riddle, published by Harvard Business School Press, and is also the subject of a Harvard Business School Case Study on innovation in  building new businesses. Randy was previously CEO of LucasArts Entertainment and Crystal Dynamics. He currently is a partner with Kleiner Perkins, and  serves as a director or advisor to a number of public, private, and nonprofit organizations.

Randy believes that large and small companies excel at different types of innovation. Large-company success relies on leveraging established policies and procedures designed for managing complex and large-scale operations:

"Large companies are particularly good at incremental and customer driven innovation. They value and are structured to solicit extensive market feedback, and have well-developed processes and ecosystems to support existing businesses and markets. They also have resources and expertise that makes them highly capable of taking products from concept to market. They don’t do as well in breakthrough “game-changing” innovation."

While large companies excel at process, this type of innovation is not process driven. To the extent that large companies have the flexibility to adjust their market definition, M&A, joint ventures, and partnerships are legitimate R&D substitutes for this in large companies. On a risk adjusted basis, this may make more sense for them. In looking at venture-funded startup companies, on the other hand, Randy sees organizations that are free of traditional large-company constraints and are encouraged by investors to pursue uncertain paths:

"Start-ups are valuable because of their speed, innovation, vision, and willingness to flirt with disaster. Following a plan is not the key to start-up success. You have to set a course and constantly question its appropriateness, zig-zagging to avoid the minefields that pop up around every turn while staying as true to your compass as possible.  Teams who come together in a startup to develop a new product and new business have a heightened level of confidence that they know what the market needs.  Because the startup’s initial concept is  built around the confidence in a better solution rather than  market consensus, relying too heavily on market feedback can lead to paralysis.

Randy emphasizes that these differences are driven primarily by the risk profiles of the two types of firms and their respective shareholders:

Large companies have quite a few 'false negatives.' While new products tend to succeed, risk aversion leads to many potentially successful innovations being shelved. Fundamentally, large companies err on the side of not making mistakes. The more uncertain the technology, the less likely established companies are... to pursue it. Their culture is typically not built around tolerating failure or rewarding risk taking. On the other side, the higher risk acceptance in the VC-fueled innovation industry leads to a lot of false positives. The portfoliooriented business model means that less screening is necessary, since the market results will determine the winners. It is a laboratory model, where failure is much more tolerated, and built into the overall industry’s financial model.

Finally, Randy points out that organizational models differ dramatically between the two types of businesses.

While large companies focus on continuity and leadership development, startups often require  leadership changes and  the acquisition of skills and talent from outside the company as they  progress: Small companies exist on a continuum. The move from pure technology development to productization requires a change in competencies, new capital, and managing a different kind of  risks. The next progression to market and ecosystem development again requires different skills and a change in focus. Large companies are beyond this in maturity, and focus on institutional maintenance and fine-tuning existing processes.

From Hunter or Hunted - Chapter 1