The Cookbook for Successful Internal Startups

THE COOKBOOK
FOR SUCCESSFUL
INTERNAL STARTUPS
Jukka Märijärvi, Laura Hokkanen,
Marko Komssi, Harri Kiljander,
Yueqiang Xu, Mikko Raatikainen,
Pertti Seppänen, Jari Heininen,
Mervi Koivulahti-Ojala,
Marko Helenius & Janne Järvinen

Authors | Jukka Märijärvi, Laura Hokkanen, Marko Komssi,
Harri Kiljander, Yueqiang Xu, Mikko Raatikainen,
Pertti Seppänen, Jari Heininen, Mervi Koivulahti-Ojala,
Marko Helenius, and Janne Järvinen
Graphics | Marja Hautala, Muuks Creative
Images | iStock
Design | Katja Kuuramaa, Cultural Cooperative Vehrä
© Writers
ISBN 978-952-93-7065-8 (print)
ISBN 978-952-93-7066-5 (pdf)
Helsinki, Finland 2016

Content
Preface 7
1. If you have time to read only one chapter, this is it 9
Case: OP Financial Group Mobile Wallet App – Pivo 12
Case: Internal startup experiences from General Electric at
Lean Startup 2015 conference, San Francisco, November 2015 15

2. Big companies are very good at doing the old 19
2.1 Big structural changes 20
2.2 Wait and see 20
2.3 Changes based on changed vision and strategy 21
2.4 Internal innovations 21
2.5 Mergers and acquisitions 21
2.6 Three horizons 22
2.7 How does an internal startup fit into the picture? 23
Case: Tieto – SPARK! Innovation program at Tieto 24
3. Startups 1-2-3 29
3.1 What makes a startup? 29
3.2 Please work for free with little chance of success 30
3.3 Classic startup story 30
3.4 Continuous business planning 31
3.5 Marketing 32
Links to good reads & tools for marketing 32
3.6 Pitch 33
3.7 Lean Startup concept 34
Case: Supercell 36

4
4. Internal startups 41
4.1 Mission and objectives 41
4.2 Preparing for the change 42
Internal competition noted and managed 43
Assign someone to ramp this up 43
Create an innovation board, or have an extension
to the regular leadership team 43
4.3 The new roles and responsibilities 43
The Corporate Business Angel 44
The Corporate Entrepreneur 45
Internal startup advisor 45
4.4 The team and its growth agreement 46
4.5 The role of the Board and the executive team 47
4.6 The role of the CEO and other executives 48
4.7 Organizational positioning 49
Agreement with the Board and the top leadership team 49
Funding 49
Business leader supervision 50
KPIs in different phases of the startup 50
4.8 The role of corporate functions 50
Human Resources 50
Legal and IPR 51
Brand and communications 51
Marketing and sales 52
IT, processes, and tools 52
Neste Oil 53
Evaluate your current innovation process, skills, and
competencies 54
4.9 Physical location 55
5. Big company boost and inertia 57
5.1 Strategy, target-setting, and focus 58
5.2 Customers, sales, and marketing 58
5.3 Hiring, incentives, and HR policies 59
5.4 Technologies 60
5.5 Funding, budgeting, and reporting 61
5.6 Business development 62
5.7 Brand, design, and communications 63
5.8 Legal and IPR 65
5.9 B2B versus B2C internal startups 66
5.10 Key takeaways 66
Case: Lokki by F-Secure 68

5
6. The lifecycle and alternatives of an internal startup in an
organization 73
6.1 Background 73
6.2 Case examples 77
Case: Quality Intelligence by Qentinel 80
Summary 83
6.4 Conclusions 85
The rules of successful F-Skunk works projects 85
7. Recipes 87
Real benefits and return of investments 87
Branding 88
Learn from mistakes 89
Lifecycle of an internal startup 90
Soft launch 91
Avoid Bureaucracy 92
Top management sponsorship 93
Use shadowing 94
Exiting 95

7
Preface
T
his book is the result of the (hard) work done by members of
Finnish universities, research institutions, and companies in
DIGILE’s research program Need4Speed.
Digile: What kind of know-how does the Internet economy require?
What works and what doesn’t? Are we missing an algorithm or a
business model? DIGILE’s two- to four-year research programs are
built and implemented in an open fashion together with companies,
universities, and research institutions. These research programs follow
the principles of agile development, and work progresses in sprints.
The Digile research guidelines (SRA, strategic research agenda,
and SRIA, strategic research and innovation agenda) are affirmed by
DIGILE’s board of directors, and the funding comes from companies,
universities, and research institutions, as well as financiers such as the
Academy of Finland and TEKES.
http://www.digile.fi
Need for Speed (N4S): N4S is creating the foundation for the Finnish
software-intensive businesses in the new digital economy. N4S adopts
a real-time experimental business model and provides the capabilities
for instant value delivery based upon deep customer insight. The
program is executed by the foremost Finnish software companies.
The consortium consists of 13 large industrial organisations, 16 SMEs,
and 11 research institutes and universities. The four-year program of
DIGILE (2014-2017) is partly funded by Tekes.
http://www.n4s.fi/en/

9
C
isco Systems chief John Chambers claims that 40 percent of
companies “will not exist in a meaningful way in 10 years.” We
are in an era of unprecedented technological disruption and
change that only the most forward-looking companies will survive.
Over the past several years, companies have had to change to meet
the threat of accelerating competition coming from startups and
other global industry players. Digitalization is all the rage, and many
companies are evaluating what to do in order to stay in the game.
Our answer to this question is to use internal startups as an
innovation accelerator mechanism to better select and execute the
correct innovations. This mechanism brings cheaper innovation
execution and faster time to market, which eventually transforms the
company into a growth company.
An internal startup is a setup in which a company launches a
separate (semi-)independent initiative to pursue a new innovation
or an idea. Internal startups can test (and iteratively re-formulate) the
idea based on fast feedback, follow through to market making and
product launch, and eventually end by integrating the initiative into
the existing business portfolio.
Alternatively, the startup might fail quickly and be killed if the idea
does not work. The model is built so that failing is cheap and comes
early. The model does not start from building an expensive prototype
to test if customers like the features, but rather from the question of
whether the product should be built in the first place.
Internal start-ups should have freedom from the rest of the
organization but still be integrated into the corporation. Freedom
is needed for quick execution and market trials, as well as for re-
focusing based on the feedback. Still, corporations have many assets
and competencies, which will come handy during the process. For
example, legal and pre-production services are just a call away.
1. If you have time to read only one chapter,
this is it
Jukka Märijärvi

10
Why not just invest in external startups? Internal startups are most
likely the best instrument if a corporation wants to try out new things
and if the new things clearly fit into the corporate vision and strategy.
Finding a well-matched startup from outside may be difficult, if not
impossible. With internal startups, the company stays in the driver’s
seat, and additionally modifies the existing culture to be less siloed,
rigid, and inflexible.
Top management is needed to make this happen. Corporations
need a corporate sponsor with a budget to invest and a wide back
to hide and protect the internal startup team. Additionally, there are
some other changes that need to take place, but we will describe
them in detail later in the book. A suitable operative mode needs to
be defined and communicated to the organization. This means that a
new culture and operative mode need to be built for internal startups
to work efficiently and co-exist with existing business. Running the
new with the old way of working is a bad idea and rarely succeeds.
Does this work? Yes it does — and there are several case examples
in this book. In Finland, F-Secure, Tieto, and OP Finance Group have all
used the concept.
Startups often create apps for ecosystems, but what if you’re
creating embedded products or hardware? Has this method been used
in that context? Yes. For example, General Electric noted in the 2015
Lean startup conference that in their heavy-duty gas turbine division,
they were able to shorten cycle time from 7 years to 4.5 years using
FastWorks methodology (their version of a lean startup approach).
Does this all really work in a big company? General Electric has
started using internal startups in a big way. GE has, for example,
150 full-time coaches to mentor the organization, which has widely
accepted the methodology.
What if you’re in a regulated industry, like medical, banking or
elevators? This system has also been used successfully in these cases,
within the borders of what the regulations allow. Typically, people
with deep knowledge of the rules and regulations have been part of
the internal startup team.
With internal startups,
the company stays in
the driver’s seat, and
additionally modifies
the existing culture to
be less siloed, rigid, and
inflexible.
“

11
How to read this book
This book is a combination of different writers and different corporate
experiences. Therefore, it has some overlap.
Chapter 2 details challenges that big corporations have. It is
recommended reading if you come from the startup domain and have
little experience in big companies.
Chapter 3 is for people who don’t know the basics of startups, i.e.,
people with a background in big companies. If you know the startup
world well, you can skip this chapter.
Chapter 4 is the theory section on internal startups and provides
guidance on how to build such startups and what the common pitfalls
are.
Chapter 5 is written from an internal startup leader with a team
perspective and is based on a real example. If you are actually running,
or planning to run, an internal startup, this chapter is for you.
Chapter 6 describes alternatives to internal startups and other related
discussions.
Chapter 7 is for the Recipes.
Additionally, there are several company case examples in boxes at the
end of the chapters.

Case: OP Financial Group Mobile Wallet App –
Pivo
OP Financial Group won the Red Dot for interaction design in
the Red Dot Award: Communication Design 2014 competition,
for the interaction design of Mobile Wallet Pivo.
T
he Finnish banking market is dominated by just a few major
players, of which OP Financial Group is the largest. Due heavy
legislative requirements, user-centric innovation is both slow
and difficult. To fight this, OP Financial Group set up a research and
development unit in the northern city of Oulu, formerly a major site for
Nokia-related development and consumer electronics. The location
of the site was optimal — still urban and accessible to wide amount
of talent, but at a distance from the headquarters, which allowed
innovation to flourish.
The bank set its sights on launching a 100% Finnish mobile wallet,
which would revolutionize the way application users would see their
personal finances. One of the first goals set was to have a permanent
spot on the first screen of a smartphone, as an app that would be
used daily. In order to reach this goal, the app should be pleasant and
delightful to use and beautifully unique by design.
What happened next was stunning — less than six months after its
release, Pivo climbed to the top of the Finnish app store and claimed
the spot of most frequently accessed banking app in the country. Pivo’s
unique selling point was its beautiful and effortless way to follow and
understand one’s own daily expenditures and tap into various offers
(a mobile variant of US coupon offers) and loyalty programs at once.
The actual mobile payment functionality has now been added into
the app, and a pilot for Android users is going on at the moment.
Pivo was created primarily to improve customer satisfaction, and
at this it has been tremendously successful: Pivo users generally give
significantly higher ratings for it when compared to other OP financial
group’s services. Some statistics:
• 33% of users open Pivo every day
• 66% of users open Pivo weekly
• 4.5/5 is the average rating for Pivo in the iTunes App Store
• 700000+ downloads as of 1.12.2015 (Finnish population: 5M)
Jukka Märijärvi and Kristian Luoma
12

Kristian Luoma is heading the team and tells us what they have learned from the
case:
Originally, 3-4 years ago, mobile payments were noted in the OP
Financial Group’s yearly vision as work that should be important, but
the topic did not clearly fit into anybody’s agenda. So it was decided
to form a team — a collection of people who knew about mobile
payments. They started off with the problem.
The site in Oulu was new, and far from the headquarters. Most
people were new hires, but the business owner of the problem was
an OP Financial Group veteran, bringing in a wealth of banking
experience.
The team started off by using the lean startup paradigm rather
strictly and as an internal startup inside the OP Financial Group. Now,
Pivo is its own company with its own management. Pivo became a
separate company from the mother bank in order to be bank-agnostic,
so it can be used by customers from all banks.
The lean startup methodology was found to be very good, but it
also became clear that since it is a very disciplined model, if one follows
it (like one should) then one needs to be prepared for it.
Initially the team created a set of assumptions, which, looking back
now, were all wrong, and they changed them over time. But this is fine.
The whole setup is such that fast learning is the key. Being initially
wrong does not matter, as the methodology tests the assumptions
early on and then calls for end-user feedback to be used to re-direct
the project.
Over the years, around 100-200 versions have been developed and
launched to learn more from customers. Initially, a new version was
provided each Tuesday to study users and markets.
Here are recipes based on OP Financial Group’s Pivo experience.
Even though Pivo has been a success, the team learned some things
they would have done differently from their experience, and they want
to share them here with you:
• 50% new and 50% old could be good composition for the
team. Old-timers know the application area and how the
company works, while new people bring in fresh competencies
and thoughts. The executive sponsor naturally needs to be a
company veteran.
• The team needs to have a clear mandate to be able to work.
One needs to minimize the disturbances of work. Fewer
interfaces for people, management, customers, etc. means
faster speed, which then enables fast changes and faster
learning.
• Scale later rather than sooner. Scaling too early adds to
interfaces and naturally slows the team down.
13

• Keeping the customer base limited also increases speed.
Releasing the product to a lot of customers slows the process
down, as the customers need to be taken care of.
• The internal startup model based on lean startups is a good
model, but remember to provide enough time and money for
the learning and development rounds.
• You should add the investor milestones in, which adds
the reality of the startup world and creates a rhythm for
development.
• Even if you run it as an internal startup, consider having an
advisory board with externals in the setup.
• Remember that seldom the big number of features is the key
product selling point.
• The key point to innovation is the problem and customer
understanding. Understanding how to solve the problem
requires time — recognize this and reserve time.
Pivo can track your finances, such as what is spent each day and what your
account status is.
14

Case: Internal startup experiences from
GeneralElectricatLeanStartup2015conference,
San Francisco, November 2015
A
t the Lean Startup 2015 conference, Eric Ries explained that,
based on his experience, twentieth-century management is
based on the standardization of work and minimizing variation,
and that the Lean Startup concept is trying to get away from that. He
went further, saying that the Lean Startup approach is applicable to
small and big companies and also public organizations.
A recent piece of evidence for a large organization adopting the
Lean Startup mindset comes from General Electric (GE), one of the
biggest companies in the world. According to Mark Little from GE, they
are spending $5B a year on innovation, have 50,000 technologists, and
are very successful in their chosen businesses. Yet they have chosen to
startamajortransformationeffortbasedontheLeanStartupapproach
to stay competitive in fast-changing world.
FastWorks is the title for their Lean Startup approach, which has its
roots in Lean and Agile principles. FastWorks enables simplification —
making complex things simple. It will be applied to all kinds of work
within GE, not just internal startups. The approach has already proven
to be useful, for example making Flowmeter in multiple Miminum
Value Product (MVP) iterations into a $100M business. FastWorks also
extends to more traditional industries. For example, in a GE heavy-duty
gas turbine division, they were able to shorten cycle time from 7 years
to 4.5 years. Currently, GE is scaling the Lean Startup approach. Five
thousand leaders have been trained, there are 150 full-time coaches
to support the transformation, and hundreds of FastWorks projects/
products are ongoing. The impacts are starting to show: faster cycle
time, winning new deals, getting better customer satisfaction.
Janice Semper, who leads the GE digital transformation, further
explains FastWorks. They took Lean Startup methods and transformed
them into GE FastWorks — the way we work. It is based on a strong set
of GE values, where they redefined GE beliefs into the following:
• Customers determine our success
• Stay lean to go fast
• Learn and adapt to win
• Empower and inspire each other
• Deliver results in an uncertain world
Janne Järvinen
15

These reflect a renewed emphasis on acceleration, agility, and
customer focus. They also redefined the famous GE performance
development program to be aligned with FastWorks. Obviously, there
is a significant cultural change involved. The following list describes
the related mindset changes:
• Prescriptiveness -> Discovery
• Command & control -> Empowerment
• Process & activities -> Impact
• Perfection -> Iteration
Janice Semper describes how the journey needs to be very personal
for everyone — even for top leaders: “As I leader also I have changed
my mindset, how I do my work, and how I lead others”.
They then went to 5,000 top leaders and asked them to set up
a different environment aligned with FastWorks. So far they have
trained 150+ coaches on FastWorks and change management skills.
They have also trained GE customers in the FastWorks concept. Now,
they are going through GE business segment by business segment —
including regulated businesses and successful businesses. Altogether,
GE’s target at this stage is to train 170,000 people (roughly 50% of GE
personnel) in FastWorks.
Johanna Wellington describes one of GE’s internal startup experiences
in more detail. They started with a truly disruptive idea — a hybrid
fuel cell system. They launched an internal venture/startup using the
FastWorks methodology. This endeavor is based on the following
principles:
• Independent business with milestone-based funding and a
board of directors
• A“garage”of their own — separate office with collocated space,
no GE color schemes, processes, etc.
• Select their own DNA — 1/3 people from GE, 1/3 from startups,
1/3 from mature industries (hw products, commercialization,
etc.)
• Empowered & accountable — tolerate failure, break the rules
(“anything that slows you down”),“don’t wait more than two
hours”, a meeting is not needed for a decision, etc.
• Stay lean and agile and go fast
They still have access to the“GE store”catalogue (tech support, supply
chain, operational tools, global relationships, GE brand), and they pick
those things that enable them to go faster.
Theyaredrivinganewculturewhereuncertaintyexistsandlearning
is required, and, when needed, they embrace the “pivot”. FastWorks
provides the terminology and tools for the internal startup journey.
This has also helped in discussions with the main organization —
FastWorks rules and not the old processes.Though senior leaders have
really bought into this, they receive critiques from (old) peers.
16

All in all, Johanna is very happy about running their internal startup.
Their MVPs cost millions of dollars and they have already done MVP1
and MVP2. Her motto is: “We own our own destiny”. This means, e.g.,
hiring their own new people when needed. Compensation not very
different — they considered phantom stock, among other things, but
did not want to spend too much time figuring out new compensation
schemes at the moment.
References:
https://hbr.org/2015/01/ges-culture-challenge-after-welch-and-
immelt
https://hbr.org/2014/04/how-ge-applies-lean-startup-practices/
17

19
“Besides SLUSH, nothing interesting has happened in Finland for 5 years”.
MårtenMickos12.11.2015,intheAccenturecorporatetracksessionduringSLUSH2015
M
årten Mickos, best known for his mySQL startup that he later
sold to Oracle, gave this interesting quote in the keynote
sessionatSLUSH2015.Hisrecipewasthatcorporationsshould
learn from startups, renew, and innovate.
Big corporations, in general, are not known for their innovativeness.
Of course there is innovation behind each company; however, what
seems to happen is that a company initially has good ideas and then
organizes itself around these innovative products and services that
sell. The small team of people grows as more resources are needed.
Work roles become more specialized as the number of people grows
and clear roles are needed. At some point, the company notices that
procedures and processes are needed to record the existing practice.
Procedures are created so that people do the right thing, and the
company runs in the most efficient way.
It must be from these origins that the risk of dinosaur companies
emerges.Whatseemtohappenisthatcompaniesthenstartoptimizing
and favoring existing business. There are targets and bonus structures
that — although well meaning — cement the structure and create the
current operative mode.
The white paper Hagel & Brown: Institutional Innovation – Creating
smarter organizations to scale learning1
says the following:
“To coordinate the efforts of larger groups of people to service larger
markets, some companies create command-and-control hierarchies,
rigidsilos,andinflexibleprocessestoensureconsistencyandpredictability.
1 http://d27n205l7rookf.cloudfront.net/wp-content/uploads/2013/03/DUP293_
institutional_innovation2.pdf
2. Big companies are very good at
doing the old
Jukka Märijärvi

20
Unfortunately, these institutional architectures have a downside:
the consistency and predictability they create to promote efficiency
also limit an organization’s ability to try new things or change.
As such, the scalable efficiency model forces a trade-off between ef-
ficiency and the ability to learn. While institutional architectures are
effective during times of stability, companies that embrace them will
face extreme difficulties during times of disruption and rapid change”.
This is all good, but top management needs to keep eye on how a
company renews itself. Luckily, there are several strategies for this.
2.1 Big structural changes
Nokia is one of the best examples in this category of change. Actual
Corporation was born 1865 with pulp mills and rubber works, and
then evolved into cable and many others industries like consumer
electronics, mobile phones, and telecommunications. Within the past
years, Nokia has again renewed itself in a spectacular fashion: it sold
off mobile phones to Microsoft, bought Siemens out of the previous
networks-side merger, sold off maps division HERE, and has now
bought Alcatel-Lucent.
Thisrequiresaverygoodstrategicvisionandstrategy,especially
when successfully estimating which megatrends emerge.
Additionally, a company still can — and should — renew itself “in
the small”, meaning inside existing business where there are plenty
of reasons and opportunities to change things and improve with
innovations.
2.2 Wait and see
Somecompaniesstillusethishumorous-soundingoption.Forexample,
one industry study done on Finnish companies revealed striking
results. Companies’reasons for not investing were that they wanted to
wait and see if the gloomy economy will continue or become worse.
Additionally, they wanted to see what happens with digitalization.
This is a very risky option, since things move so fast in the
current economy. Startups appear and might disrupt your stable
business model, as cases like Uber and AirBnB have shown.
It could be argued that the speed of change has increased. Gone
are the times where you could repeat the Ford Model T strategies. The
product was a disruption to the market — the first car almost anyone
could afford with no initial competition.The ModelT was in production
from 1908 to 1927 and changed surprisingly little during this period,
selling 16.5 million cars. Yet it still makes the top-ten list of the most-
sold cars of all time (ranked eighth). There was only one model and
variation was limited; most people remember this famous quote by
Henry Ford: “Any customer can have a car painted any color that he

21
wants so long as it is black”. A strategy like this has not been an option
for a while.
Even if a business is sound and hugely profitable, it should renew
itself.RememberthebadexampleofNokiamobilephones?Ifacompany
plans too long and creates only evolutionary products, someone else
will bring changes and disruptions. It is better that you disrupt your
existing business, because you then have the luxury to decide what
to disrupt and when. Nokia certainly must have had many prototypes
and possibilities hidden in its labs, but they all were eventually killed,
and existing evolutionary-based models were favored.
2.3 Changes based on changed vision and strategy
This no-brainer alternative is of course the standard way to do it.
Corporations have leaders for strategy and normally have yearly
corporate vision-strategy rounds. This set of meeting sessions and
brainstorming should yield innovation items and future business
proposals as a side product. However, these innovations and proposals
need to be further processed. It is the authors’experience that this path
provides excellent potential for innovation items. Just do not forget to
process them.
2.4 Internal innovations
Internal Innovations are one big innovation potential for companies.
However, it is the experience of the authors that this path often does
not work.
Only a few companies have a fully working innovation system
that operates in a controlled manner.
Still, most companies have some innovations coming from their
ranks. Let us not forget that often these cases are such where the
innovators have not given in but secretly continue realizing their own
ideas, regardless of the opposition from corporate ranks. Examples
are plenty, but we could mention Post-it notes, IBM System/360, and
the Nokia Communicator. The latest example that the authors have
heard about is Nokia Virtual Reality glasses, which are a result of one
engineer who just wanted to make them no matter what — carrying
out his own idea.
2.5 Mergers and acquisitions
Many books and articles claim that merges and acquisitions are
problematic and tend to fail. However, many companies use them as a
path for renewal.
Cisco is the corporate example in this category. As 2015 draws to a
close, Cisco has completed 11 acquisitions this year. Cisco states:
Only a few companies
have a fully working
innovation system that
operates in a controlled
manner.
“

22
“Cisco segments acquisitions into three categories: market accelera-
tion, market expansion, and new market entry. The target companies
might bring different types of assets to Cisco, including great talent
and technology, mature products and solutions, or new go-to-market
and business models. Cisco particularly seeks acquisitions with the po-
tential to reach billion dollar markets. Integration is essential to suc-
cessful acquisitions.“
2.6 Three horizons
This is an interesting concept by McKinsey presented in the book
Alchemy of Growth. This concept is a good tool for analyzing a
business and what types of actions are going on within it. Horizon 1
is the existing business, Horizon 2 is the expanding and new business,
and Horizon 3 is the emerging business, which, as the name suggests,
is still unknown and needs to be explored.

23
Internal startup methods are especially helpful in Horizon 3 types of
projects. (Source: Steve Blank)
2.7 How does an internal startup fit into the picture?
Internal startups are one way to organize the creation of new business.
It has all the elements needed for a successful operation. In the next
chapters we will discuss how you can do it, what you need to modify
your current operative mode, and what kind of people you need to
recruit. In addition, there are several examples of internal startups in
this book so that you can learn from what others have done.

1. About Tieto
Tieto is the largest IT services company in the Nordics, providing full-
lifecycle IT services. We also provide global product development
services for companies in the communications and embedded
technologies arena. Through industry insight, technological vision,
and innovative thinking,Tieto proactively strives to inspire and engage
our customers in finding new ways of accelerating their business.
Building on a strong Nordic heritage, Tieto combines global
capabilities with local presence. Headquartered in Helsinki, Finland,
Tieto has over 13,000 experts in more than 20 countries. Turnover is
approximately EUR 1.5 billion. Tieto’s shares are listed on NASDAQ in
Helsinki and Stockholm. www.tieto.com
2. Innovating in large organisations
Innovation is a tricky thing for established and mature corporations.
On the one hand, innovation is a necessity and a fundamental vehicle
to become an established player. At the same time, innovation
is hard, as it is so unpredictable and challenging to manage. The
very management disciplines that optimize the performance of a
corporation in its current business can actually be counterproductive
to innovation and creativity. This dilemma is inspiring professors,
consultants, and authors of bestselling books to share their views on
innovation and its importance to corporate world.
The corporate world loves predictability, but innovation is always a
discovery, and in reality no one knows which ideas will ultimately fly.
Innovation deals with many uncertainties, such as customer behavior,
competitor actions, and other changes in the environment. Therefore,
the best these organizations can really do to improve their chances of
discovering success is to empower individuals and teams to use their
passion, curiosity, and creativity. In a world of unknowns, it is crucial
for corporations to be able to experiment with customers, instead of
doing exhaustive planning based on desk research.
Ahmad Qureshi, Markus Hautala, Pasi Iljin,
Manish Kumar and Kalle Mäkelä
Case: Tieto – SPARK! Innovation program
at Tieto
24

3. Tieto SPARK!
Tieto’s most recent innovation program, SPARK! — launched in
February 2015 — has proven to be a successful way to inspire and
promote innovation in a corporate context. The program was built
on four important principles: team first, Lean Startup approach, time-
boxing, and experimentation.
Typically, innovation projects are focused on collecting ideas. In
Tieto SPARK! we focused on first getting the right people on the bus —
teams that can execute and morph the idea. This is due to the fact that
the initial idea rarely survives even the first customer meeting. A good
team can modify a mediocre idea to make it a success, but a good idea
will fail in the hands of a mediocre team.
The SPARK! program consists of four phases: discovery, boot camp,
pre-accelerator, and accelerator. The start of the initiative was well
publicized through company mail, town hall meetings, and special
posters. In the first phase, we collected well over a hundred business
ideas and teams, engaging with over 20 % of employees to collaborate
on the ideas.
Afterthediscoveryphase,10teamswereselectedforthebootcamp
phase. During the boot camp, teams developed business models and
tested the ideas with customers.The three most promising teams were
selected for the pre-accelerator phase, where ideas were developed
further. Two of the three teams proceeded to the last phase, where
the goal was to create a proof of concept from the idea as well as
to continue with customer development. The goals of the SPARK!
program were also to identify growth opportunities, increase clock
speed in explorative innovation projects, and improve Tieto’s brand
and employer image.
What worked well in SPARK!
• Getting the focus right from the start: The Tieto SPARK!
program was, from the very start, able to position itself as a
corporate program being driven from the very top and having
the required mandate from the company. In this way, we got
the attention of all the employees in the company. It was
well publicized and the stakes were defined up front so that
everybody could do their best.
• Using a time-boxed approach to things: The other thing that
was both well communicated and well managed was the time-
boxed approach to the entire program. Each stage had a clear
timeline and objective, the deadlines were kept, the needs were
well articulated, and the expected results were understood.
25

• Getting much-needed external support: The process also
managed to incorporate some external mentors, such as real-
life venture capitalists and coaches who work with some of the
well known start-ups in the region. This was the much-needed
external trigger to groom and guide the teams to help sharpen
their ideas and present them in a business-friendly way.
• Instilling a healthy sense of competition: The program itself,
as well as the selected teams at the boot camp, was able to
generate a healthy sense of competition. The result was that
each team inspired and motivated each other to do better and
improve upon their own performance by learning from each
other.
• Keeping it real and close to the customer: Last, but not least,
one important element that clearly put Tieto SPARK! in a
different league was the fact that it was very real and end-user
focused. The solutions being developed by the teams were
tested with customers as early as possible and their feedback
was used to further develop them, keeping the process very
agile and customer-oriented.
Tieto SPARK! areas for improvement:
• More open innovation: Three interviewees mentioned that
limiting SPARK! to only Tieto’s own employees limited the
possibilities of the program, and that there should be more co-
creation with customers and partners.
• The process created only a few disruptive innovations: People
were more into ideas or improvements close their existing jobs
or domains. We believe that implementing an open innovation
strategy would fuel the creation of more disruptive ideas in the
future.
• SPARK! should be faster: The most frequent opinion outside the
SPARK! program participants was that the process should be
a lot faster; one year is too long to see results. Opinions about
the length changed from a few weeks to three months, but
launching SPARK! just once per year is too infrequent.
• Innovation should be a continuous process: As SPARK! is run
infrequently, it makes it challenging for employees to submit
innovations and take ideas forward. Also, constantly running
process could make the innovation process quicker and
support a developing culture of experimentation.
26

Further reading
An excellent and very practical book by Geoffrey Moore, which
analyzes a company’s innovation activities (here mainly Cisco’s) and
how to create profitable growth in an increasingly competitive global
economy, is well worth the time put into reading it. It is a rare holistic
view on the matter (it is from 2006, but do not let it fool you — the
theory is very fitting).
Geoffrey A. Moore, Dealing with Darwin: Howgreatcompaniesinnovate
at every phase of their evolution, Capstone, 2006.
This university textbook-type of a book about how to get innovations
implemented is an interesting one:
Govindarajan and Trimble, The other side of the Innovation – solving the
execution challenge, HBR Press, 2010.
This is a good link describing the challenges companies have with the
shortened life expectancy of corporations:
https://www.bcgperspectives.com/content/articles/strategic-
planning-growth-die-another-day/
A very interesting read on the fall of corporate titans and which five
steps there are:
Jim Collins, How the mighty fall.
http://www.jimcollins.com/books/how-the-mighty-fall.html
27

29
T
his chapter presents the classic startup and serves as a basis
for understanding internal startups. We introduce some basic
terminology around the startup phenomena as well as what
characteristics startups often have. To act more like a startup, you
should understand how startups actually operate and what makes
them startups. If you are very familiar with startups, this chapter might
not offer you anything new, so jump straight to the next chapter and
dive into the world of internal startups.
3.1 What makes a startup?
“A startup is an organization formed to search for a repeatable and
scalable business model.”
Steve Blank has created this commonly used definition of a startup.
According to the definition, once a startup ceases searching and
selects a specific business model, it stops being a startup and becomes
a regular business. The term is widely used in Finland and startup
may refer to almost any new company. Scalability and repeatability
are rarely discussed, and companies succeeding with their one fixed
business model may be referred to as a startup for years.
The Lean Startup concept (which we will discuss at the end of the
chapter) defines a startup as:
“Ahumaninstitutiondesignedtocreateanewproductorserviceunder
conditions of extreme uncertainty.”
Characteristics associated with software startups have been
investigated and include a lack of resources, a highly reactive way of
operating, innovativeness, uncertainty, and the need and will to evolve
rapidly. Time pressure plays a major role in how startups operate. Also,
for startups to move fast they become dependent on third parties, due
3. Startups 1-2-3
Jukka Märijärvi, Laura Hokkanen,
and Marko Helenius

30
to having to rely on external solutions instead of creating everything
on their own.
The debate on what percentage of startups succeeds is not over.
Some sources say that 90% will fail, while others are more positive but
still consider it very risky to invest time and money in new businesses.
However,successstorieslikethatofSupercellmakestartupsatempting
option. Research also indicates that the more you try, the better you
get. Experienced entrepreneurs have a higher chance of success, even
after failing miserably in the past. Serial entrepreneurs are able to
avoid previously made mistakes and possess valuable experience that
they can utilize.
3.2 Please work for free with little chance of success
Building the dream team for a startup can be hard. However, the
importance of having a good team cannot be overstressed. An
enlightened investor does not look just the idea, but most importantly
at the team behind the idea. A good team has motivation and
enthusiasm towards the target so that they will be able to complete
what they have started. A good team must also be able to change
their direction whenever it is needed. If the team is motivated, it has a
good chance of finding solutions when something does not work as
expected.
Recruiting for a project where there’s no money to pay salaries and
the probability for success is very low can be really hard. Teams are
often formed based on friendship or coincidence.This also means that
the team’s skillset is not carefully built to support the startup’s goals.
The team structure should fit the target at hand — a typical team
structure could be, for example, a UX-designer, a product marketing
person, software and hardware developers, and a DevOps person, plus
the lead.
3.3 Classic startup story
The classic startup starts with THE idea and THE team. These are also
the first two things a venture capitalist (VC) would analyze and rate.
A VC would look at whether the idea is excellent and if the team can
execute what is needed. Many sources quote that entrepreneurship is
mainly a question of execution, meaning whether you’re able to create
the product, test markets, adapt the concept, and keep executing until
you come up with a killer product.
Normally, the main target of a startup is to find a suitable recipe
for high growth. High growth then brings success in the long term; it
is neither wise nor necessary to focus on profitability in the starting
phase. In the startup scene, there is an existing belief that whoever is
first takes it all, meaning that, for example, Uber or AirBnb were the
first companies to arrive and now have the 90% of the market share.
Building the dream
team for a startup can
be hard. However, the
importance of having
a good team can-
not be overstressed.
[...] A good team has
motivation and enthu-
siasm towards the tar-
get so that they will be
able to complete what
they have started.
“

31
New competition has a very difficult time entering the same space.
Then again, Facebook was not the first to let people connect and
share on the Internet, but it did it better than its predecessors and
won the race.
There are typical financing rounds involved the lifecycle of
a startup, which will acquire funds in financing rounds that are
typically like this:
• Seed: 0.75M€
• Round A: 2-3 M€
• Round B: 7-10 M€
• Repeated as many times as it gets
Suggestion 1 for a process
• Fast development increments
• Fluid ideas
• Test early and often
• Use analytics
• New-age marketing
• Create new network
• Sign-up people with useful gift content, report, template, etc.
• Engage users
• Use analytics heavily
• Use Twitter and SlideShare
Suggestion 2 for a process
• Build the team (cross-functional)
• Select/pilot/develop the channel
• Measure the interest/clicks/tweets/text references/
attraction/retention
• Market making
• Sales
• Growth
When it comes to structure and “process”, there exists a plethora of
different resources on the web — perhaps too many just to find by
“googling around”.
3.4 Continuous business planning
Writing a lengthy business plan doesn’t work in the highly volatile
world of startups. Situations change and new opportunities arise
at a speed that means there’s no time to keep the plan updated.
Also, the plan would be based on estimations and guessing that
isn’t particularly helpful. However, startups need to plan and have
goals. The business model canvas and, later on, the Lean Canvas
have been introduced as faster, more flexible options for business
planning. They can also be easily updated when situations change.

32
3.5 Marketing
Marketing — if anything — is very different in the current startup
scene. You need to create markets, find users, create a network of
interested parties, target the test marketing, analyze results, and
change the original targets to better meet the target audience needs
through pivoting.This all needs to be done, and it’s a lot of work, as the
old products have established marketing channels.
Gone are the Mad Men-type days of two cocktail lunches and
the slow crafting of cardboard storyboards to market the product.
Marketing and markets analysis needs to be instant and flexible.
Pivoting requires knowing, based on facts, how things are going and
what needs to be changed.
Therefore, web-based marketing tools to create and analyze traffic
are a very hot topic. Some of these tools include iRate, KissMetrics,
BuzzSumo, Mention, Autosend, ReferralSnip, Oktopost, Picreel, VWO,
Tropical, Socedo, Canva, Ope.nr, Uberflip, Full Contact, and Person.
Marketing also has new acronyms, like SEO (Search Engine
Optimization) and SEM (Search Engine Marketing), which, as their names
suggest,concentrateonthemeanstoenhancewebsitesandoptimization
to get higher scores, and thus better visibility, in search results.
Links to good reads & tools for marketing
Marketing strategies and approaches:
http://www.socialmediaexaminer.com
http://www.rignite.com
https://growthhackers.com
https://growthhackers.com/slides/how-startups-are-changing-
marketing-as-we-know-it/
Links to tools:
http://www.entrepreneur.com/article/241570
Very good tool to master Google Analytics:
https://blog.kissmetrics.com/google-analytics-resources-2014/
The Business Model Canvas
by Alexander Osterwalder
• Key partners
• Key activities
• Key resources
• Value propositions
• Customer relationships
• Channels
• Customer segments
• Cost structure
• Revenue streams
Lean Canvas, modified from
the Business Model Canvas
by Ash Mayrya
• Problem
• Solution
• Key activities
• Unique value
proposition
• Cost structure
• Revenue

33
3.6 Pitch
An elevator pitch is a short description of your business idea. The idea
is to give all the necessary information within an elevator ride and get
the listener’s attention to continue the discussion in the future. Startup
entrepreneurs train hard to give pitches that are convincing and tell
their story clearly. Longer pitches are used to present ideas to potential
customers, investors, or partners. Pitching events are organized to
give startups visibility and a chance to introduce their business ideas
to an audience that includes, for example, potential investors. Pitching
competitions can also be places to gain funding. In 2015, the startup
event Slush rewarded the pitching competition winner with €650,000.
There are many ways to compose a pitch, and you can find more
information in the materials listed at the end of this chapter.
http://www.huffingtonpost.com/j-skyler-fernandes/entrepreneurship-101-the-_b_3637577.html

34
3.7 Lean Startup concept
In 2011, Eric Ries published his book Lean Startup, which was widely
adopted by entrepreneurship educators and accelerator programs.
The book developed further ideas presented by Steve Blank in his
methodology of Customer Development from the mid 1990s. Even
though there is no scientific proof that the Lean Startup method works
better than other ways of developing business ideas, the concepts are
known and utilized widely: people find the methodology very useful.
The Lean Startup methodology brought entrepreneurs out from their
garages to test their ideas before perfecting the products.
Lean Startup has a good approach for a radical new idea and a new
startup trying to make a business out of it. Rather than building an
elaborate technical prototype based on the startup founder’s vision
and then trying to “sell the prototype to reluctant customers”, as is
often the case, the Lean Startup method actually has a good approach
that minimizes risk and fails fast: namely, you should talk to customers
and ask the question“should this product be built at all?”If the answer
is no, you’ve failed fast without much of an investment. Your attitude
to failure should be positive, as this leads to increased customer
understanding and learning.
In the Lean Startup methodology, everything starts from an
assumption or hypothesis, which is turned into a concept that is tested
and evolves immediately or after some customer feedback rounds into
a Minimum Viable Product (MVP). The phases form a Build-Measure-
Learn cycle, which then repeats in the continuing cycle. The steps of a
startup, according to the Lean Startup book, are as follows:
• Have a vision
• Create a set of assumptions
• Test the assumptions with fast pilots — create an MVP
(Minimum Viable Product)
• Collect measurements (real measures, not vanity metrics)
• Pivot (redirect or change one/many assumptions) or persevere
(continue forward)
• Magic formula found (problem/product fit)
• Find formula for growth (product/market fit)
• Grow fast and take the markets (in Internet-based markets,
the first success often takes 80-90% of the market share)
Assumptions
Assumptions are the key set of beliefs or hypotheses that fulfill the
vision. Testing them quickly shows whether the functionality and
the business model are right. In practice, it is always good to have
this particular assumption on the business model attached “users are
willing to pay for the product/ service because the benefit for them
The Lean Startup
method actually has
a good approach that
minimizes risk and
fails fast: namely, you
should talk to cus-
tomers and ask the
question “should this
product be built at
all?”
“

35
is XXX”. Thinking of the functionality and business simultaneously
provides focus. However, there are opposing opinions in the startup
communities where the business model is seen to be developing and
changing along the way.
Pivot/ Persevere
A pivot is a re-direction after it turns out that one or many of the
assumptions were wrong. Based on the information received in the
pilots, you may change or re-formulate assumptions. If all of the
assumptions receive positive feedback, you can continue forward
(persevere). A pivoting point, for example, could be feedback that
leads to changing one of the assumptions: the customer base is not
consumers but business users. Pivoting does not mean that the vision
changes.
Minimum Viable Product (MVP)
An MVP is a product that fulfills the nucleus of the assumptions; its
purpose is to be a vehicle for validated learning. In its primitiveness, it
might be a set of screenshots combined to look like an app, or there
could be several MVPs for each of the assumptions.
Vanity metrics
You need to scientifically measure the outcome of the customer MVP
rounds. The measurements can only provide accurate information if
the measures are good, and this entails measuring the right things.
Vanity metrics is a term for bad, unactionable metrics. An example of
such a metric could be the number of downloads, which would not be
enough to see how good the functionality is. However, this might be
an okay metric to see if the target audience knows that the product
exists and if your marketing campaign to sign up is working.
Actionable feedback for a later phase might be, for example, the
question “How sad would you be if we took this product away from
you, and what would you miss the most?”

Case: Supercell
D
espite the small size, Supercell is one of the most profitable
companies in Finland. In 2014 Supercell’s turnover was 1.545
billion Euros while the net result was 421 million. However, the
start of the success was not easy and required several companies, and
learning from mistakes.
Like in many game companies, it all started from a hobby and
enthusiasism. Mikko Kodisoja first established Kota Interactive in 1997
(p. 186). Kota Interactive was merged with Sumea in 2000. Matchon
bought Sumea Interactive, but soon after that went bankrupt, and the
establisherswereleftwithoutmoney.Afterthat,Sumeawasestablished
again. At the end of 2001, Sumea published a game named Racing
Fever, which few operators bought. Ilkka Paananen then proved to be
an excellent salesman; Sumea gained a good reputation and its mobile
games won several international prices (Puustinen & Mäkeläinen 2013,
p. 187).
In 2004, Digital Chocolate bought Sumea. Growth targets were
set high, but bureaucracy froze game developers’ enthusiasm. The
matrix organization copied from Nokia made things complicated.
Experienced game developers were promoted as line managers who
interfered with other teams’ work. Responsibilities were obscure and
the quality of products was weakening. Teams lost their ownership to
development (Puustinen & Mäkeläinen 2013, p. 187-188).
Mikko Kodisoja remembered his times in Digital Chocolate:
“I was myself establishing a game idealization groups, from which
you would need to get acceptance for everything. In the meetings we
pushed our ideas to the teams from which followed that developers
did not feel the games as their own. When we established Supercell,
this was one thing among others that we wanted to do differently”
(Lappalainen, p. 168).
Supercell was established in 2010, but success did not come as
granted. However, the ingredients for success were there. Supercell
ownersbelievestronglyinownership,meaningthatpeoplewillachieve
best results when they have as much freedom and responsibility as
possible.When the idea is brilliant and there is top level motivation it is
almost insignificant how much the salary is. (Puustinen & Mäkeläinen
2013, p. 184)
Beacause of the earlier experience, Supercell had contacts and was
able to attract investors. Paananen talks about having more investors
in Supercell during its early days: “The golden rule is: take as much
Marko Helenius
36

money as you can and take it when you do not need it, because that
is when you get it easiest. If the applicant is in a state of necessity
negotiation position is weaker”(Lappalainen, p. 171).
At first, Supercell had a vision of multiplatform games. That meant
that you could play the same games in different platforms. The first
game was Gunshine, and it reached half a million monthly players.
After Digital Chocolate, Kodisoja started making the Gunshine game
at Supercell, and this reminded him what it was like to make a game
within a small team. “You felt living in there. There was no need for
interrupting processes”(Lappalainen, p. 170).
However, people got bored within a month or two, which conflicted
with Supercell’s original vision: to create games that will be played
for years. Supercell realized that Gunshine was not the game it really
wanted. At the same time, they realized that the multiplatform vision
was not working, and all ongoing projects were cancelled. Supercell
decided to concentrate on one platform at a time, starting with the
iPad (Supercell 2015).
After that, Supercell cancelled a couple of games before they
launched Hay Day in midsummer 2012, which turned out to be a huge
success. Soon after that, in August 2012, they launched Clash of Clans,
which was an even bigger success.There have been several games that
have been launched since in test market areas, like Canada and New
Zealand, but most of them have been cancelled. Boom Beach turned
out to be big enough success in 2014. For Supercell, success has meant
that the games are in the top-crossing lists and have a yearly turnover
of billions.
A team of 5 members developed Clash of Clans. When the game
started to fly, the team increased to 8 members.The time from the start
meeting to product launch was 8 months (Puustinen & Mäkeläinen
2013, p. 184). Lappalainen (p. 165) explains Supercell’s success well:
“Supercell has grown as an international hero because of exceptionally
open organisation culture, good leadership and exceptionally fair
sharing of success. Supercell consists of small teams that have freedom
and responsibility. Supercell wants to concentrate only on the best
games, which have potential to grow to the top of the world and which
players play for years.” Fair sharing means that not only the top of the
company, but also employees, profit from stock sells. New employees
have profited through option programs. In addition, taxpayers have
benefitted.
Highlights
• Avoid bureaucracy
• Learn from mistakes
• Small teams work the best
• Get the best people to work for you
• Invest in your employees
• Trust your employees: give freedom, but expect responsibility
37

• Share success
• Use investors to grow your business
• Motivation and enthusiasm are the key to success
• Concentrate on a single product platform at a time
The ingenuity of Supercell games is based on balancing the need to
pay. A player must not feel as though they’re being forced to pay —
the game must not feel greedy.
Supercell also realized the importance of the Asian market. They
began a cooperation with GungHo, which needed help in U.S. and
European markets. Supercell included GungHo’s characters and
GungHo included Supercell’s characters. (Lappalainen, p. 209). In
2013, the Japanese company Softbank purchased a 51% share of
Supercell. However, Supercell continued to operate normally without
interference from the new owner. In 2015, Softbank increased its share
to 73.2% by purchasing stock shares from external investors like Accel,
Index, and IVP. Again, Softbank has stated that they will not interfere
with Supercell’s way of operating.
References
Puustinen Terho & Mäkeläinen Mika (2013), Taivas + Helvetti - 18
yrittäjää, jotka saivat lähes kaiken + 3 jotka menettivät lähes kaiken, One
on One Publishing Oy, 2. Painos
ElinaLappalainen(2015)Pelienvaltakunta-Mitensuomalaisetpeliyhtiöt
valloittivat maailman?, Atena, Otavan Kirjapaino
Supercell (2015), Our Story http://supercell.com/en/our-story/
(accessed 21.11.2015)
38

Further reading
Most people see Eric Ries, The Lean Startup (2011) as a major authority
on the book front, and it makes a good reading.
Puustinen Terho & Mäkeläinen Mika (2013), Taivas + Helvetti - 18
yrittäjää, jotka saivat lähes kaiken + 3 jotka menettivät lähes kaiken, One
on One Publishing Oy, 2. Painos
ElinaLappalainen(2015)Pelienvaltakunta-Mitensuomalaisetpeliyhtiöt
valloittivat maailman?, Atena, Otavan Kirjapaino
Business Model Canvas and information on how to use it:
http://www.businessmodelgeneration.com/
How to create a winning pitch:
http://www.huffingtonpost.com/j-skyler-fernandes/
entrepreneurship-101-the-_b_3637577.html
Omar Mohout (2015), Hyper Scalable business models: the digital key to
extreme growth for startups
https://www.linkedin.com/pulse/hyper-scalable-business-models-
digital-key-extreme-growth-omar-mohout
39

41
A
s discussed previously, bigger corporations have a problem with
keeping innovation culture virile and on people’s agenda. One
approach to tackle this problem is corporate innovation tools,
where ideas are collected for further processing. However, tools alone
aren’t enough, and the culture of gathering ideas and processing them
actively needs constant re-vitalization.
4.1 Mission and objectives
Typically, established corporations are optimized to maximize short-
term profits by investing in evolutionary processes. Innovations do
not fit well in a corporate culture, where renewal through risk-taking
is not actively encouraged. Innovations are often disruptive, which
may mean that established parts of the organization affected by an
innovation oppose new ideas.
Taking a startup-type approach in encouraging and
maintaining the company’s internal innovation is one way to keep
initiatives separate from corporate politics, red-tape, and internal
competition.
New business opportunities and growth are key reasons for the
active nursing of new innovations. If corporations are able to turn
new ideas into products in a real startup fashion, they will create the
potential for new customers, markets, and sales. Growth opportunities
are valued in most businesses; what company would not like to be
valuated as a growth company with a matching increase in their stock
value?
Internal startups should have the necessary freedom from
organizations and processes that are built to maintain the existing
product portfolio and maximize the income from it. However, internal
startups should still be integrated into the corporation. Freedom is
Pertti Seppänen, Jari Heininen and
Mervi Koivulahti-Ojala with Jukka Märijärvi
4. Internal startups

42
needed for quick execution, feasibility trials, and re-focusing based
on the experiences gathered from the perspectives of risk-taking,
market potential, and needed investments. Integration, in turn, is
beneficial for taking advantage of the corporation’s existing assets and
competencies, which will come handy when bringing the new ideas to
product. For example, legal, pre-production, marketing, and customer
care services should be just a call away for the internal startup.
Why, then, not just invest in a new startup? An internal startup is an
instrument for a corporation that wants to try out things that are really
new but still fit into the corporation’s long-term vision and strategy.
In cases where the new ideas don’t fit with the long-term vision, it is
reasonable to consider spinning off the new idea from the mother
company.
As defined above, an internal startup is a setup where a company
launches a separate (semi-) independent initiative to push a new
innovation or idea with a process supporting rapid development, fast
feedback gathering, and fast refactoring. The process continues to
market making, product launching, and integrating the initiative into
the existing business portfolio if it turns out to be promising — or to
rapid killing in the opposite case.
An idea to be processed by an internal startup typically does not
come from the product or technology roadmaps that foresee the
evolution of existing products, technologies, and businesses. The
new idea can be from an expanding business area, be disruptive, or
even cannibalize existing products or business. However, any idea to
be run through the internal startup process should have a reasonable
connection into the corporation’s long-term vision and strategy. The
startup type of approach seems to be a good framework, as it can be
used to combine the controversial viewpoints of being independent
and dependent at the same time: the final goal is the same, but the
road to the target is different, a shortcut instead of a freeway.
An internal startup has many suitable elements demonstrated by
real startups. The purpose of this cookbook is to be a practical guide
to establishing, running, and exiting an internal startup. The target
audience is the internal startup team, leaders of the internal startup
team, and the CEO with the management team.
4.2 Preparing for the change
There will be people whose responsibilities change. One can argue
that these are local changes and relate only to the persons involved,
but generally it is good to inform people of what is going on in the
company and explain, at least on a rough level, that there are now
new roles and responsibilities. This also clarifies why a group of
people is doing something different than before and explains why
there are other people taking care of the “normal business” inside the
corporation. The pitfall here is that without internal communication,
rumors start to grow due to a lack of shared information. Here, we

43
present things to consider when bringing the internal startup concept
into a corporation.
Internal competition noted and managed
Normally, internal startups must have a different operative model
— and even a different remuneration model — than the rest of the
company. This (and the compensation model) is likely to change the
dynamics of the company and might create an us/them confrontation
between the old and new teams. You need to be aware that this is
likely to happen and manage it.
Assign someone to ramp this up
Someone needs to run the internal startup on full-time basis. As we all
know, things do not progress fast enough.This is an essential decision;
an internal startup is not an “in addition to other duties (IATOD)” type
of project. Assign the responsibility and create the internal startup
operations for your company.
Note that the responsible person perhaps should not be the
executive in charge of operations, but rather a special internal
innovations COO who will ramp up the operations.
Create an innovation board, or have an extension to the regular leadership team
What we are talking about here is two-fold ramp-up. The first is top-
down, which means that the company must change its behavior and
run the second operative mode, where innovations and startup trials
can happen. For that, a person needs to be assigned to plan and make
the big picture happen.
Another ramp-up is bottom-up. There needs to be startup teams
with their missions and suitable personnel, with an entrepreneurial
mindset and suitable roles and competencies. Remember that here
the idea is that one team is actually a mini-company that can pretty
much operate on its own.
4.3 The new roles and responsibilities
Building the internal startup team is an important step. However, the
rest of the company needs to adapt to working with this particular type
of team as well. Also, there needs to be clear roles for people outside
the internal startup. For the internal startup to work efficiently, the rest
of the company needs to be prepared for the new ways of working.
Before the launch of the internal startups, you need to initiate some
changes and see that they are executed.
After studying the experiences of past internal startups, we
decided to create two new roles: the Corporate Business Angel and
the Corporate Entrepreneur. The reason for this is to highlight the
differences of the new roles compared to the typical executive roles
in established corporations. Without clear definition of the new
roles, there is a threat that executives will not recognize enough the
“The pitfall here is that
without internal com-
munication, rumors
start to grow due to a
lack of shared infor-
mation.

44
difference of being responsible for startups compared to their normal
executive roles, like head of product development or CFO. As these
roles are instrumental for the startup to be able to run and deliver, the
prerequisites need to be in order. Thus, these roles should not be run
with the normal executive autopilot on.
The Corporate Business Angel
The Corporate Business Angel is the main executive within the
corporation who has the overall responsibility for internal startups.
The Corporate Business Angel is the key person for seeing that the
corporate culture is developed in a direction in which internal startups
are utilized in the best way and are a part of the corporate vision and
strategy.
The key skills for the Corporate Business Angel are change
management, product portfolio management, a broad understanding
of both the corporation’s current business and its future trends,
persuasiveness, personal innovativeness, openness towards others’
ideas, strength to carry both success and failure, and readiness to take
personal risks.
A Corporate Business Angel needs to understand the changes in
both the corporation and the outside world and be able to run the
changes needed to ensure the success of internal startups. This may
include, among other things, impacting corporate culture, creating
a new way of running startup projects, and creating a front-end for
collecting ideas for new startups.
Depending on the resources available, the business domain, and
size, culture, strategy, and vision of the corporation, the practical tasks
associated with the Corporate Business Angel may vary. Cooperation
with other executives is needed, since typically an internal startup’s
initiation, running, and exiting will require support from other
functions.
The Business Angel has a key role in ensuring that all the units
are able to work together with the internal startup. The corporate
entrepreneur can turn to the Corporate Business Angel in case there
are conflicts of the interest, unclear things, or other support needed
to ensure the startup’s progress. Understanding the business, strategy,
and vision is necessary to understand how internal startups may
support these three things. In the ideal case, an internal startup is in
line with longer-term corporate strategy. In this case, it is expected, if
successful, to continue as a new business.
To be successful, an internal startup does not need to be in line
with short-term business goals but instead open new views for the
corporate strategy and vision. If successful, it can even be sold, or
a new company can be created around it. Therefore, the Corporate
Business Angel should have a good understanding of the corporate
business, strategy, and vision to understand how internal startups
match with them.

45
The Business Angel should have the necessary authority to carry
out this role. As with any executive, this person should be selected on
the basis of their suitability in terms of knowledge, skills, experience,
authority, and commitment. There is a threat that executives do
not recognize enough the difference between being responsible
for startups and their normal executive roles, like head of product
development or CFO.
The Corporate Entrepreneur
The Corporate Entrepreneur is THE key role for the internal startup.
The narrow definition of an entrepreneur is someone who starts a
new business. Within a corporation, it’s important to recognize the
indications of a Corporate Entrepreneur-type person. For example,
these can be:
However,itismorecommonthattheteamiscombinedofcompetence-
based roles — meaning sales and marketing, architect, SW developer,
etc.
In the good old corporation, which is excellent at executing
and fine-tuning existing assets, these kinds of potential Corporate
Entrepreneurs can be seen as a threat to the corporation, or at least as
difficult persons to manage.This kind of thinking can, in the worst-case
scenario, lead to termination of employment instead of identification
of great potential.
The creation of an “innovation greenhouse” inside the corporation,
where conditions for internal startup growth exist, is an essential safe
house for entrepreneur-type persons. From the corporation’s point of
view, the seeds of growth and new innovations may be in the group of
intolerable people. They may be the most suitable persons for internal
startups, instead of forcing them to leave the company.
Internal startup advisor
If the company is on the bigger side, it is good to have a person or
a team to manage the internal startups. This means that it is more
efficient to have experts to maintain the company’s internal startup
The Visionary The big-picture person with the ideas and vision
The Hustler Highly efficient doing operational leg-work
The Engineer
Highly skilled implementer for realizing the vision within
the given resources and timeline
The Challenger
Likes to challenge the corporate way of working and often
gets frustrated by corporate red tape
The Skeptic
Sees problems everywhere but uses those as the fuel for
fixing things
The Seeker
The old way is always boring. If there is no way to new
frontiers, this person is motivated to create one

46
practices and processes, so that they can then train and coach people
to work in internal startup teams.
It is also a good idea to have this advisor coach and check
presentations before they go for management or Business Angel
review.This role might be the same as the one ramping up the internal
operations at the first place.
4.4 The team and its growth agreement
“Two is perfect, three is better than two, but any more than four is not
worth the trouble”.
The normal startup is very focused on the idea and the team. The
internal startup is more along the lines of the company strategy. For
internal startups, the innovation topic must somehow be connected
to the business strategy and vision of the company. There could be a
situation where a startup is outside the company’s strategic domain,
but the management sees that the idea is so good that they are
willing to invest in it before it is sold or spun off. The idea in this case
is naturally to get a better valuation for the idea/spun-off company if
it has been developed long enough and shows clear signs of being a
viable business. Ideas are cheap — execution is the key.
A normal startup is very much centered on team performance,
besides the innovative idea. Some companies, such as Google and
Facebook, actually acquire the team, scrap the original product, and
put the team to work doing something else that may be something
similar, but still not the same.
An internal startup has a problem with growth when the idea
seems to be successful and the startup needs more people in order
to continue its success. Especially if the internal startup is inside a
bigger company, there is a problem with getting resources: senior
managers elsewhere in the organization would have to give away
good people already contributing towards products and releases of
the established business. Having those people might even be in the
managers’interests, which would further make the managers resistant
to changes.
The internal startup team itself needs the Corporate Entrepreneur.
She or he needs to have a mandate to start building the team but
should also consider a coaching type of approach. The type of the
entrepreneur influences the composition of the core team. If the
engineer is chosen first to kick off the internal startup, the second
member could be e.g. a hustler-type person to get things moving.
A clearly understandable communication format for the startup
idea is a must.The team should contain people who can communicate
with executives and other stakeholders inside the mother corporation.
The main theme from a composition of great music can be played with
a piano using only one finger, but the player needs to know at least the
basics of playing a piano. The main idea of the internal startup needs
For internal start-
ups, the innovation
topic must somehow
be connected to the
business strategy
and vision of the
company.
“

47
to be told in a few sentences, and the communicator needs to know
how to make the message understandable for different stakeholders.
The skeptic is also needed. Someone inside the team should have an
intuition for whether things are going in the wrong direction over time.
The composition of the internal startup team has an analogy in
the six thinking hats system designed by Edward de Bono. The idea
here is parallel thinking and the efficiency that comes with it, instead
of thinking or doing things serially. A good composition of different
people with naturally different-colored thinking hats can get things
moving in parallel, leading to the desired situation: proof of concept-
type trials that can be done quickly.
Also keep in mind the starting point of this section: two is perfect,
three is better than two, but any more than four is not worth the
trouble. An internal startup should start small and fast and scale up
later after decisions have been made on the evidence.
4.5 The role of the Board and the executive team
In a corporation, innovations start from the Board. The Board of
directorsmustagreeonanapproachtoboostandmanageinnovations.
An important aspect in boosting innovations is the company’s
remuneration policy. If quarterly profits are overemphasized, it is
questionable whether innovations will get enough resources and
funding in the daily execution of the company.
This is especially true if and when times get tough and decisions
have to be made on what to cut and what to keep. Even in the case
of large cuts, investments in future businesses should be valued,
keeping in mind not only the costs and risks tied to them but also
the sustainability of the established businesses. While cutting the
executive board figures out in co-operation with the board a new
operating logic with fewer people. There should be a joint and clear
understanding of the new business goals after the budget cuts, and
the company’s ways of doing things must be justified accordingly. The
need for justification applies to internal startups as well; they must be
evaluated in the light of the re-focused strategy.
Portfolio-based thinking may be useful here. The top management
allocates budgets and resources to potential new product businesses,
internal startups, and improvements for existing business. In the
excellent book by Geoffrey Moore, Dealing with Darwin – How great
companies innovate, analyzing and planning a company’s portfolio
is in focus at every phase of evolution. This includes knowing
what products are at which phase of maturity and how to create a
competitive advantage through innovation.
We think that internal startups would be a good methodology
for implementing the parts of portfolio plans that deal with future
products and businesses.The benefit of the startups is that they are —
should be — well focused, run with limited resources, and striving to
get fast feedback on the feasibility of ideas.

48
4.6 The role of the CEO and other executives
The CEO of a company plays a key role in implementing the structures
and processes needed for running internal startups successfully. He or
she is in charge of the current and future profitability of the company,
and is the key person in setting the balance between investments in
the established businesses versus future ones.
The role of a Corporate Business Angel (CBA), as proposed above,
is close to the CEO role when looked at only from the perspective of
future businesses. Combining the two roles in one person, however,
is not a good idea, because both roles are very demanding. The CEO
has to rely on his/her CBA to such an extent that delegation of a key
area is possible. The CEO should select/hire the CBA and take care of
the person’s induction into new role personally. He/she has to ensure
that the new CBA knows and understands the company’s vision and
strategy and what the goals of the internal startup setup are.
In the case of normal startups, the Business Angel is an independent
playermakingdecisionsabouthowtoinvesthis/herownmoney.ACBA
within a corporation doesn’t have money of his/her own; rather, the
available assets for boosting the company’s internal startups are from
the home corporation. Thus, the CEO must define the responsibility
area of the CBA and its borders. Ideally, the responsibility area is
defined in the form of a budget, giving the CBA the freedom to make
decisions about how the budget will be used.
Such freedom requires strong mutual trust between the CEO and
CBA. Besides trust, a reporting and communication structure is needed
to ensure that the CEO receives information on the doings and situation
of the internal startup. Comparing this situation to that of external
Business Angels and normal startups, we propose the following:
The CEO and CBA need to have a structured way to communicate,
which is called CEO – CBA meetings in the chart above.The CEO should
not, however, use the meetings for micromanagement, but rather as
a means for gathering information. The necessary steering should be
done at the strategy, vision, and budget levels.
The internal startup approach not only places requirements on the
CEO but on other executives as well. Typically, support from all key
areas of the corporation, such as R&D, HR, Finance, Production, and
Normal startup Internal startup
Own money CEO’s budget
Personal responsibility A CEO – CBA meeting
Business Angel (BA) Corporate Business Angel (CBA)
Startup’s board: BA, other shareholders,
CEO
Internal startup’s steering board: CBA,
relevant corporate executives, Corporate
Entrepreneur (CE)
CEO’s own steering body CE’s own steering body

49
Marketing, is needed to run internal startups successfully. As shown
above, we propose that those functions participate in steering the
internal startup in a dedicated management body, which is called the
internal startup’s steering board in the chart above. Other members of
the board are the CBA, the chair, and the CE of the startup.
Though we highlight the independent role of the CBA in running
the internal startup, a steering board with other relevant executives
integrates the internal startup with the rest of the corporation and
gives the CBA the necessary support for running it. The role of the
other executives in the case of internal startups resembles the role
of other shareholders in the case of normal startups: they invest their
existing assets into an initiative that is not directly under their control.
It is up to the number, size, and importance of the internal startups
whether such a steering board is dedicated to an individual internal
startup or takes care of several at the same time. The executive’s
personal participation in the internal startup’s steering board boosts
the status of the startup’s work for the future and ensures that the
board is able to make binding decisions.
To avoid overloading the CEO and other executives and to give
the internal startup the necessary freedom, the proposed CEO – CBA
meetings and the steering board meetings should be arranged every
four or six months. Following the company’s pace in making decisions
on strategy, vision, and budget may be a guideline for figuring out the
meeting schedules.
4.7 Organizational positioning
Agreement with the Board and the top leadership team
When forming a new internal startup, you have to go through the
principles with the board and the top management team. Many of the
startup’s operative ways will be different, and the management team
needs to run the operation in sync. Some people will have operations
that are more different than others, but everyone in top management
has to know and agree on the operation.
Funding
The internal startup funding model is one of the key topics. Normal
startups have a tight budget, which is one way for them to focus
operations and have a suitably fast heartbeat. Funding for normal
startups might follow the path of giving money only in small amounts
and tied with results.
The internal startup initiative could be killed off at any of the
milestones. However, people have an incentive to tolerate tight
budgets when there is a possibility of a very high upside at exit time.
Having a tight budget alone is not motivational without the possibility
of an upside.

50
Business leader supervision
Organizational placement is an important aspect, as normal
managementprocedures(e.g.raises,options,futurecareerpath,future
top managers search, etc.) happen through the line management
system. Participating in an internal startup cannot be seen as a risk to
career paths. If that happens, the most suitable and capable persons
will intentionally avoid the risk of being part of an internal startup.
Total independence is an option when the internal startup is an
independent company financed by the mother company. To some
extend, this is also doable for an internal startup. Total independence
on day one of the internal startup is a heavy decision and increases
short-term investment needs.
Instead of total independence, a faster and easier way is to create
a loosely coupled model where a newborn internal startup shuttle
has defined connections to the mothership. In an organization
chart, startups can be located directly under the top management,
with interconnections with the corporation allowed when they are
beneficial and“not allowed”if they lead to red tape for the startup.
KPIs in different phases of the startup
Howshouldyoumeasuretheprogressandsuccessofinternalstartups?
You should create key process indicators (KPIs). As the situation
changes, the KPIs also need to change over the course of the internal
startup.
• Starting phase KPIs
• Progress follow-up KPIs
• Exiting KPIs
ItisessentialtodefineandcommunicatetheKPIstobeusedindifferent
phases. Clearly agreed-upon measuring benefits the company and
the internal startup, and cuts away unnecessary hassle and reactive
reporting.
4.8 The role of corporate functions
Thecompanyisestablishedtodoitsthinginthemostefficientmanner.
Adam Smith introduced the division of labor for the sake of efficiency,
so different functions have their own focused roles and targets. We
have found that many of these well-intended activities and routines
do not work well with internal startups.
Human Resources
The role of Human Resources is to set the policies and an annual
clock of actions. Yearly repeating events, such as salary adjustments,
performance reviews, and stock options nominations, plus additional
resource competence analysis are, of course, important.
With internal startups, the mode should be such that no extra work
should be placed on the startup team or the Corporate Entrepreneur.

51
The startup team needs to focus on the task at hand. So, if necessary,
any of the above mentioned tasks should be postponed until the
startupisinasuitablesituationforthesethingsorcompletelydropped.
However, HR policies are important for the compensation side.
It is important that the team is committed and focused on the task
at hand. There was one example in which the internal startup team
wanted to have full yearly vacations in the middle of important
activities. Incentives and policies should be set so that everyone is at
work during the critical periods. Another option is for vacations to be
arranged in such a way that they do not jeopardize the targets.
Legal and IPR
The legal function is probably the best friend of the Corporate
Entrepreneur. Legal help is useful to have, as there will be many types
of collaboration, licenses, and other situations where it is better to be
safe than sorry. Also, in many disruptive cases like Uber or AirBnB, the
new startup rattles the gauges of the normal operational practices.
Brand and communications
When it comes to brand, the problem lies in the high risk of internal
startups. Startups fail very often, and internal startups are no better.
Ninety percent of startups will fail, based on this Fortune magazine
article.2
You should think about this risk to the brand. Constant failures are
also a challenge to manage. How do you balance being a successful
company and failing very often with new product concepts? The
general public and the corporate brand are likely to tolerate failures
when the operation produces real success cases once in a while. Still,
bad publicity is not a good thing, and bad publicity might be difficult
to control in these times when news spread so quickly via the Internet.
Youmighttrytoalleviatetheproblembycontrollingthepublicityofyour
internalstartup.Normalstartupsseekpublicity.Theylivethroughpublicity,
getting as much publicity as possible to seek users and attract financing.
Fromabrandpointofview,itmightbeworthwhiletobeinstealthmodeat
the very beginning of an internal startup, or at least passively public.What
we mean by this is that the internal startup could create a new offering
under a different brand in order to see how it progresses.
Brand regulations might be a hindrance in executing an internal
startup.Bigcompanieshavebrandpolicies.Ifyoulaunchpilotproducts,
you might have a problem with the brand policy: for example, how
buggy a demo could you launch under the brand name?
Pivot is the Lean Startup book terminology for a change, but not just
for any kind of change. It is about changing the assumptions, vision,
target customers, or business model if the products or services do not
gain traction in the market and amongst target users. This is about
radically changing the course of action based on real and relevant
metrics. Intelligent data analysis and discussions with users will show
2 http://fortune.com/2014/09/25/why-startups-fail-according-to-their-founders/
“The general public
and the corporate
brand are likely to
tolerate failures
when the operation
produces real success
cases once in a while.

52
if the startup is not delivering with these assumptions, and thus if a
pivot is needed to change course.
Marketing and sales
Themarketingandsalesapproachdependsverymuchonthesimilarity
of the internal startup initiative to the normal product sales portfolio.
Typically, you should build the startup team so that it also takes care
of marketing and channel activities, and therefore a product manager
type of role should be a part of the team.
Iftheinternalstartupproductorserviceisnotparticularlydisruptive
or does not cannibalize the existing portfolio of products and services,
it might be a good idea to start making early plans for a growth
situation — but only when the time is right. Adding people too early
will only slow things down.
A key role for marketing and sales in the case of internal startups
is to help the startup team to measure the feasibility and business
potential of the new product being generated. This may include
arranging pilots, conducting market studies, and cooperating with
possible friendly users.
IT, processes, and tools
A common misconception about both normal and internal startups
is that the operative mode is so free-flowing and anarchistic that no
rules need to be followed, not to mention using any tools or processes.
Startups are, like many references state, 5% innovation and 95%
execution. Additionally, venture capitalists (or the corporation, in the
internal startup case) that invest in startups actually require much
structure in the operation through reporting and controlling the status
of their investments.
Additionally, later on, when the startup succeeds and there is a
scaling up phase, it is very difficult to scale up effectively if there is no
structure or IT support tools. A normal startup needs to be fluid and
agile in sensing people’s needs, but a certain structure and planning
needs to be there too.
For internal startups, the situation might be the contrary. First of
all, you need to make sure that the existing corporate IT tools and
systems are not a burden. They are mostly conducted from the point
of general efficiency and minimizing costs. The internal startup may
need to break away from this and have affordable but matching tools
for the tasks at hand. Internal startups, of course, should utilize basic
corporate IT tools in a reasonable way. The e-mail system, corporate
software licenses, and laptops are examples of such cases. Typically,
corporate-level agreements with vendors also lead to a significant cost
advantage for the internal startup.
The authors of this book have seen examples in several companies
in which an innovation tool is not used to its full potential. There are
cases in which the tool is deployed, but dies out when no ideas are
inputted or the ideas inputted are too modest to really transform the

business. This may be the result of many reasons, such as a lack of
training, management attention, or incentives.
Deploying an innovation tool is no different from deploying any
other tool. Management support, training, and incentives are all
necessary for the tool to reach its full potential.The purpose of the tool
and its role in the innovation process should be defined accordingly.
Typically, tools are used in the early phase of the innovation process to
ensure that all the ideas will be gathered and analyzed.
Later on, during the build-measure-learn phase, the same tool is no
longer used. The follow-up on progress is typically done formally or by
usingthesamefollow-upprocessandtoolsasareusedintheorganization.
Ifthereisalargeportfolioofprojectsrunningatthesametime,thefollow-
up can be supported by processes and tools. If the number of startups is
small, then typically less formal reporting is needed.
Neste Oil
NesteOilinFinlandhasmadesubstantialeffortstocreateaninnovation
tool and process through which ideas are systematically collected
and analyzed, with the best ones selected for the R&D phase. There
are 50 trained facilitators who have trained to use suitable tools to
facilitate idea creation. The target is that all ideas, from coffee rooms,
corridors, and meeting rooms, are put into a tool, and the business
unit representatives and subject matter experts review the ideas. And
the tool approach really works — one of Neste Oil’s recent innovations,
Neste Pro Diesel, is based on an idea that was inputted into the tool,
according to Neste Oil innovation coordinator Pirjo Kuuppi.
The challenge with establishing an internal startup culture in a
corporation is that change is needed at every level of the organization
and in all functions. For example, the legal department may have
no competence at all with the SW cloud licensing model, HR may
be familiar with existing incentive models but has no experience
with others, and middle management may be more familiar with
continuously developing a product rather than inventing a new one.
There are cases where even project manager skills are missing for this
kind of a special project type.
To success in transformation, it should be understood that:
• To enable successful internal startups, changes are required in
every level of the organization and in all functions.
• Follow-up and new changes based on the implementation
results are needed to ensure continuous success in startups.
53

54
Evaluate your current innovation process, skills, and competencies
Evaluating your current innovation process, skills, and competencies
is always wise before a new way of working can be launched.
Unfortunately, based on our experience, the evaluation of current
practices may be neglected or not supported for several reasons.There
may be arguments such as“the current process is not working so let’s
start from scratch”or“we know already where the problems are so let’s
concentrate on those”. We recommend that you always evaluate the
existing innovation process, skills, and competencies. For example,
if a new process is used without considering existing processes, it is
likely that some good and well working processes and practices are
inhibited. Remember that companies have a lot of skills and working
practice, so the idea is to improve and build on the existing good
practices.
Evaluating skills and competencies is also important. There are
several areas in which new competencies and skills may be required. In
some organizations, training project managers is necessary to ensure
that they are able to run projects that are different from traditional
projects in terms of uncertainty. If project managers are used to
working in an environment in which the target is well defined or there
is no customer involvement, you could think about using external
project managers instead.
The evaluation of innovation process, skills, and competencies
could include, but is not limited to:
• Are new innovations systematically documented, analyzed, and
decided, and are the best ones taken into the startup phase?
• Does every employee understand what the process is and how
(s)he can contribute to it?
• Does every employee have the incentive to create new ideas?
• Do you have skills and competencies for the new roles
(described in this chapter)?
• Is there an agreed-upon way to follow up with the new
idea generation process systematically in all levels of the
organization?
• Is there an agreed-upon way to follow up with the progress of
the initiatives/startups in all levels of the organization?
“Remember that
companies have
a lot of skills and
working practice,
so the idea is to
improve and build
on the existing good
practices.

55
4.9 Physical location
An internal startup needs to have a location of its own for the team.
This doesn’t mean that on day one it should have its own top-floor
office section with a 180-degree sea view. A garage type of approach
increases the startup look and feel and can even speed up the
innovative atmosphere and create a “let’s solve these things” way of
doing. Garages contrast with corporate office surroundings, where
there are design curtains that match the brand logo colors, and thus
indicate that now we can and we will do things differently.
The most important thing is that the location is dedicated to the
startup for the time being, not the meeting room to stay in every now
and then while others use it in between. A corner of an abandoned
factory hall is much better that that. A good-quality coffee machine
with good-quality coffee beans is always a good investment for any
kind of startup. Days will be long and basics need to be in place. This
gets us back to the possibility of utilizing common sense: if the location
can be found inside or near the corporate office, where coffee stations,
printers, staplers, parking slots,WLAN, and other essentials for working
spaces can be accessed, go for it. If the location is somewhere too far
away, be prepared to invest in everything, starting from the chairs.
Office hotels can be surprisingly expensive locations that can be easily
forgotten in the corporate world, and where you can live for years
without any contact point with the arrangements in working places.
Organizational positioning and physical location resonates in many
ways. For internal startups, utilize from the corporation whatever
boosts your startup needs, whether HR services, a high-speed Internet
connection, software licenses, or the water supply. From the corporate
point of view, provide your internal startup with such utilities. Refuse
and ignore from the corporate culture all of what slows down your
startup from progressing, including innovation-limiting policies,
time-consuming reporting meetings (keep the necessary ones with
reasonable intervals), and excessive acceptance rounds with tens
of people involved. Keep things moving, be creative, and allow for
founding a new ecosystem with a totally new clock speed inside the
mother corporation.

57
I
n Chapter 2 we outlined ways of working of a big company or
organization. The company strategy, organization, financials,
reporting, management processes, HR practices, and incentive
models have been gradually optimized over the years to support
the established business operation. Big companies are usually very
efficient and effective in doing the old, but they often face difficulties
when encountering situations that call for renewal of their established
practices.
In Chapter 4 we introduced the internal startup phenomenon and
way of working, and we can immediately identify both elements of
synergy and collision between these two worlds. In this chapter we
will look into how an internal startup can reap immense benefits of
the established big organization and we will also discuss elements of
the big company that the internal startup should avoid so that it can
increase the likelihood of its success.
We will use a real internal startup as a case study, namely F-Secure
Lokki. F-Secure Corporation is an Internet and cyber security company,
established in Finland in 1988, listed on the NASDAQ OMX stock
exchange. The company strategy renewal project in 2012 identified
“People Protection” to be a prospective new product and business
area, and a new family location sharing service concept “Lokki” was
developed by a small concept design team. The company leadership
team decided to build the service and bring it to the market with a
rapid schedule, and the guidance from the company CEO to the
concept creation team leader was to “work like a startup!”The service
reached some tens of thousands of users with moderate marketing
efforts but it was eventually ramped down as it did not fit within the
company strategy framework well enough, but the learnings of the
internal startup way of working, together with some of the software
features are being deployed and further developed in current F-Secure
consumer security and privacy products and services.
5. Big company boost and inertia
Harri Kiljander and Yueqiang Xu

58
Inthechapterwewilllookintothegoodandthebadthattheinternal
startup can inherit or should avoid from the big company practices,
compare these practices against real startups out in the wild, using also
the Lokki internal startup as our sounding board.This includes aspects
like decision-making, customers, sales and marketing, technologies,
manufacturing, brand and communications, human resources policies
and practices, financials, budgeting and reporting, legal, and IPR.
Often there are lots of internal stakeholders to a big company internal
startup, and the opportunity and challenge for the internal startup
founder or leader, and for the whole internal startup team, is to reap
the maximum benefit of these sponsors, supporters, helpers, and free
labour, while trying to avoid the nay-sayers, slow-movers, high priests
of established processes, back-stabbers, and meeting mavens.
5.1 Strategy, target-setting, and focus
An internal startup is usually established by the company’s top
management for a certain business strategy reason. The reasons often
include seeking new growth from a new product or a new customer
segment. A by-product of the new business may be the creation
and injection of new and improved ways of working for the whole
organization. Balancing the top-down strategic direction setting
for a big company and for the internal startup may be a difficult
topic for the startup team and for its stakeholders and necessary
collaboration partners in the big company organization. In order to
be successful, the internal startup must define and execute its mission
with independence and focus, yet remain collaborative enough not
to derail itself completely from the company collaboration partners.
Big companies run a multitude of steering teams, coordinating units,
councils, and boards, and for the internal startup, being able to
maximize the Build-Measure-Learn Lean Startup cycle speed often
conflicts with the decision-making mechanisms of the big company
bodies.
5.2 Customers, sales, and marketing
An established company already has a customer base, marketing
channels, and a sales organization to reach customers. For an internal
startup, the company brand and existing channels for reaching a
wide audience can be a major upside. An existing customer base is
likely to trust the new product when it arrives from the company they
already know and trust from their previous experience. The product or
service developed by the internal startup can also be easily marketed
to the big company’s existing customer base, often practically for free
from the perspective from the internal startup, simply by targeting
a marketing campaign towards the existing customers. The existing
customer base or social media fan base of the company can also be

59
used when the internal startup tests and validates the new product
launch. For example, the F-Secure Lokki team ran quick surveys of the
upcoming service design elements, such as asking company followers
to vote on a set of proposed app icon candidates, on the F-Secure
Facebook page, and received valuable feedback. Obviously, this
kind of an approach requires the big company customer or fan base
to represent the target audience for the product or service that the
internal startup is developing.
If the big company has a presence in the global marketplace, the
internal startup can gain a significant benefit by using this global
operation to validate the appeal of its new product or service globally.
As an example, at F-Secure Lokki, the internal startup team relied
on the foreign sales offices’ marketing managers to recruit small
consumer focus groups to collect feedback on the proposed product
name candidates. The internal startup was able to study how the
proposed name candidates resonated with native speakers of 14
different languages across the world, with zero budget, facilitated by
professional marketing experts.
5.3 Hiring, incentives, and HR policies
A big company has a diverse workforce, ranging from research and
development to sales and marketing, design, customer support,
business development, legal, management, and other functions. Some
employees work on creating new business and products, while usually
a large part of the workforce keeps the existing business operating.
A big company’s new employee hiring profile is thus quite diverse.
The company organization is often built around functional teams: you
have consumer marketers in one team, customer support in another,
and designers in a third.
The internal startup team, on the other hand, should be staffed
with profiles more closely following a real startup. The small internal
startup team usually cannot afford having people with narrowly
defined functional roles; rather, they should be more cross-functional,
what Ideo’s Tim Brown calls T-shaped people. Also, people in a startup
should be highly motivated to create new solutions to complex, multi-
disciplinary problems. They should be self-starters and proactive
communicators, joining the internal startup on a (semi-)voluntary
basis. One of the lead software developers in F-Secure’s Lokki internal
startup said that good startup developers are lazy — they don’t
want to do any extra work, so the resulting code is highly efficient,
in addition to being of high quality. It has been said that productivity
in knowledge-intensive work varies a lot, and in a small team it is
obviously key to get highly productive performers on board.
Big companies offer stable monthly salaries and often some kind
of a bonus or incentive system in which people are measured against
their personal targets or rewarded based on the company’s success.
A real startup often initially burns the founders’ money. Key people
“The small internal
startup team usually
cannot afford having
people with narrowly
defined functional
roles; rather, they
should be more cross-
functional [...]

60
work on a sweat-equity basis and there is a looming risk of failure for
the startup and of losing money for the investors, but for the owners
and employees there can also be a potentially massive and financially
rewarding upside in the form of a rewarding exit when the company is
sold to another company or investors. An internal startup usually does
not aim for a similar exit, but the risk and reward should be balanced
accordingly. Sometimes it can be quite challenging to establish a high-
risk/high-reward system for an internal startup in the big company
context, due to the company’s HR policies or employment laws. People
may be expected to work long hours, and often people in internal
startups do, but the official HR policy may hinder this. In the F-Secure
Lokki internal startup, the team members agreed with the company
HR team to stop following their working hours, and a special internal
startup project bonus was established, measured against the actual
launch date and customer satisfaction.
In the case of the corporation Tieto, Taneli Tikka is leading an
Internet-of-Things unit with 30 people, half of whom were hired
internally fromTieto and half of whom were external.They all accepted
about a 30% salary cut compared to Tieto’s salary norms when they
joined, and they own some share of this “internal startup company”.
Thus, if their products and projects turn out to be profitable, they will
receive a personal financial upside.
5.4 Technologies
A big company often may have a technology strategy built to
support the existing product strategy and portfolio, and there may
be considerable investment in the development or manufacturing
tool chain, both digital and physical. Important factors behind the
chosen technology strategy often include elements like reliability,
maturity, viability across the product portfolio, support, vendor
locking avoidance, and cost. Some of the technologies used by the
company may be purchased from technology vendors and some may
have been developed in-house over a lengthy period of time. Specific
new technology validation and approval processes may be in place
in the big company to embrace new technologies in a controlled
manner. It is usually a lengthy process to bring a new technology into
an established organization, due to dependencies with the already
existing products, technologies, vendors, and teams.
An internal startup, on the other hand, needs to progress rapidly
underalimitedbudget,andisthusoftenwillingtocompromiseonmany
of the prerequisites that are in place for the established organizations.
New high-productivity technologies and tools exist, such as for
prototyping mobile apps (e.g. Marvel and Proto.io), embedded IoT
gadgets (e.g. Arduino and Raspberry Pi), or ramping up cloud services
(e.g. Amazon Web Services and WordPress). These are commonly used
by startups, but they may conflict with the big company’s established
technology strategies. Obviously, a smart internal startup CTO will
“An internal startup, on
the other hand, needs
to progress rapidly
under a limited budget,
and is thus often will-
ing to compromise on
many of the prerequi-
sites that are in place
for the established
organizations.

61
assess which of the big company’s in-house technology components,
tools, and technology standards are beneficial for the startup and will
speed up building and launching the MVP.
In the case of a physical product internal startup, being able to
produce early-phase mockups and physical prototypes inside the
big company organization can speed up the prototyping and design
validation phase considerably and remove a substantial cost element
from the internal startup cost plan. Without the in-house capability
of prototyping and production, the internal startup needs to staff
some of the skills internally and rely on consultants and external
service providers for the remaining phases of the industrial design,
electro-mechanical design and engineering, 3D printing, prototype
manufacturing, and volume production.
5.5 Funding, budgeting, and reporting
In an average consumer software startup, a winning team or an “A”
teamwouldbebuiltaroundthreeroles:technicalexpert,cooldesigner,
and savvy businessperson. However, the knowledge and experience
of the team members may vary and they may not have easy access
to the expertise and experience that shapes the best practices of the
industry, or they most likely will not know all the hidden risks that
may later materialize. In other words, they do not know what they do
not know, and they have to do anything possible to challenge and go
against the odds.
Around an internal startup in a big company, there are numerous
smart people, teams, and assets to help the fledgling startup for free,
and they can play a nurturing role in helping and supporting the
internal startup.
Take budgeting as an example: an internal startup has been
allocated an internal budget from the respective department or the
corporation.This initial funding helps the internal startup to keep their
main focus on building the MVP (Minimum Viable Product), finding
the MVM (Minimum Viable Marketing), and testing the MVP with the
MVC (Minimum Viable Customer). On the other hand, in a traditional
startup, one of the key tasks for the startup founders is to secure
funding while building the“next big thing”.
To be funded by external investors, a traditional startup will face
the valuation phase, which determines the monetary value of their
company, both currently and in the future. Founders and investors in
the company usually agree on a formula to determine the valuation
of the company. For a startup, it is all about convincing the investors
of the potential of the product or service they are creating, which
provides an attractive reward to the investors.
Another aspect of internal funding is that there can be multiple
objectives in the corporate environment. Commercialization or
monetization of the internal startup’s ideas is an important goal.
However, there can be other objectives for the initiation of an internal

62
startup; for example, the lessons from the experiment of the internal
startup can be beneficial for top management to apply to other units
and lines of business. Therefore, the failure of an internal startup is not
quite as devastating compared to a small startup that starts off in a
garage.
On a positive side, the internal startup can often benefit from
getting workspace for free from the big company, in addition to the
usual office facilities such as coffee, computers, and occasional IT
support.
A big company drawback that slows down a small startup is the
often-mandatory compliance requests for reporting practices.
Employees in a big startup are requested to report their working hours,
line managers may be expected to pre-approve even the smallest
external purchases, and purchased equipment often needs to comply
with the IT department’s purchasing policies and process. The startup
founder may struggle when told she cannot get the desired tools for
her team and needs to wait longer to get more expensive equipment
that does conform to company guidelines.
5.6 Business development
A startup and a big corporation approach business development
very differently, because the value that the company creates for the
customers and stockholders varies depending on the stage of the
company (Scott Polack at Creator3
).
One critical part of a startup’s success is to find the problem/solution
fit and product/market fit at an early stage. The main challenge for
the early-stage startup is to find the “long-term value” in a fairly short
timespan. For a pre-seed or series A funded startup, the lifespan is
about six months to validate their ideas, find the right market to target,
find the right customers to collaborate with, and pivot the business
idea to the right direction or drop the idea if it has little commercial
viability.
In this iterative process, hunting down the success formula is often
a combination of sales, marketing, and product development. For
startup companies with little business background, such as a group
of founders who are engineers with technical backgrounds, they need
to find external business development help to translate a technical
solution or design into a viable business. The challenge is to deal with
numerous variables in business that is unknown to industry outsiders.
Despite the number and speed of business iterations, it can still be
a long learning process with a high learning curve, given that the
original business idea has commercial viability.
A corporate internal startup has another clear advantage in their
business development expertise and experience that has been fueling
3 https://creator.wework.com/knowledge/business-development-differs-startups-big-
companies

63
the operation for years, if not for decades. Big corporations deliver
long-term value by nurturing and milking their cash-cow business
with a proven business model, as well as optimized management and
operational practices and processes. They are very good at solving a
known problem systematically, compared to a normal startup’s trial-
and-error process.
Ontopofthat,bigcorporationshaveaccumulatedmoreknowledge,
expertise, networks, and other resources that can help in solving
the puzzle of a new business. For example, a business development
manager may understand the deeper needs of customers early on
and help the internal startup to pivot to the right solution and avoid
under- or over-tweaking it. The marketing department may know the
customer segments in the market and what would make different
segments tick. The social media experts in big corporations may have
the existing customer or “fan” base for the internal startup to test-
launch its concept and get feedback from customers to know if a new
business idea or solution would fly or flop.
Internal startups can have easy access to professional expertise
and advice by walking through the doors of business development,
marketing, and sales experts in the company and get initial advice
on an idea and how to fine-tune or pivot the idea over a few cups of
coffee.
Conversely, taking social media as an example, a traditional startup
would have to go through a tedious and normally time-consuming
process to build its visibility online before it has an audience to talk
to or potential customers to get feedback from. It is as if you are in an
auditorium, and no matter how loud you shout, no one in the audience
can hear you.
With the experience, knowledge, and resources to create long-
term value, a big corporation’s business development team can help
the internal startup become much more focused and effective in
solving the puzzle of the“problem/solution fit”or“product/market fit”
early on. They can also help focus-test the idea externally from their
established business networks or relationships with customers. The
fight for budgets, resources, and executive approval all dictate which
growth opportunities will be green-lit and which will be passed over.
5.7 Brand, design, and communications
The big company has built a brand for itself and its products over the
years.Through the company brand, customers recognize the company
and have certain expectations about its products. The brand is often
quite rigorously managed by the brand management team, and they
may be afraid of a team of internal cowboys or cowgirls releasing
something immature to customers that would hurt the company
“Internal startups
can have easy ac-
cess to professional
expertise and
advice by walking
through the doors
of business
development,
marketing, and
sales experts in the
company and get
initial advice on an
idea and how to
fine-tune or pivot
the idea over a few
cups of coffee.

64
brand. On the other hand, the internal startup wants to launch exactly
this Minimum Viable Product to get rapid feedback from the markets.
The big company’s communications team may be equally protective
of the content and tone of the messages the company is sending to
their customers, partners, and investors, and a fast-moving internal
startup may not be fully trusted with going solo without the official
spokespeople being aware of what’s going on. A big company may
also have a quarterly communications schedule for product launches
and other announcements, and having individual un-controlled teams
not working by the same schedule may be seen as distracting.
Leveraging the big company brand and existing customer base may
not be an optimal solution for an internal startup that is developing a
new business or product targeted at a completely new market, be it
a new customer segment or a new geographical market area. The big
company often may have product design guidelines targeted at the
existing customer base and covering the existing products, but if, for
example, the company has established the internal startup to break
from products for B2B customers into the B2C markets, the existing
product design guidelines may no longer be valid.
When building a new product, it is crucial to get rapid feedback
from the early users to guide the design and development for the
next biweekly product release. In a big company there is often a
customer care organization with established processes for responding
to customer issues and complaints, but in the internal startup it is key
to optimize the Build-Measure-Learn loop and give user feedback
directly to the internal startup product team. When developing Lokki
at F-Secure, the internal startup team members tried to respond to
user emails, tweets, Facebook messages, and comments in the mobile
app stores within hours, and sometimes within minutes. This not only
allowed them to resolve user problems and gain valuable insights into
how to improve the product, but it also helped to turn annoyed and
dissatisfied users into Lokki ambassadors. When the number of users
of the new product grows big enough, it is obvious that the direct
feedback mechanism may no longer scale, and it’s time to move to the
big company customer care model.
IntherapidBuild-Measure-Learncycleofastartup,itisoftenenough
to launch a version of the product supporting only one language, be
it English, Finnish, or some other language in the test markets, but the
officialpolicyofthecompanymaybethatproductsunderthecompany
brand must support a certain defined set of languages. On the other
hand, the big company often has a localization team that can help the
internal startup get the product and marketing text translated into the
desired languages.
One approach to the branding dilemma applied at e.g. F-Secure has
been to establish a separate“cover brand”to collect feedback from the
markets if the prototypes being tested are felt to be too immature or
controversial for the big company brand.
“When building a new
product, it is crucial
to get rapid feedback
from the early users to
guide the design and
development for the
next biweekly product
release.

65
5.8 Legal and IPR
Legal topics may be one of the areas ignored most by novice startups.
Usually, most of the founding members of a startup are not legal
experts, and therefore IPR, patent, and copyright-related issues can
often be overlooked and are not foreseen, which can pose a threat
later. A startup does not have the capital and finance to protect itself if
things go wrong.This is also related to the high cost of legal consulting
fees and patent protection fees that may be required to protect an idea
that may or may not take off in the market. Of course, experienced
entrepreneurs would understand legal protection and all the matters
that need to be taken care of when they move forward with the idea.
In a corporate setting, the internal startup can often get legal
consulting “for free”. Sometimes the legal risks may come from
patent evaluation and protection; sometimes the legal risks may not
be obvious even to a professional team. For example, if the market
segment on which the internal startup is focusing is not allowed to be
targeted, a premature marketing campaign without considering the
legal sensitivity may cause big trouble for a normal startup. However,
with the legal strength of a large corporation, the internal startup can
easily navigate the potential legal risks. The F-Secure Lokki location-
sharing service was built for families, including children, and the in-
house legal team was of great help to the internal startup team in
developing an appropriate privacy policy, end-user license agreement,
and marketing strategy, including the potentially children-sensitive
aspects.
One special area in contemporary digital products and services is
privacy and data protection. National and international legislation
defines the practices and behavior for online service providers
who collect, store, and distribute users’ private and sensitive data,
and usually the average startup does not have expertise in or even
awareness of what’s required from them. The internal startup has the
benefit of getting free in-house legal counsel, and if the in-house legal
experts can’t help, they can usually direct the internal startup team to
an external legal office.
Another element crucial to the fate of a startup is external
competition from an established incumbent in the industry. These
large incumbents normally have strong resources to tackle legal
issues. It puts the traditional startup in an adverse situation whenever
there are legal issues related to patent or copyright infringement. For
example, the large corporation may easily have the resources and
capability in the case of legal action. In contrast, the small startup may
not have enough financial resources to withstand a long-lasting legal
process, especially if the major source of a startup’s funding is from
external investors, such as VCs. These investors may chicken out and
leave the startup if the legal situation becomes less favorable to the
startup or may drag down the startup’s growth. Lack of funding may

66
cause the startup to lose its lifeline financial support and leave the
industry early on.
On the other hand, the internal startup may be protected by its
corporation’s legal arm from competition and legal attacks from
another incumbents. However, this protection is without a price.
Normally, any invention or IPR created by the internal startup team
is the property of the mother company. The startup team does not
have ownership of the IPR. Is the internal startup team willing to give
the fruit of their work to the big company, especially if the IPR could
bring a much higher financial reward than their salary? They might
have the opportunity to become the next PayPal, the next Dropbox,
or the next Google, upon realizing their dream. The big company
management might ask themselves that by excluding such a strong
incentive potential, would the internal startup team be functioning to
maximally realize its purpose?
5.9 B2B versus B2C internal startups
B2B companies tend to be driven by sales, while B2C companies tend
to be driven by marketing. A B2B company usually deals with a smaller
number of customers, and those customer relationships are managed
by a human salesforce. A B2C company, on the other hand, often relies
on various media-based marketing activities to reach a larger-volume
customer base. Closing a B2B deal can often take months or even
years, and having a professional human salesforce is crucial in making
that happen. Making a B2C product successful can require sizable
consumer marketing efforts, but it can be done using various volume
marketing or growth-hacking techniques and tools.
TheinternalstartupthusneedstobeabletoinvestinB2BsalesorB2C
marketing, either by staffing these activities inside the startup team or
byrelyingonthebigcompany’sestablishedsalesandmarketingteams
for this purpose. Sales organizations and people are usually heavily
incentive-driven, so in the case of a B2B internal startup it is key that
the big company sales team’s incentives also cover the internal startup
product; otherwise, the likelihood of success through relying on the
big company sales team is weak. For a B2C internal startup, it may be
easier for the startup to build up its own B2C marketing activities using
various inexpensive growth-hacking techniques.
5.10 Key takeaways
An internal startup established by a big company can enjoy a
tremendous upside because it is able to get free support from
stakeholders, functional teams, and asset owners in the big company.
Being able to get timely support, e.g. from the legal team or business
developers, can give the internal startup a tangible competitive
advantage compared to a fledgling real startup that does not have

67
such expertise in the startup team and may not have the budget to
hire expensive consultants for its work. An even bigger upside comes
from being able to utilize the big company’s sales and marketing
channels to reach a wide prospective audience for the new product or
service being developed in the startup.
The downsides of the internal startup working under the big
company umbrella are unfortunately equally plentiful. Direction-
setting from the big company’s top management may be unclear or
conflicting, and culture collisions may slow down the progress of the
internal startup. Even if the big company’s top management and the
internal startup team share the same vision, the middle management
in the big company may not be equally supportive of allocating
appropriate time for their teams to support the internal startup team,
or they may actively oppose the startup team for behaving in a too
anarchistic manner against the established big company processes
and responsibility areas. Also, while the startup may have been
established to explore a new customer segment and product concept,
the bean-counters in the big company may soon start to question the
startup for revenue figures. Being forced to follow the big company’s
reporting practices and use its standardized technology components
may slow down the internal startup’s progress, and a lack of feasible
incentive models in the big company’s HR playbook may hurt the
capability to hire or motivate the internal startup team members.
The key for the top management sponsor and the internal startup
team is to find the appropriate balance between support and
collaboration with the big company organizations and processes while
retaining enough independence and control to steer and execute
the Build-Measure-Learn Lean Startup loop, in order to listen to the
markets and iterate the new product or service towards a scalable
new business. Finding this balance usually depends on the company
culture and values, the established management structures and HR
policies, company ownership, working time legislation, competitive
situation in the marketplace, characteristics of key people involved,
relevant B2C or B2B ecosystems, key technologies and IPR, and other
factors.
Additionally, it is important to point out that there is no “one-
size-fits-all” solution or a “perfect model” that guarantees success for
internal startups. What works in one company may not be possible in
another company, even if they have the same business or operate in
the same industry. Simply collecting all the internal startup practices
of other companies without understanding the context or the
underlying rationale can easily mislead and drive the management
down a risky path. The management needs to take into account the
stakeholders’needs, the corporate culture, and the existing corporate
structure and policies to ensure that internal startup initiatives will
take off successfully, create long-term value, and maximize synergies
with existing operations.
“Additionally, it is
important to point
out that there is no
“one-size-fits-all”
solution or a “per-
fect model” that
guarantees success
for internal start-
ups.

F
-Secure is an Internet and cyber security company established in
1988 in Finland. One of the new opportunity areas identified by
the company’s growth strategy in 2012 was “people protection”,
and a family location-sharing service concept was developed by a
small cross-disciplinary team of technologists, designers, and business
developers as a special project in addition to their normal duties.
The concept team lead (this author) pitched the concept idea to the
company’s top management in December 2012. The product concept
was appreciated and the team lead was then tasked with“working like
a startup”and bring the product out in the market in mid-August 2013,
when first-graders start school in Finland.
F-Secure has a long history of experimenting with various in-house
innovation methods, 10% free time projects, hackathons, and an in-
houseinnovationteam,butnowthetopmanagementwantedtoinject
more of a“startup mindset”into the organization. Previous examples of
this model did not exist, so the internal startup was also an experiment
to bootstrap new ways of working. The goal was not only to develop
and launch a new consumer product in a rapid fashion, but to develop
and spread new methods and tools within the organization.
Case: Lokki by F-Secure
Harri Kiljander
68

Asmallfull-timeteamwasrecruitedfrominsideF-Secure,consisting
ofthreeseniorsoftwaredevelopersandaUXgraphicdesigner,withthe
teamleadbecomingthe“productguy”.Inaself-organizingfashion,one
of the developers took on the role of CTO, one became the lead mobile
app developer, and the third took responsibility for the server design
and implementation. When hiring the team, we especially looked into
the candidates’ desire to build a new consumer product and their
eagerness to learn and contribute to the concept design, end-to-end
customer journey definition, and business model. The full-time team
started working in April 2013, and the Lokki Minimum Viable Product
(MVP) consisting of an iPhone app and a secure location-sharing server
was launched in early July.
We started to build a “family location tracker”, but after initial user
research we learned that nobody wants to be tracked, and few people
wanttotracktheirfamilymembers.Consequently,wegraduallypivoted
the product to an“unlike family tracker”and later to a“Google Latitude
replacement”— after Google had ramped down their location-sharing
app. We wanted to build a service children would want to use so that
their parents would be able to check where their kids are going. If
kids disliked the app, they would not use it, and parents would not
use it either. We wanted to make it appealing enough for kids so that
eventually we would be able to create a sustainable business model
and get parents to pay for some functionality in the service.
The team worked on a bi-weekly release cycle in DevOps mode,
collecting continuous feedback from Lokki users and making several
bigger pivots during the course of development:
• Support for children’s friends was added (to boost kids’use of
the service)
• The mobile apps were re-built from scratch after launch with
more efficient technology
• A chat feature was added and dropped (to boost active usage,
but we learnt that we could not beat WhatsApp!)
• An initial continuous location hotspot detection feature was
dropped due to battery consumption reasons
A part-time digital marketer supported the Lokki team, and we
also got substantial help from the in-house legal and other teams
— developing a location-sharing app for minors has significant
privacy and data protection issues when a security company wants to
do things properly.
The top management monitored our progress in Dragons’ Den
sessions, and in early 2014 the management decided to terminate
Lokki after it was felt that it did not support the company’s security and
privacy strategy tightly enough. Different final pivoting options were
considered, including spinning off the service into a new company,
co-owned by the team and F-Secure, but eventually we decided to
open-source the source code. Afterwards, the Software Factory of the
University of Helsinki took over this OSS project; they have been using
69

it in one joint project with leading US universities and Facebook, and
recently they re-launched the service at www.lokkiapp.com.
Top positive lessons from the Lokki
internal startup
What would we do differently now?
Independent cross-disciplinary team with
maximum control over people, budget,
and process (laws and company values
permitting)
Certain technology components were
“given”to us, but later we had to re-build
the Lokki mobile apps anyway with
better tools we chose ourselves
Executive sponsor in the company’s
top management helped to resolve
cross-company issues (with HR, brand
management, and other functions)
Our targets were not fully aligned with
e.g. the consumer marketing team, so
they did not have enough capacity to
help us when we needed
The startup team must be in control of
the MVP/product launch for maximum
speed and feedback
The team, and especially the team lead,
must have minimal other obligations in
the company
We reached tens of thousands of users for the Lokki service, and the
figure was growing until the service was pulled from the market. Users
liked it (4+ star ratings in the app stores), and both the Android and iOS
apps were momentarily in the top two in the Finland app stores. We
have been reusing some Lokki software code in subsequent consumer
security products in the company, and we have been deploying
internal startup ways of working in these new product development
projects — so we feel the exercise was definitely a success. Time will
tell what happens with the open-source version of Lokki.
Further reading
Tim Brown, Change by Design: How Design Thinking Transforms
Organizations and Inspires Innovation
Jez Humble, Joanne Molesky, and Barry O’Reilly, Lean Enterprise: How
High Performance Organizations Innovate at Scale
Tom Kelley and Jonathan Littman, The Ten Faces of Innovation: IDEO’s
Strategies for Defeating the Devil’s Advocate and Driving Creativity
Throughout Your Organization
Geoffrey A. Moore, Escape Velocity: Free Your Company’s Future from
the Pull of the Past
Trevor Owens and Obie Fernandez, The Lean Enterprise: How
Corporations Can Innovate Like Startups
70

Eric Ries, The Lean Startup: How Today’s Entrepreneurs Use Continuous
Innovation to Create Radically Successful Businesses
Web:
http://www.forbes.com/sites/georgedeeb/2014/05/14/sales-vs-
marketing-for-startups-depends-if-you-are-b2b-or-b2c/
https://creator.wework.com/knowledge/business-development-
differs-startups-big-companies/
http://www.inc.com/steve-blank/why-internal-ventures-differ-from-
external-startups.html
http://smallbusiness.chron.com/disadvantages-internal-
ventures-76735.html
http://www.innovationmanagement.se/2013/01/07/driving-
innovation-by-corporate-venturing-how-to-master-governance-and-
culture-challenges/
http://chiefexecutive.net/ideo-ceo-tim-brown-t-shaped-stars-the-
backbone-of-ideoae™s-collaborative-culture/
http://allthingsd.com/20130123/apple-ceo-dont-fear-
cannibalization-embrace-it/
http://www.mcngmarketing.com/when-to-cannibalize-your-existing-
products/#.VlGrnlpMj4Q
http://www.n4s.fi/2015magazine/article10/
http://www.f-secure.com
www.lokkiapp.com
71

73
6.1 Background
A company’s decision-making body must decide when and how an
internal startup is founded and ended. In particular, the decision-
makers need to understand that the internal startup is only one
attractive option, and other similar alternatives exist. In this chapter,
we elaborate the internal startup method along with other similar
alternatives for new product, service, and business development. We
review them from the stage of idea incubation to that of business
scaling.
A product or service innovation project can take several forms, of
which internal startups are the essential concept of this book. Broadly,
an innovation project can take place under at least six different classes:
• New product development (NPD) project. This is a traditional
innovation or development project for products or services
within a company. It typically includes the company’s strategic
work and follows the company’s established practices and
structures.
• Internal startup. Internal startups take place within a company
but work much more independently than NPD, or even entirely
independently. Thus, internal startups have different levels of
freedom from the company’s standard policies.
• Company subsidiary (spinoff). A company can found a“child”
company to take care of an innovation project. Typically, such
a subsidiary has more freedom, responsibilities, and financial
incentives than an internal startup.
6. Thelifecycleandalternativesofaninternal
startup in an organization
Marko Komssi and Mikko Raatikainen

74
• Incubating corporate subsidiary. A variant of a subsidiary is an
incubatory subsidiary.“Incubatory”means that a subsidiary is
not founded for a specific innovation project; rather, the same
subsidiary exists continuously and innovation projects are
carried out within it.
• Acquisition (M&A). Rather than making innovations by itself,
a company can merge with or acquire another company, thus
internalizing innovations.
• Company startup. Innovations can also take place in
independent startups, in which the originating company has
no official control other than ownership. This can take place,
for example, when employees leave the company to start
new business by themselves. A corporate venture can also be
founded to cooperate with the startups rather than establishing
startups itself.
In terms of internal startups, the four first classes are the most relevant
ones. M&A is also relevant because the company will have control of
thecompanysubjecttoM&A.Ontheotherhand,independentstartups
are outside the scope of this book if the original company does not
haveanofficialrelationshipwiththem.However,independentstartups
can, for instance, license certain IPRs or establish partnerships with the
originating company.
These different classes of organizing innovation projects, or more
broadly internal startups, are relevant because product or service
innovation goes through different stages over time, and the work can
be changed to suit these different kinds of organizational entities.
Accordingly, Figure 5.1 illustrates the four stages of the startup lifecycle
by Mohout (2014).

75
For the scope of internal startups, the four stages can be mapped and
summarized as follows:
• Idea stage: In this stage, the internal startup should focus on
understanding the problem or need that it wants to tackle
in detail. By the end of this stage, the startup should have a
holistic understanding of the problem domain and an MVP or
concept to start concept validation with real customer and users.
Figure 5.1. The four stages of the startup lifecycle, Mohout (2015)4
4 Mohout, O.: Startup Master Class II: Exodus | problem-solution _t. (2015)

76
• Problem/solution fit: In this stage, the internal startup should
focus on further developing the concept to be an optimal solution
for the first-lead users and customers. Customer acquisition is
the second key activity of this stage.
• Product/market fit: Once the optimal solution for the lead
users is ready and the internal startup has been able to acquire
new customers and users, its focus should move to customer
retention and further generation of the business model. In this
stage, the internal startup should focus in particular on pricing
strategy.
• Scaling: When the internal startup has found a scalable business
model, the focus should shift to actual scaling. In this stage, the
internal startup should focus on accelerating the business. The
acceleration typically requires large investments in marketing
and business development.
The length of these phases varies widely. Moreover, the stages can
partially overlap and are not clear-cut. According to the authors’
knowledge from the field, the main focus of each startup typically
follows these stages over the startup’s lifecycle. If the project does not
succeed, it will face its end and be discontinued, which can happen
during any of these phases.
Table 5.1 combines the organizational alternatives and lifecycle
phases results in a two-dimensional space through which each project
take its path. In the next section, the case examples illustrate different
kinds of paths that are summarized, and the mechanisms or forces
affecting the chosen path are elaborated.
Table 5.1. Two-dimensional view of the lifecycle and organization of product or
service innovation.
Idea
Stage
Problem/
Solution Fit
Product/
Market Fit
Scaling
New Product/Service
Development
Internal Startup
Corporate Spinoff/
Subsidiary
Incubating Corporate
Subsidiary
Mergers &
Acquisitions

77
6.2 Case examples
Case: Corporate Subsidiary
F-Secure founded a corporate spin-off F-SOS to establish a new
business concept and model. The spinoff used F-Secure’s existing
technology without developing the core technology further. Rather,
the core solution was based on F-Secure’s existing technology, and
the key idea was to make a new kind of service-oriented business and
service concept. The first release was not especially successful, but the
second solution release, around a year later, showed major success.
A year after the successful launch and operation of the product, the
spin-off was merged back into the mother company and the solution
became a strategically important, if not the most important, business
for several years. The key idea of the solution was to turn F-Secure’s
existing technology into a “software as a service” (SaaS) model in the
business. In fact, around the same time, F-Secure reshaped its business
by discontinuing other product offerings. Later on, the mother
company had the subsidiary within its unit, and the people of the
subsidiary as a cross-functional team tried to establish other similar
SaaS model-based solutions that turned out to have moderate success
at best.
Case: Incubatory Corporate Subsidiary
F-Secure has a subsidiary DF Data in which any new kinds of concepts
can be tested. Although there are products and services marketed
under this incubatory company’s brand, these products use the
subsidiary as a test bed and are currently not making any revenue.
Thus, this company operates as a kind of incubating place, for example
to test and learn about social media marketing, test beta-products,
and test concept products and technologies. All this is done without
sacrificing the mother company’s brand name. The company has been
used to publish beta versions for several products, such as FS Cloud
and FS Protection.The product concepts include Secure Selfie Camera,
Funny Hat Stickers, and Snapwallet: Photo Safe.
Case: Internal Startup
F-Secure has a history of four internal startups. The statuses of these
four cases are as follows:
• Case 1: The end of business life (Lokki). The first internal startup
was founded within a business organization. The entire product
was based on new software implementation along with a new
business and service concept. The internal startup has been
discontinued and its product, along with the technology, has
been open-sourced.
• Case 2: Searching for the scalability (Freedome). The second
internal startup was founded within a strategic unit. Existing
technology was leveraged for part of the startup’s application,

78
and some parts were developed from scratch. The first stages
of the internal startup were a great success in terms of the set
objectives, such as attracting new users and downloads as well
as receiving good public reviews. The internal startup was later
integrated into F-Secure’s consumer business organization.
More recently, the product has been adopted for business
customers and has been subject to other kinds of markets and
extensions. However, there have been challenges with scaling
the business; the line and market extensions have had more
challenges than anticipated.
• Case 3: Searching for the product/market fit (Key). The idea for the
third internal startup was incubated in the strategic unit. After
the strategic decision, the internal startup was founded in the
consumer business organization. The case has had challenges
in finding the product/market fit and a competitive advantage
over the competition. The resulting application is still offered as
complementary to other offerings, but it has not proved to be
attractive enough alone for the markets.
• Case 4: Searching for the problem/solution fit (Sense). The
fourth internal startup was founded after a decision by the
senior management, and the business is still in its infancy. The
focus of the internal startup is to develop a hardware-based
security solution. An essential part of the new product’s core
consists of software security technology from the parent
company’s existing technology. The product is still under active
development, and the internal startup is currently searching for
the problem/solution fit.
Case: Corporate M&A
Over the past 26 years, F-Secure has carried out several business exits
and company acquisitions. Here, we briefly elaborate two recent ones.
• Case 1: An acquisition to enter a new business area and the later
business exit. In 2009, F-Secure acquired a French company
called Steek that provided software for online storage
and data-management solutions and employed about 50
people. F-Secure wanted to grow its operator business, and
the acquisition offered both new operator customers, such
as SFR (France), Virgin Media (UK), Singtel (Singapore), and
Terra (Spain), and online backup technology. F-Secure further
developed the technology and business as the Younited service
until exiting the business in early 2015. As a result of F-Secure’s
strategic change, the business was sold to Synchronoss.
• Case 2: An acquisition to enter to a knowledge-intensive business.
In summer 2015, F-Secure acquired nSense, a privately held
Danish company employing about 70 experts in security
technology and knowledge-intensive services. Accordingly,
“However, there have
been challenges with
scaling the business;
the line and market
extensions have had
more challenges than
anticipated.

79
F-Secure’s acquisition strengthens the company’s expansion
into this enterprise segment. The acquisition allows F-Secure
to offer and further develop complete defensive solutions and
services for modern cyber threats.
• Case 3: Case internal startup and startup. Aptual is a small
company that focuses on creating better marketing
communications and exploring new frontiers for its customers.
The company has historically carried out customer-specific
projects that it has further developed and commercialized.
This has resulted in a set of small solutions that have each had
a good problem/solution fit for a single customer. However, a
poor product/market fit has required a significant amount of
customer-specific work with the next customers for scaling.
Therefore, Aptual decided to narrow down its number of
solutions to three. One of these three was Johku, which is today
a software-based solution for travel service providers, such
as cottage renters. The intial version of Johku was developed
as a typical Aptual NPD project. However, Aptual carried out
different kinds of analysis about the market, resulting in a
decision that the value proposition of Johku needed reshaping
and sharpening as a part of a significant development project.
As a result, Aptual decided to establish an internal startup for
Johku that was financed by the two other revenue-generating
solutions. The essence of the internal startup was to make an
explicit internal investment and clarify the role of Johku as
an upfront investment in development rather than trying to
productize existing projects. The internal startup developed an
MVP and started to search for product/market fit. A startup that
takes care of Johku was spun off very recently. While the startup
considers the existing MVP to be ready for scaling, validation
from larger markets is lacking.

Q
entinel Quality Intelligence (QI). Qentinel’s background is in
software quality assurance. Qentinel is a professional services
company providing knowledge-intensive quality consulting,
project management, quality management, test automation, and
testing. Qentinel did not use to own any valuable products or IPRs of
its own. Labor-intensive parts of testing consultancy, which used to
be the lion’s share of Qentinel’s business, had been increasingly under
pressure to become bulk-work, where mainly volume and price matter.
Such testing has traditionally focused on either the continuous testing
of products that have frequent releases or the testing of information
system deployments before usage.
Around10yearsago,Qentinelstartedtothinkofshiftingitsbusiness
to a different kind of offering. The corresponding vision guided it
towards a sophisticated understanding of quality through the concept
of value. That is, quality assurance has no intrinsic value per se, but the
resultsandinformationthatthecustomersachievemakethedifference.
Alltheinformationshouldbeavailableandeachstakeholdershouldbe
provided with the information they need: for example, a programmer
needs bug reports, whereas a manager needs information on the
risks of releasing a product to the market with current quality, and so
forth. On this basis, Qentinel eventually established an NPD project
(2007-2008) to develop a software and service offering for measuring
and predicting value. The NPD eventually became known as Quality
Intelligence (QI).This NDP project was run in a traditional NPD manner,
resulting in prototypes, etc.The NPD was a drastic change for Qentinel
because the objective was to develop its own products and services
with protected IPR, which was different from and even in conflict with
the existing business model.
However, the market was not yet ready for the more elaborated
concept of value, and the project was not a business success. Secondly,
Qentinel’sexistingbusinesscontinuedtobesuccessful,whichhindered
the development of the new business concept. Indeed, as the CEO of
Qentinel says in a blog post,“The more successful your business is, the
more likely your transformation is to fail.”
During the turmoil of the global financial crisis in 2008, Qentinel’s
strategy work led to an important observation: information systems
that fulfill all their quality requirements may still fail to create value
for businesses. Qentinel began exploring ways to measure quality-
in-use and quality of IT-business integration. The new emphasis on
quality proposed that it is not just the testing of software releases
Case: Quality Intelligence by Qentinel
Marko Komssi, Mikko Raatikainen
and Esko Hannula
80

or information system deployment that matters. Instead, quality is
linked to four important value dimensions, such as user-perceived
and business value, that should be measurable and presentable in the
purchase and the use of an information system. At that time, however,
holistic quality assurance solutions for runtime information systems
did not exist in the market. Only technical monitoring solutions
existed to inform users whether an information system was up and
running properly. This type of holistic and four-dimensional runtime
monitoring became the basis of QI’s vision.
Qentinel acquired a technical monitoring company in 2011 as
the basis for the development of QI. The company already had the
required competencies and technology that Qentinel itself lacked
at the time. This technology-based service, which monitored one of
the four dimensions of quality, was supposed to finance the solution
development of the other three dimensions.
The theoretical concept of QI was novel enough that was even
patented. At this stage, although potential customers were interested,
they did not start to use QI quite yet; the target market was not ready,
or the proposed value was not yet accurate.
Some people at Qentinel strongly believed in the potential of
QI. However, the QI project was relatively time-consuming and
used resources from the other profitable business areas. The loss-
making was not supported internally by the working culture of the
consultancy business. It was confusing that the company invested in
an NPD that only consumed money without having proper paying
customers. The organizational culture hindered, rather than boosted,
the development of QI.
To clarify the role of QI, Qentinel ended up making QI an internal
startup with dedicated people spending 100% of their time on it. It
was also highlighted that QI would initiate new deals on its own. This
somewhat clarified QI’s identity. In fact, QI’s business started to operate
better and it began to get some pilot customers. Nevertheless, QI still
remained tied to the old consultancy-oriented organizational culture.
Less than a year later, Qentinel decided to restructure its whole
organization. As a part of this, the QI internal startup was moved to a
separate corporate subsidiary.
Although the move caused some uncertainties at first, things finally
startedtogowellinthesubsidiary.QIwasindepent,withouttheburden
of the old organization, and the QI employees realized that they were
responsible for getting new prospects and customers. For them, it was
a new situation to get out of the building with a solution that was not
completely ready, in their opinion. Actually, going out with the not-
completely-ready solution boosted solution development in the right
direction. Moreover, the new situation empowered the employees to
really get sales.
Qentinel also had to consider the potential brand threat of the
subsidiary. There were concerns about whether to use the Qentinel’s
brand for QI or to develop a completely new brand. The weaknesses
of the former option were that the existing brand image was not
81

directly fitted to QI. Moreover, if QI would fail, it would have a negative
influence on Qentinel’s brand, which so far had remained faultless.
That risk has not been realized so far.The weakness of the latter option
was the costs. Developing a completely new brand was considered to
be too expensive compared to the benefits.
At the moment, QI is growing, but its business is not yet turning
profits because of the heavy development investments. QI is still
operating as a subsidiary but might later be merged back into the
main company. There are tight ties with the main Qentinel company
that, for instance, owns the IPRs of QI. Customers have started to value
QI, and thus the rest of the company has begun to appreciate QI more
and more. Interestingly, QI has also helped the parent company’s sales.
The example set by QI may also have accelerated innovation in the old
business. The offering is appealing to potential customers and offers
the parent company’s sales personnel a means to get new prospects
for the existing offering of the parent company.
Consequently, gradually making QI more independent from
the existing organization through the phases of NPD project,
internal startup, and subsidiary seemed to be a successful business
transformation path.The development of QI, both as a business and as
a technology, was fastest during the internal startup phase. However,
the founding of a subsidiary does not necessarily fully explain the
recent success. During the transformation, the QI offering matured, the
market seemed to be more ready, and the technologies used within
the major digitalization trend have shaped the business environment.
Nevertheless,separationseemsatleasttohaveadvancedQI’sprogress,
while too-close ties with the old organization hindered its progress.
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83
Summary
The paths through the lifecycle phases of alternative ways to organize
innovation work are illustrated by the example cases in the figure. The
x-axisshowsthedifferentphases;itdoesnotindicatetheabsolutelength
of the phases, e.g. in terms of months, but rather is roughly proportional
in relation to the phase length, such as whether the transformation was
carried out at the beginning or at the end of the phase. For example,
the lifecycle of Lokki and QI are presented in this same figure, but the
lifecycles were roughly one and eight years, respectively.
There does not seem to be any strong indication that it matters
where the ideation is done. However, in most of the cases with which
the authors have experience, the ideation starts in the main company
and proceeds there for some time to work on the concept formation.
For example, Freedome, Key, and QI were ideated and have been a
part of the strategic process for a long time. Freedome and QI were
incubated for a long time in strategic units. Key was soon merged into
a business unit where it operated as an internal startup. Lokki had
mostly been within a business unit. Nevertheless, all these took place
in the main company. In the DF Data case, the ideation was there, but
DF Data is very closely linked to the main company.
Each path shows a transition during the ideation phase from the
main company. In many cases, an internal startup was established.
One case is an example of going directly to a subsidiary, while
another case (QI) first established an internal startup before moving

84
to a corporate subsidiary. In the case of DF Data, as a subsidiary there
was no transition. As a general rule, it seems that independence from
existing business lines has positive effects. A threat that comes with
establishing an internal startup is that it remains too close to the
existing business, whereas a corporate subsidiary can be a means to
gain more independence.
There does not seem to be an essential point when the transition
should take place. On the one hand, the QI case indicates that delaying
decisions does hinder progress. On the other hand, an immature
concept may not survive when on its own too early. A startup, be it
real or internal, needs a sharp and bright vision.
A successful, independent internal startup or subsidiary can even
be a disruptive boost to the existing old business, as happened in QI.
Moreover,internalstartupsandsubsidiariescanbemoreundisciplined
as well as radical and quicker to test something new, and are thus used
as a test bed and a way to learn good practices for existing products.
It seems that there is no hurry to end the startup, whether it is an
internal startup or a subsidiary; indeed, delaying this decision seems
more beneficial. Three cases came to the end of their startup lifecycle
and were brought back into the main company. However, until a
scalable business model has been found, there are indications that the
business line is not the right home. Being too closely related to existing
business lines is bad, especially for radical innovations. A reason might
be that the innovation is felt to threaten the existing business or does
not fit in with daily routines. In fact, the more radical or disruptive the
innovation is, the better a corporate subsidiary or other means of being
made independent is. In more general terms, independence seems to
be a good indication for good operations — or freedom from existing
practices that are hindering or controlling.
In fact, a consideration when ending the startup lifecycle is whether
the developed concepts have their proper home in the existing
business lines or whether it is worth it to establish a new business line
for the new innovation. The cases show that one case turned into a
scalable business within existing business lines, but even that case
was able to later repeat the success only moderately. The other case
is still looking a scalable model within the business line, and the final
case was discontinued.
If the innovation is unsuccessful, there are other options than
simply discontinuing it. For example, Lokki is continuing as open-
source. The Funny Hat Stickers of DF Data was first developed as a
funny add-on to the cloud services, but once the cloud services were
discontinued, there was no strategic use for Funny Hats. However, the
Funny Hat Stickers app had users and worked on its own. Thus, Funny
Hat Stickers was changed to be test bed for trying new things, such
as learning and testing the use of social media channels for various
purposes.
IPRs always make things more difficult. If there is no existing IPR
involved, why make a spinoff? A real startup might be better, or you
could just make it an internal startup.Whenever there are existing IPRs

85
involved, internal startups and subsidiaries become more relevant and
a successful means to handle IPRs. However, while IPRs do not seem to
an obstacle for startups, they do require more agreements.
Incentives are a challenge. In the case of QI, the organizational
culture did not appreciate spending money. Unrealistic expectations,
e.g. in terms of profit, can prevent a corporate spinoff, especially when
going into a new field.
THE RULES OF SUCCESSFUL F-SKUNK WORKS PROJECTS
By F-Secure
1. Independent project with maximum control over
people, budget, and process
(laws and company values permitting)
2. Clear top-level target-setting and top-level sponsor
3. Aligned targets with in-house stakeholder teams
4. Clear focus; no other obligations for teams and team
leader
5. Somewhat unrealistic schedules and targets balanced
with full authority
6. Physical co-location of the cross-disciplinary team,
led by the product person
7. Team must take product/prototype to the market
8. Minimum Viable Product. Build-Measure-Learn. KISS.
No dogmas!
9. Accept/expect/appreciate some people getting upset
by broken rules
10. Continuous improvement and lessons learned
Adapted from Lockheed Martin’s 143-day P-80 jet fighter
prototype project in ’43
6.4 Conclusions
In this chapter, we illustrated the lifecycle of an internal startup with
a path through the phases of ideation, problem solution, product/
market-fit, and scaling the business. Along this path, an innovation
goes through an internal startup phase or other alternatives, such
as corporate subsidiaries. Regardless of the means, it is essential to
establish an environment with sufficient freedom for an internal
startup to create a novel or disruptive innovation.

1
Context:
When starting an internal startup initiative, all kinds of ideas
can proliferate in a big corporation.
Problem and forces:
Even in a big corporation, in the beginning it is difficult to tell
if an idea will fly.
Solution:
Managementneedstohavethe“endinmind”byunderstanding
and planning different ways the internal startup could benefit
the corporation’s main business, instead of focusing solely on
the revenues generated by the internal startup. The key is to
decide whether all the benefits justify the cost.
Consequences:
There may not always be a direct financial return from the
internal startup. But the corporation can benefit from trying
out new technology, learning new and effective management
practices, and gaining publicity, brand reputation, and
customer mindshare.
7. Recipes
Real benefits and return of investments
87

2
Context:
You want to promote your organization or product. You may
also want revenue from licensed products.
Problem and forces:
Successful branding postulates a good plan and large-enough
user base.
Solution:
You will start or follow systematic branding. This requires
planning and also user studies. You may also think about
branding early on when developing a product by selecting
recognizable elements, like characters.
Consequences:
In early phases branding may be optional, so the initial costs
may be low. In this case, costs can be scaled.
Branding
88

3
Context:
You are doing innovations and trials, and you want to
promote creativity and risk-taking.
Problem and forces:
Having a positive attitude towards failing is not typical
human behavior, so it must be learned. It is also not easy
to kill projects. An essential part of a failure culture is to
recognize failures early enough; however, those trials that
have potential should not be killed too early.
Solution:
The organization will see failures as possibilities and part of
the normal product development process, rather than as
negative events. Projects that are not promising are ended
early enough so that the company and its employees can
concentrate on projects with greater potential. Employees
need to know this, and you must somehow promote a
positive working atmosphere towards failures, e.g. by
positive learning events when a failure is recognized and a
project cancelled.
Consequences:
You will need resources for this. Moreover, this will require
a certain organizational culture. It is easier to build the
culture in a new company than to transfer it to an existing
organization. However, one possibility is to create a special
section of an organization that starts to follow new practices.
Learn from mistakes
89

4
Context:
Different organizational considerations exist for internal
startups throughout their lifecycles, from idea to market
dominance, including the path or changes made.
Problem and forces:
How do you ensure freedom from corporate policies, burdens,
duties, etc.? What control is needed for internal startup? When
do you end the internal startup and make it a part of the
company’s normal offerings?
Solution:
Toensuregoodoperationofaninternalstartup,oneoptionisto
use a corporate subsidiary, or at least to have a clear separation
from normal business lines. Do not rush with merging the
results of an internal startup with existing business lines.
Consequences:
There needs to be freedom and investment without the
normal level of control to create really novel or disruptive
innovations. It is better to cannibalize your own products than
let competitors do it.
Context:
You have a software product that has a large target customer
segment, and you want to test if the product is viable in a
restricted customer segment.
Lifecycle of an internal startup
90

5
Problem and forces:
A soft launch requires a certain type of product. You also
need to select the target area so that it presents the actual
customer area and is large enough, but does not draw too
many customers away.
Solution:
You will do a so-called soft launch. This means that you will
launchtheproducttoarestrictedcustomerareathatreflectsthe
product’s true, larger target area. This allows you to follow how
well the product performs, and early bugs can be caught and
improvements can be made based on the collected data and
customer feedback. You will select the area so that it is not too
big (e.g. the US or China) nor too small (e.g. Malta). Typical areas
that game companies have used are Canada and New Zealand,
because these areas are seen as reflecting international markets
well.
Consequences:
You need to have a mechanism to collect data and measure
your product’s usage in the restricted target area. A soft launch
requires resources, but it is still a relatively cheap way to test a
product’s market value.
Soft launch
91

6
Avoid Bureaucracy
Context:
To improve productivity and creativity as well as to improve
the job satisfaction.
Problem and forces:
You want your employees to be able to concentrate on
their work and avoid routines that are not necessary for
them. In small organizations, the capacity for secretarial
and administrative services is a big factor in productivity.
However, in large companies one can be tied with too much
corporate red tape like reporting and meetings, be part of
too many projects and such.
Solution:
Avoid bureaucracy. Be aware what your employees use their
time to. Let them concentrate on their core work and avoid
multitasking, which is the result of giving multiple parallel
tasks to a single person. Often, extra bureaucracy can be
avoided by trusting employees. Additionally, specialized
persons, like secretaries and administration, can deal with
routines that are required for legal reasons, like taking care of
travel claims or receipts for bookkeeping.
Consequences:
Increased efficiency and less overhead.
92

7
Top management sponsorship
Context:
To allow an internal startup to achieve its purpose, the top
management needs to be involved and committed.
Problem and forces:
As a stand-alone unit, internal startups can have difficulty in
positioning themselves in a big corporate environment. How
the top management is involved can make or break an internal
startup.
Solution:
At least one committed and powerful sponsor in the top
management is required to support the internal startup.
The right sponsor should be willing and motivated to take a
progressive role in it.
Consequences:
Despite the involvement of top management, an internal
startup still needs to prove its value to the corporation. On the
other hand, a top management sponsor needs to spend time
with the startup and use part of the budget he or she controls
to fund the internal startup.
93

8
Use shadowing
Context:
You have a prototype or a working product and you want to
know how users feel about it, and then make improvements
to it.
Problem and forces:
The product should be mature enough so that you will get
feedback about its actual market value, not bug reports.
Solution:
Use shadowing as one way to improve and observe your
product. Give your product to users and follow what
is happening. You may also record the sessions. Most
importantly, you will get a new perspective on your product
and may find improvements for it, especially from the user-
experience point of view. It is also easy to do this on the fly
— for example, show your prototype to your friend and ask
how he or she feels about it.
Consequences:
Asshadowingisalightmethod,itiseasytouseandcanprovide
useful information. However, shadowing is also subjective and
typically based on few observations. Also, using this method
requires that there are no strict product secrets. The product
should be mature enough; otherwise you will get mostly
information about problems you already know.
94

9
Exiting
Context:
When the internal startup proves to be a market-viable
business, the question is whether to keep or exit this new line
of business.
Problem and forces:
In some cases, the new product or service created by the
internal startup does not fit with the corporation’s focus areas.
Solution:
There are several paths to exit: create a corporate spinoff
while the mother company owns shares in the startup, sell
the solution through the corporate’s business and customer
network, or contribute to a social cause and improve the
corporation’s brand, reputation, and social responsibility.
Consequences:
The corporation may have a number of options for exit and
the possibility of choosing the best way to receive immediate
benefits from the exit plan. However, there could be internal
frustration among the internal startup team members, and a
reinstatement plan should be in place help with the transition.
95

Over the past several years, companies have had to change to meet the threat
of accelerating competition coming from startups and other global industry
players. Digitalization is the name of the times, and many companies are
evaluating what to do in order to stay in the game.
Ouranswertothisquestionistouseinternalstartupsasaninnovationaccelerator
mechanism to better select and execute the correct innovations. This mechanism
brings cheaper innovation execution and faster time to market, which eventually
transforms the company into a growth company.
Internal start-ups should have freedom from the rest of the organization but still
be integrated into the corporation. Freedom is needed for quick execution and
market trials, as well as for refocusing based on the feedback. Still, corporations
have many assets and competencies, which will come handy during the process.
For example, legal and pre-production services are just a call away.
ISBN 978-952-93-7065-8 (print)
ISBN 978-952-93-7066-5 (pdf)
The Cookbook for Successful Internal Startups

The Cookbook for Successful Internal Startups

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The Cookbook for Successful Internal Startups