The larger company, however, faces a situation where they can fall victim to the spoils of their own success. Once upon a time, they too were focused, fast-reacting, hard-driving startups. At some point, however, they probably made a major score with a successful product line that propelled them into the big leagues. With that membership card comes a bloat of baggage – support for existing product lines, protection of previously captured market territory, more employees to water and feed, reputations to protect, policies to follow, and legal hurdles to clear. The innovation balance can tip wildly away from their side.
For many large companies, the tendency is to give up on true internal innovation. These companies simply watch for new markets to emerge, monitor the latest crop of startups, and scramble to be the highest bidder when a good technology goes on the auction block. Over time, these companies devolve from their former innovative incarnations into simple commodity traders, speculating on technology futures and buying and selling equities to maintain technology portfolios that they can distribute through their well-oiled sales and marketing channels.
There are exceptions, however. The electronic design automation (EDA) industry is something of an anomaly in high-tech. Because their products are almost purely software, and their customers are themselves engineers, they can come unusually close to a business model based on pure innovation, although most EDA companies do fall into the bin above, updating their product portfolios strictly through acquisition.
We talked with the CEOs of three EDA companies that have bucked the trend. Mentor Graphics, Magma Design Automation, and Altium have each managed to add successful products to their portfolios via distinct and creative strategies for cultivating innovation. Sound like no big deal? Check out the EDA industry’s track record. You’ll find that there are almost no examples of big EDA companies following their opening act with a subsequent dominant product that was developed inside the company. EDA companies tend to have one big bang and then retire to the acquisition farm after a painful succession of failed sequels.
Mentor Graphics’s CEO, Wally Rhines, offers at least two counter examples for our consideration. Developed internally, the company’s Calibre product line has been a dominant force in the IC verification market for almost a decade. More recently, Mentor’s Catapult-C high-level synthesis tool, also developed internally, has made big waves in the emerging ESL space. Mentor has worked to create a planned environment for innovation that rivals the effectiveness of acquisition and complements Mentor’s acquisition strategy for keeping the company’s product offering on pace with fast-moving design tool markets.
“The funny thing is, there are frequently very good reasons for good companies to suppress revolutionary innovation,” Rhines explains. “If a technology is disruptive to the health of the company, management is resistant. If a new product would undercut existing product margins or if it conflicts with previous public messages, it threatens to undermine that company’s management. To facilitate revolutionary innovation, management has to be willing to take the risk of appearing in bad light and has to decide that if they don’t do what is necessary to provide the customer the best capability at the lowest cost, someone else will. The dream that you can bury your head in the sand and continue selling what you already are indefinitely is just that – a dream.”
Rhines observes that, even with management’s determination to support innovation, natural company culture can work to support the status quo. “In most companies,” Rhines continues, “there are standards of behavior that say rebellion is not tolerated. Big companies handle the rebel less well than smaller companies. We have had cases where product managers were so dedicated to their product that they would defy management in order to keep it alive and make it succeed. We have made a conscious decision not to punish people for defending their product. In practice, that often is easier to say than to do.”
Mentor frequently fosters situations where multiple product development efforts take different approaches to attack the same market. “In our business,” Rhines observes, “the cost of developing a new product is relatively small compared with the cost of broad distribution and marketing. We’ve learned to take advantage of that. In many large companies, there is always a drive for a single strategy and a single product to address a market need. New development is cut early if it doesn’t fit the initial vision. The problem with that is that markets change, customer needs change, and the best solution may not be the one that appeared best in the early going. We decided to move the boundary. Instead of killing projects early, we let them continue and even test with a few customers. Then we get very tough. We don’t go with broad distribution until the product is proven to be a success. Because of the cost difference, we could do five or ten projects to the prototype stage for each one we take all the way through to broad distribution.”
Mentor’s strategy preserves the best of both worlds, providing maximum opportunity for internal innovation while maintaining the company’s stability in its product lines and its reputation with its customers. Protecting projects from management interference is only part of the picture, however. It takes more than that for a big company to level the innovation playing field with smaller, more nimble startups. “When somebody has a really good idea and is unable to get their own division to support them, we sponsor them at an executive management level. We give them a certain amount of time to complete their work and get three customers, and then we make the decision about taking the product more broadly. We also build incentives into the compensation program so it can make a life-changing difference if an idea is as successful as its creators dream. This helps counteract some of the difference between a big company environment and a startup. Because of the built-in safety net, the big company still lacks the air of desperation that can act as a motivator in a smaller company, but even that tends to be offset by other resources a big company can bring to bear.”
Rival EDA company Magma Design Automation demonstrates a similar principle with innovation incubators, but by fully embracing the startup environment. Magma CEO Rajeev Madhavan describes the process: “I always felt most at home in a startup environment, and I have always felt that that environment can yield the best results. We don’t just wait for a startup to materialize, though. We sponsor them, assist them, and consult with them from the beginning.” Madhavan describes these principles in practice with Magma’s investment, sponsorship, and subsequent acquisition of Aplus Design Technologies, leading to Magma’s current Palace and Blast FPGA product offerings. “By sponsoring them as a startup,” Madhavan continues, “we give them the autonomy and control to create their own success, but we can provide them with advice, funding, and support to give them the best chance to win in their particular space.”
Magma also creates internal silos to protect nascent technology development. “We keep them protected from the rest of the company, and they have separate goals and incentives,” Madhavan explains, “we create concrete milestones that they are measured against, and we drive hard to keep projects on track with those milestones – whether it is something like a demonstration for a tradeshow like DAC or a customer beta release.”
“There are certain things we do bring in that actually improve efficiency,” Madhavan points out. “All of our products use the same basic development standards (things like databases, APIs, UI conventions), and we want everyone to develop to those from the start. It saves them a lot of time in development, and it makes it much easier for all of our products to work together, and to have a common feel.”
Altium Founder Nick Martin also finds inspiration in the startup culture for his company’s innovation strategy. Rather than create isolated areas inside the company where innovation can flourish, however, Altium tends to bring the entire company into the startup mentality. Although Altium has been a public company for a number of years and has grown through the acquisition of a number of other companies worldwide, it has retained a surprisingly singular focus.
“My goal has always been to make high-quality design tools accessible to the average engineer,” Martin explains. “When I was doing design, I was frustrated by the extremely high cost of the design tools I needed to do my job. Eventually, I started writing my own.” The tools Nick developed for himself ultimately became the basis of the first products offered by Protel, the company today known as Altium. That spirit of innovating, with the goal of empowering the engineer, still permeates the company today. “We keep an environment where engineers can freely bring in their ideas. If my door is open, I want people to feel like they can walk in and talk about what we’re doing.”
For evidence of this open, empowered culture, we needed look only as far as the interview. I was talking with Nick at the Embedded Systems Conference (ESC) in San Jose. When we got to the topic of Altium’s engineering culture and how the environment fosters innovation, Martin didn’t do the expected. Instead of waxing poetic on his philosophy of managing a company in a way that promotes creative thinking (as executives seem fond of doing, in my experience), he went straight to the well. “I think you’d get the best answer asking the engineers themselves.” Martin directed his attention to the door. “Who’s out there right now? Can we get Marty or Ben to come in?”
EDITORS NOTE: The last time I was working at a big company as an engineer and had the CEO spontaneously pull me into an interview with an editor – cold, with no preparation – that would be… um, NEVER! That particular scenario would probably have resulted in building security setting off a fire alarm as a distraction, an administrative assistant offering the editor a nice glass of straight vodka as a “refreshment,” the PR company rep passed out unconscious on the floor, being revived by an intern, and some fast-thinking marcom staffer running in to tell me that there had been an emergency at home and I was being paged.
Back at ESC, however, Marty Hoff and Ben Wells weren’t about to do the expected either. They didn’t walk into the room and start having anxiety palpitations from the career-risking stress of talking to the press with the CEO staring them down across a table. They cheerfully and enthusiastically began to deliver an impassioned description of their day-to-day work environment and how it made them feel as engineers. Their tone was relaxed and matter-of-fact. The believed what they were saying.
“I think, for starters, we are an innovative company because of the kind of people we get,” explains Marty. “Altium hires the kind of people that, pardon my expression (nods at the nanoboard sitting on the table), get off on this kind of stuff. We really enjoy coming to work each day and trying to make these things work. We are engineers, and we know our customers are engineers, and we want to help them get their jobs done by giving them great tools. The people in the company all share that vision, and we have a combined passion for success.”
“There is no monopoly on idea generation,” interjects Ben. “In our environment, we are always encouraged to share ideas, even bad ones. It pays to think your ideas through first, though. The head of the company is also in the trenches. He is both technically strong and has a good business sense. He is very accessible, but if you walk in with an idea that you haven’t taken the time to think through, you’ll probably regret it. We don’t have a lot of structure or process around innovation. It feels like we always have the ability to play with ideas and experiment, but we’re always working to maintain enough process to get a stable product ready, as well.”
“Sometimes we worry that our engineering process is a bit chaotic,” Martin picks up again. “We feel like we should establish some more rigorous processes like many big companies do, but then we look at our very high level of productivity and the success of our products with our customers and we ask ourselves ‘Why?'” Martin has a point. In all the interviews we conducted for this article, we never had anyone tell us they were innovative or successful because of their wonderful corporate policies and procedures. In fact, quite the opposite was true. Corporate standards and policies were most often cited as obstacles to innovation.
Whatever their particular formula, these companies are all succeeding in breaking the creativity-crushing mold for established technology companies. While characters like our fictional Chuck and Roger from part one of this series undoubtedly exist at all of these companies, the fact is that all three are competing (and competing with each other in this case) by working to break the chains that create Chuck- and Roger-like behavior in the high-tech corporate world.
