Hallway Studio

April 15, 2015

This was originally published on Product Development Success

Medium and enterprise companies are working hard to stay competitive and avoid being overturned by startups that are more innovative and nimble. They are trying innovation labs, incubators, accelerators, and when all else fails, buying companies outright.

One option for fueling innovation in large companies is the “Innovation Colony,” an idea popularized by Trevor Owens and Obie Fernandez in The Lean Enterprise: How Corporations Can Innovate Like Startups.

“Like the economic and political colonies of previous centuries, an innovation colony is a settlement staffed by employees of the mother company, but it’s distant enough that the company’s traditional management practices are not in full effect,” they write. “It’s funded by the enterprise, but its main concern is sustaining itself by all possible means, just like a normal startup does. Colonies have single, critical functions to perform on behalf of their enterprise masters: to foster disruptive innovations.”

Owens and Fernandez suggest that enterprises use three strategies: Incubate Internally, Acquire Early, and Invest When You Can’t Acquire. There is one more option to consider that didn’t make it into their three strategies but that I think is also a viable option: an Outsourced Innovation Colony. I’m partial to it because it’s what I do for clients. Here are just a few reasons why you might want to think about an Outsourced Innovation Colony.


Owens and Fernandez argue that employees are too focused on current customers and existing products to be able to come up with revolutionary new ideas. They are limited by corporate thinking and bureaucracy. So they suggest creating a separate physical space, corporate structure, and culture. If you look to an Outsourced Innovation Colony, you’ll get all of these things without the investment necessary to cultivate each of them.

An outside team has its own space, structure, culture and processes that it can operate within, and it’s available to you right from the start. An outside team isn’t shy about suggesting ideas or taking action that the corporate leadership might not endorse.

There is a risk that the outside team will try to please the client instead of doing what’s necessary. You need a partner that is willing to challenge you. You need a partner that’s willing to ask the tough questions over and over.


Enterprise employees are limited by the corporate point of view and aversion to risk. What any company needs to innovate successfully is people with the high risk, and high reward mindset of entrepreneurs. This means you need people who are creative, energetic, independent, resilient and empathetic.

Finding them is hard and so is getting them trained and working together to get results. An outside group is ready to go on day one. If you have promising enterprise employees, have them work with the outside team so they can adopt new ways of thinking and working. They can then help inject those new ways of thinking and working within the rest of the organization.

Financial Structure 

An Innovation Colony needs limited runway in order for it to stay focused and moving. An outside group on a limited contract has the same drive. If they don’t show impact, there will be no second contract nor will there be a referencable customer. That’s a pretty important driver for someone like me.

You can expect an Outsourced Innovation Colony to be fiscally responsible. Their margin, after all, is dependent on them delivering quality outcomes in a specified window of time. Internal innovation colonies on the other hand, may not have a clear view into just how much money is being poured into a project because all of the hours dedicated to it are overhead. And once a certain amount of investment is made in an internal innovation colony, it can be difficult to cut the cord.

There may be a feeling that so much has been invested in a project that to stop funding it would be tantamount to throwing money down the drain. So rather than cutting funding to innovation projects that aren’t panning out, companies continue to throw money at the problem in the hopes that this time it will all be different. With an Outsourced Innovation Colony, this problem becomes a non-issue.

Image: This was part of a grad school project

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