Chapter 1: The power of the tugboat

MILTON MERRITT: The ships, they’re very large. Some of them are up to almost 1,300 feet long; some of them are as tall as some buildings downtown in San Francisco. They’re that; they’re long. 

They’re built to go fast in a straight line. And so once they get into a Harbor, they have to slow down and that’s where the ship assist or the tug assist comes in. 

REID HOFFMAN: That’s Milton Merritt, the President of AMNAV Maritime. And he’s describing some of the massive cargo ships that come in and out of the San Francisco Bay. Milton’s in the tugboat business, which means it’s his job to help these behemoths of the sea steer their way into the harbor.

MERRITT: Tankers are very heavily laden, a lot of cargo, and they’re very hard to steer and they’re very hard to stop. So there could be up to three tugboats, assist tugs, on those vessels.

HOFFMAN: But tugboats aren’t just there to help steer the tankers into port. They’re also critical in assisting when the big ships lose momentum.

MERRITT: There’s been many occasions where a ship loses its propulsion, where the tugboats have to respond quickly. You don’t hear a lot about it in the news because, between the pilots and the tugboats, they usually get it done and done safely. 

HOFFMAN: Just take a moment to imagine this scenario. The cargo ship is on its own, a humongous bath toy drifting out to sea. Then along comes a scrappy squad of tugs, to save the day. 

MERRITT: Communication is a key to success of bringing these large vessels in. we actually put up a line on their stern and we can actually steer the vessel if it were to lose propulsion. 

The ship’s crew will throw down a line, and it has a ball that’s weighted and it’s called a monkey fist, it’s kind of a braided ball. And then our crew members will pick it up and connect it to our main line.

Also we carry rocket guns on the vessel, which is more for emergencies. 

HOFFMAN: In case you’re concerned, that rocket gun isn’t a weapon! It’s a way to propel the tow line up to the big ship from a distance.

When you’re on a massive vessel, you have two fears. Changing direction quickly and losing propulsion. Large tankers aren’t built to maneuver quickly and losing propulsion is even scarier — you’re stuck out in the water with no power. In both cases, there’s SO much at stake, with precious cargo at risk. 

Like the large ships in the San Francisco Bay, both fears can arise at large companies. You fear having limited maneuver capability and losing propulsion. 

To get moving again, you’ll need to tie a line to your own squadron of tugboats. That can come in many forms; new board members, a new CEO, new executives, reorganizing the company, or acquiring a shiny new startup. 

Yet there’s another way, creating your own tugboats from within, through smart intrapreneurship. In fact, such a feat is essential if you want to maintain competitive momentum. 

That’s why I believe intrapreneurship is critical to growing businesses of every size — as long as you give intrapreneurs the right fuel to drive innovation and pull your company forward. 

[THEME SONG]

Chapter 2: Creating the conditions for intrapreneurship to flourish

HOFFMAN: I’m Reid Hoffman, co-founder of LinkedIn, partner at Greylock and your host, and I believe intrapreneurship is critical to growing businesses of every size — as long as you give intrapreneurs the right fuel to drive innovation and pull your company forward. 

Most business leaders know the feeling of losing steam. Maybe your company is stalling out on new products. Or customer acquisition is stagnating. Like a thousand-foot tanker adrift in the San Francisco Bay, you’ve lost forward momentum and need help to enter new ports of opportunity. 

Enter the mighty tugboat, ready to hitch you up and pull you in the right direction. These tugboats can take many forms, from big changes in leadership to new product initiatives. And once those mighty little boats are in the water, it takes everyone at your company committing to the direction they’re going. 

What this means in non-seafaring terms is, you need to treat each new initiative or product launch as though it were its own start-up — and everyone on the team, as an intrapreneur.

Intrapreneurship is how big companies stay relevant amid disruption. Think, AWS within Amazon. Or Disney’s streaming platform, Disney+. Or Apple, insourcing their own silicon chips. These are more than successful products; they’re companies within companies, operating like startups, but with all the amazing resources of their parent organizations.

Sounds great, right? Well, it is — but it’s also really difficult to pull off, unless everyone involved commits to an entrepreneurial mindset. Fail to do that, and it’s like sending out your tugboats with no tow lines, and half-empty tanks of fuel. 

I wanted to talk to Linda Yates about this because not only does Linda believe in the power of intrapreneurship, she’s in the business of helping companies achieve it.

In 2014, she founded Mach49, an incubator for creating ventures inside of companies like Hitachi, Intel, and Goodyear. Rather than dragging a company to Silicon Valley, she believes in creating a mini-Silicon Valley within a legacy organization. How? By helping them create the right conditions for intrapreneurship to flourish. In fact, Linda’s methodology helped inspire our nautical theme. 

LINDA YATES: When we first started talking at Mach49, we talked about managing the mothership. But we very quickly shifted that to saying it’s about seizing the mothership advantage. There’s so much opportunity there that if you can figure out how to unleash that capability then there’s just unbelievable potential to be unlocked.

HOFFMAN: We’ll get into that methodology, later in the show. But first, let’s let LInda tell us about the origins of her own entrepreneurial mindset.

YATES: I’m a native Californian, I grew up in Silicon Valley with all the people who founded the venture capital industry. They’re all friends of my parents.

HOFFMAN: Linda’s parents were themselves successful venture capitalists and the language of scale was woven into the fabric of her childhood. 

YATES: I don’t think I ever didn’t know a time when I was thinking about innovation and disruption. That was just kind of how we grew up growing up around all these incredible companies.

HOFFMAN: Linda’s love for company-building led her into consulting in her 20’s, when she joined the Mac Group, later acquired by Gemini Consulting. It wasn’t Silicon Valley, but she did learn important lessons, and she found valuable mentors that would point her towards her mission. 

YATES: The Mac Group taught me a lot about amazing cultures and amazing leadership, but it was really a fairly classic strategy consulting firm. 

But the interesting thing is that the Mac Group had a bunch of what they called faculty partners. Those faculty partners included Gary and C.K.

HOFFMAN: Gary and C.K. refers to Gary Hamel and C.K. Prahalad, authors of the landmark 1994 book Competing for the Future. With the book, they established themselves as some of the world’s most influential business thinkers. It can’t be understated the infrastructure of ideas they provided to business strategy. In their book, they argue that businesses need more than strategy, marketing, or operations to succeed. They also need innovation. This may seem obvious now, but in the 1990s, the language of disruption had not yet taken over.

But it was about to.

Chapter 3: The origin of Strategos

YATES: That was one of those change-the-world seminal business books that basically caused this tectonic shift. 

They realized that there was an opportunity to really focus on corporate innovation exclusively, so they decided they wanted to start a company. They didn’t know how to start a company. 

They had the ideas, but they didn’t have any methodology. They didn’t have any tools. They didn’t have a way to bring it to the clients.

HOFFMAN: They didn’t, but they had a feeling Linda did. 

YATES: Gary really stepped up and said, “Look, I really want to build this company. I need somebody to be CEO of this company. I need someone who’s bilingual between the Silicon Valley and the boardrooms and c-suites of the Global 1000. Will you come join me?”

HOFFMAN: As a Silicon Valley native, Linda was exactly what Gary and CK were looking for. She could speak the language of tech startups and disruption, and she could translate it into something that made sense to the leaders of Global 1000 companies.

Linda said yes, and along with Gary, left the MAC Group to start their own consulting firm, Strategos based in Chicago. 

At Strategos, Linda helped companies in sectors ranging from technology and healthcare to energy and manufacturing. They gave the basics in how to create venture plans. 

YATES: We created TechCrunch Disrupt before TechCrunch Disrupt existed, but inside the big companies.

HOFFMAN: For a quick history lesson, TechCrunch, that iconic launch pad for aspiring startups, was founded in 2005. What Linda is describing took place in the late ’90s. Think of it like a “venture boot camp.”

YATES: We had them write venture plans and they do a little trade show at the end. We leave them with those ventures and hundred-day plans. That was when we left. Because we were helping them basically build this innovation culture. And that was what was so exciting.

Chapter 4: Innovation culture

HOFFMAN: Pay attention to that phrase, “innovation culture.” It’s one of the most important factors in whether an intrapreneurial project will succeed.

Because one of the harder things about intrapreneurship, as opposed to starting a new business from the ground up, is that you’re trying something out that might eventually disrupt something the larger business is doing. Scaled businesses tend to become more efficient, and more conservative, over time. After all, even a band of start-up pirates will need new systems and disciplines as their organization gets larger.

That’s why when a scrappy, entrepreneurial project comes along, it can seem alien. The business model may be risky, full of apparent inefficiencies and ideas that might cost the company money. If you approach that without a strong culture of innovation, your new venture will be dead in the water. 

To dive deeper into the idea of needing an innovative culture, we’re going to hear from Bill Ford. Bill Ford observed exactly this problem on his own two-part episode of Masters of Scale. Bill is a big believer in borrowing from the Silicon Valley playbook to innovate within scaled companies. Here’s how he describes visiting Silicon Valley when he joined the board of eBay in 2005:

BILL FORD: I joined the eBay board when eBay was a young company, and it took me out to Silicon Valley every month. On the board, there were people like Scott Cook and Marc Andreessen and others. And I would ask them, “I’m going to stay out here another couple days. Can you set me up with some interesting things to see and do?” Some were related to Ford like Tesla in the early days when Martin Eberhard was actually the CEO; others had nothing to do with the auto industry, but were new concepts, new ideas, new interesting people.

And I would come back to Detroit and just really be quite depressed about the lack of curiosity that I would find. And it didn’t take me long to realize that our world was going to change dramatically, and nobody was awake.

HOFFMAN: What you can hear in Bill’s story is a difference in culture. And just like Bill Ford, Linda found herself advocating, over and over, for the culture at big companies to shift towards innovation. In fact, as time passed, Linda began craving a more direct and hands-on role in creating and shaping companies, and so after a couple years decided to change course:

YATES: I shifted gears and went back into Silicon Valley, rekindled my roots, and sat on boards, and invested in companies, et cetera.

HOFFMAN: Something interesting happened once Linda returned to Silicon Valley. She noticed a fundamental change in what kind of companies were being given attention when it came to innovation. 

YATES: If you think about the venture capital industry when it was founded about 50, 55 years ago, it was investing in all the dreamers, people creating whole new industries. So think of pure software. That was something completely new, completely different. Fast forward about a decade ago and all of a sudden now you see all the VCs investing in all the disruptors. 

And so what I was sitting there observing is that all these large companies now were flocking to Silicon Valley, looking either to figure out what hit them or looking for that innovation fairy dust to sprinkle upon them.

HOFFMAN: Big companies were setting up their own outposts, looking to feed off of the Silicon Valley ecosystem. 

But to Linda, that was all wrong: There isn’t some magic fairy dust that will transform your company once you cross into Silicon Valley’s ZIP code. Linda wanted to sit down with these large companies, and convince them that the magic to innovate and create intrapreneurs was within them.

Chapter 5: Antibodies to change

YATES: I’m a huge believer in these large companies that they have all these core competencies, assets, and capabilities. They also have the orthodoxies, inertia, and antibodies that either caused them to kind of love something to death, but more often than not starve them of oxygen or kill them.

HOFFMAN: What Linda just said is exactly right. The so-called “antibodies” within businesses at scale are, in many ways, necessary. But they also can make it difficult for a new product or initiative to have the space to grow. Because antibodies can treat any new growth as cancer. 

That’s why the secret to successful intrapreneurship often requires creating some distance between the new project, and the core business. Most of all, you need support from the very top of the company. I spoke to my producers about this recently. Here’s a bit of that conversation.

HOFFMAN: Fundamentally what you need for intrapreneurship is you need buy-in from the CEO. You need enough protection because the company really derives its culture and operating measures and efficiency. “Hey, we put in a dollar here, and we reliably get $2. 

And so you need to have isolation from that because all the early things will all be loss leading, negative indicators. So, you need backing from the CEO or an executive. You need some separation from the rest of the business.

And you need to have what that mission is, why you’re doing it.

HOFFMAN: As an example, here’s a story from Nest co-founder Tony Fadell, on his own episode of Masters of Scale. Tony spoke to us about joining Philips Electronics as CTO, and head of their Mobile Computing Group. He was just 26, and coming off a stint at the legendarily quirky startup, General Magic. 

After trying to build in a place without much structure, he was looking forward to innovating new products inside of an established company like Philips. 

FADELL: I’m going to copy and leave the lack of process at General Magic behind, put in some process. I didn’t know what that was, but some process is better than no process.

HOFFMAN: However, Tony soon ran into a problem any intrapreneurs listening will likely relate to: The steep and rugged hill you have to climb to get traction for a new, niche idea in an established organization.

FADELL: There’s even more politics when you’re trying to do something all new at a big company, at least back in those days. People are like, “Why are we doing this little thing? We have bigger fish to fry with this thing that’s making 40% or 80% of our revenue. This thing, who knows if it’s going to exist?”

It’s like, sitting around a dinner table with your siblings, and everyone’s running after the food, right? And you get the scraps. Well, usually these little programs get the scraps of resources, budgets, everyone being naysayers, all that kind of stuff.

HOFFMAN: In the end, Tony left Philips in frustration. But don’t worry — he would go on to find great success with a different intrapreneurial endeavor, developing the first iPod for Apple. 

Like Tony, Linda also felt that frustration and tension between a company and a new intrapreneurial idea that could help a company. Because of her experience she felt she could find a balance between these tensions. 

Linda’s work in both Silicon Valley, and in the corporate consulting world, gave her a unique vantage point in the battle between Silicon Valley insurgents and legacy companies. 

YATES: And I said, “God, this just is crazy.” They have ideas, they have talent, they have brand, they have channels, they have customers. There’s literally no reason that these large companies cannot beat the startups at their own game, or at least join up with the startups to help change the world.

HOFFMAN: Hear how Linda would make this possible for large companies after the break…

[AD BREAK]

HOFFMAN: We’re back with Linda Yates of Mach49! If you’re enjoying this episode, please share it with friends — just click the Share button on your podcast app. And to hear my complete conversation with Linda, become a Masters of Scale member at MastersOfScale.com. There’s plenty we talked about that we couldn’t fit into this episode, including the best advice she’s ever received and a delightful misadventure while playing golf. You won’t want to miss it. 

Before the break, you may remember the colorful way Linda described the powerful resource advantage of scaled companies.

YATES: It’s about seizing the mothership advantage. There’s so much opportunity there that if you can figure out how to unleash that capability then there’s just unbelievable potential to be unlocked.

I do believe that if you take enough speedboats and you tether them to the mothership in the form of ventures and they’re successful, then all of a sudden people are going, “Ooh, wait a minute. Those are worth $100 million or $200 million or $300 million? Tell me again what those shifts are I have to make to make this a repeatable, scalable model.”

Chapter 6: The origin of Mach49

HOFFMAN: Linda decided that the best way to help companies seize this ‘mothership advantage’ was to start an incubator. So in 2014, she did just that. She called it Mach49. 

And unlike many incubators dotting Silicon Valley, Mach49 was designed for use inside global businesses. 

YATES: With Mach49, we were here to build capability, not dependency. That was what was missing from these large companies. They had talent. They had ideas, frankly. Sometimes they don’t know how to sort them. But they had three challenges. 

One, they had no methodology. So one of the problems that large companies have, when they try to basically copy YC, or they try to copy 500 startups.

Is that YC and 500 Startups, their success rate, what 12%? Amazing returns, but given that they are in multinational multi-billion dollar, public companies that just doesn’t work. They needed methodology.

HOFFMAN: Notice that Linda doesn’t say, “they need MY method,” or “they need this one magical formula.” Every company is different. But if you want intrapreneurship to succeed, you need a method… 

YATES: The second thing was this issue of friction. They have all these advantages, but if they have all these orthodoxies and they can’t unlock their capabilities, their assets, their competencies, et cetera, then that friction is going to basically destroy anything they try to do.

HOFFMAN: Any sized organization can have friction. But as you scale, they tend to multiply. The bigger you are, the harder it is to make pivots. Because one thing that’s true of big ships — they tend to turn slowly.

Some of this friction can be selective, where the leadership allows some risks but not others. A corporation might be willing to incubate a project that undercuts its own business model, but not allow a brand risk, with a product that could confuse customers. Figuring out where your company’s appetite for risk stops and starts is one key to navigating this friction. And then there’s the final challenge.

YATES: And then the third thing that we realized early on is that senior executives fail to grow. So in a large company, different from a startup, you have people who are really good at running large companies, but they have to learn just alongside their internal entrepreneurs, how to be top tier VCs. How to adopt a portfolio mindset, how to think in terms of option value, not net present value, and how to think in terms of how to basically kill ideas, right? And how to remove the greatest amount of risk on the least amount of capital as opposed to throwing dollars.

HOFFMAN: This challenge, by the way, is even harder than it sounds! Because one of the main drivers of entrepreneurship is the existential threat of defeat. It’s jumping off a cliff and building an airplane on the way down. There’s no safety net — either you crash, or take flight. 

Inside of a scaled company, you can find incredibly passionate people, dedicating themselves to an intrapreneurship venture. But if it ever falters — the way most startups do at some point — there’s a real temptation for a senior executive to pull the plug, and reassign that person back to the core business.

If you’re an intrapreneur listening now, you may be thinking, “GREAT. My job is even harder than I thought. Thanks a lot, Reid. Now what?” 

Well, think back to the tugboats at the top of the show, it seems inconceivable that such diminutive boats can move such massive ones. But with the right coordination and support, it is possible. 

That’s true here too. Linda just named three challenges to intrapreneurship. So naturally, she has a three-step solution. The solution may not uniformly fit every enterprise, but it provides insights and guidelines for any intrapreneurial venture, even the ones at less than the gargantuan size. 

YATES: So the way we think about new venture creation is across the spectrum from ideate, to incubate, to accelerate to scale.

Chapter 7: Inside Mach49’s intrapreneurial process

HOFFMAN: First, you need to assemble a team to come up with ideas. For Mach49, this is a 12 week process. And to Linda, it’s vital to free up employees if you wish to create a new venture.

YATES: “Hey, you’ve got to have a full-time team. If you’re an $11 billion company and you’re telling me you can’t free up four to six people for 12 weeks, you’re not serious about this. So we can’t be successful.” 

HOFFMAN: To Ideate, you also need a strong leader for the team. 

YATES: You need someone who is the interim CEO at least an amazing, amazing leader.

So sometimes you have to bring a CEO or head of product or a go-to market in from the outside.

HOFFMAN: The new idea might need a temporary CEO or someone from outside the organization to lead the new intrapreneurial idea. Either way, your top leaders and founders at your company will need to be engaged and on board with picking new leadership for the new venture. 

YATES: But I do think, and if the senior executives aren’t involved, as much as I love the front line, and I love their enthusiasm, if the CEO and the C-suite are not engaged, and they don’t buy it, and they don’t believe in it, go find another company where they do, because it will never happen if those guys are not engaged.

HOFFMAN: Exactly. Buy-in from the CEO and other top executives is mission-critical to the success of the project. And as Linda said, they must be willing to give their ‘ideation team’ time and space to invent and enough capital to reach the next phase. 

YATES: You have to have access to funding. So the one thing that will kill these internal ventures is if you don’t know where, because We’re not doing some theoretical abstract exercise. We’re here actually to build companies, new businesses.

And if they don’t know where that funding is going to come from, then we have a bunch of pilots ready to go at the end of 12 weeks with customers who are eager to go to basically launch your MVP, to experiment, run pilots. And guess what? You sit around for three months going to look for a million and a half dollars or half a million dollars or euros or yen. Forget it, right. Nobody’s going to sit around and wait. 

HOFFMAN: If your intrapreneurial ideation has these conditions in place — time, a team, and capital — it can yield powerful concepts. Microsoft has executed such concepts. For example, in the late 90s, a group of Microsoft engineers had an idea for a PC video game console to compete with Sony’s Playstation. And in 2001, Microsoft launched Xbox, which grew into a substantial video game brand, streaming and online service used by millions world wide. 

Once you have the right conditions in place you need to ask yourself the next set of questions: What do you want this innovation to do? Where do we want it to go? When Linda sees her clients asking these types of questions, they’re ready for the next phase. 

Now’s the time to find out if your idea has legs. You see if it’s up to the task of pulling the larger company toward new markets and opportunities. Does the idea work with customers? Is there a demand? That’s exactly the type of plan Linda draws up as companies grow their ideas.

YATES: It’s a ‘how might we’ statement on the pain we’re trying to solve and a stakeholder map of whose pain we’re trying to solve. Those two things give us a starting point. From day one after that, then we are interviewing customers like crazy. In essence, they go into what we call the incubate phase. One is what we call customer development where they’re out interviewing somewhere between 300 to 400 customers in 12 weeks. Why every venture capitalist does not require startups to actually go and talk to customers, I really don’t understand, but it may be part of why we have roadkill in Silicon Valley.

We start with the open ended discovery kind of value proposition oriented interviews. And they’re really looking for pain and to convince themselves that there is pain. Who are they targeting? They start to basically pivot and triangulate around who that is.

Because if there’s no pain, if there’s no product, then guess what? You teach it to kill it. 

HOFFMAN: That’s right — all that testing may end up with you scrapping the project. Just like in entrepreneurship. 

After Linda’s clients know what their customers want, through trial and error, killing ideas, creating new ones, it’s time for the third phase…

This is where the mothership advantage really kicks in. Once a project has made it through ideation, and past all that customer testing, it’s Time to scale that idea and hit full throttle. 

YATES: At that point, they do their final pitch to their new venture board. Their new venture board, it’s go / no go.

HOFFMAN: If it’s a go, then it’s time to accelerate, and speed the venture along. 

Linda likes to point out the importance of seizing the built-in advantages of accelerating an idea within a company. 

YATES: What I say to people is, “Listen, you cannot sit back. You have to act like a top tier VC, you got to participate in some of the activities to provide the access to customers, channels and markets. That’s the advantage they have over any well funded startup. They have 30 million customers. They know where the core competencies, the assets and the capabilities are, and they can remove the friction when it exists. and know where the funding is going to come from. Because if they don’t know where the funding is going to come from, then you might as well not start from the start.

HOFFMAN: For Linda and Mach49, there’s a lot at stake for intrapreneurship to succeed. 

YATES: And as much as we love startups, most of those people are employed by large companies. They need meaningful, purposeful work. It gives opportunities for people who are 55 and 60, who might not be able to afford to be an entrepreneur, but who are entrepreneurial, to participate, and to have that purposeful work.

And the second thing is we need our large companies knowing how to disrupt, and to innovate, and to experiment, because they are the ones who can solve the world’s biggest problems, from healthcare, to climate change, to sustainability, to racism, to wildfires, to poverty, to education, to water. And if you marry our Global 1000 companies with startups, that can move and can be agile, if you can put those things together, then it’s magic.

Chapter 8: The conditions you need to innovate

HOFFMAN: To have successful intrapreneurship, you need just that: a set of magical conditions. You need motivated employees who are passionate about bringing the new initiative into existence. You need leadership support and buy in, and the allocation of resources to enable the venture. You then need execution of the idea — it needs to be serving your targeted customers and still be related to the company’s larger mission. 

It’s a fine alchemy getting all these elements together. To grow a business, though, and to push it forward, to maintain relevance, this alchemy may be necessary. With the right fuel, Intrapreneurs can drive innovation and pull your company forward. But whether you’re a scrappy startup, or a global player, innovation is worth the investment. 

I’m Reid Hoffman, thank you for listening.