On this EXTRA episode, we speak with Gene Riechers, senior advisor at Sands Capital Management; Ed Barrientos, angel investor and CEO at Brazen; and Mark Walsh, managing partner at Ruxston Ventures about one of the best things that defines the region: intrapreneurship.

ABERMAN: Mark, I’ll turn to you: what defines this region? What should we be talking about?

GUEST: We’re all sort of besotted and kind of drunk with this idea of, oh, startup startup startup! And so many young men and women coming out of college or graduate school feel that they have to sort of be part of a startup, or start a company. And in fact I would argue, and I think my colleagues here today and many in the region would argue, that you really see a lot more vitality in intrapreneurship, where a good idea that happens inside a larger company with scale can get traction, can get management expertise, can get funding, can get access to markets at a faster pace than a cold crank startup that’s trying to raise 500 grand in an angel round.

And there’s a rich history here in D.C. of that happening, where people get ideas that germinate and generate vitality within a larger entity. Sometimes they stay within the entity, and then sometimes they’ll leave and basically start that idea after seeing how it can scale up inside the larger arena. And I think we don’t get enough credit, bluntly, as a market versus the valley and other places like that, for having that rich, fertile ground for intrapreneurial activity.

ABERMAN: How would you guys define intrapreneurship?

GUEST: What you see inside a lot of successful large companies is people taking the initiative and being innovative, and taking risks inside companies. I think that companies that encourage risk taking, and are tolerant of risk taking, and don’t cut the heads off of those who take risks and sometimes fail, can deliver new products to market, and reach new markets, and can really change their companies, and drive greater growth in companies that might otherwise be stagnant. And that’s what we’re seeing here, and that’s what we’ve seen here for a couple of generations really. And it’s somewhat invisible, because as Jonathan said, the press is really covering the startups and the exciting newer companies. But really, there’s a lot of innovation occurring inside larger companies here.

GUEST: I think one of the other things that’s interesting is the talent pool. So if you think back, entrepreneurship as an academic interest in universities began to really rise maybe 10, 15, maybe as far back as 20 years ago. So, the tools that were beginning to be used within the startup ecosystem were beginning to make their way into academics, into universities, into MBA programs and other things. So you’re seeing a group, a generation if you will, perhaps it’s the millennials, perhaps it’s the end of the Gen Xers, that are taking a lot of that awareness of entrepreneurial tools, entrepreneurial thinking, and are starting to get into those management positions and companies.

So I think there’s a greater awareness of entrepreneurial thinking even in the corporate world. So I think that’s a key ingredient. A lot of folks have tried over the decades to bring more of that entrepreneurial spirit inside of companies, but I think the talent pool wasn’t ready. I think that changed today, and generations, in large part, are making that a little bit more real, a little more feasible.

ABERMAN: You know, it is interesting to me. When I look at the history of Lean Startup methodology, the idea of customer discovery and iteration, one of the large proponents of it is Eric Ries, out in California. And his whole point is, this is actually a methodology that should be used in larger companies. His books are all about larger companies. Steve Blank in Stanford tried to adapt, and adapted it to startups, but really, the whole point of Lean Startup and iteration was to be in large businesses. Why is that obscure, do you think?

GUEST: I think all of us may have spent our time in large companies. I had a fabulous short but glorious experience at General Electric, which I worked for for a short period of time. But I think the collision that I saw, and I think you can you see, is a sense of urgency. A lot of times in big companies, you lose that sense of urgency, because they have some momentum in the markets they’re in, and they have some legacy behavior, and it’s just really hard to shove the sense of urgency that a true entrepreneur in a startup needs. But if you can blend that feeling of urgency into a corporate environment, you can really make a lot of traction.

And to be perfectly blunt, and I love General Electric, and I had a fabulous experience there. You know Jack Welch, who was a CEO when I was there, it was difficult for him to see urgency in some of his arenas. He talked about it a lot with boundary listeners and all the stuff that we all remember. But it was difficult to see the sense of urgency. And to reach back to something Gene said a moment ago, it was about risk. And famously, one of the people on my team said, the problem with G.E. is, if you start something that makes sense, and it’s right for the company, and it fails you’re fired. If you start something that’s right, and risky, and is right for the company, and it works, you get a plaque. So, this risk reward ratio is out of whack. And you see that a lot in larger companies.

ABERMAN: Is that fundamentally the way you look at it? Because I’ve heard this a lot. In fact, I read it relatively recently. Somebody at Pitchbook wrote an insight that intrapreneurialism doesn’t make any sense, because there’s no upside. I’m having a hard time with that, because in my experience, a lot of entrepreneurial workers, a lot of entrepreneurial people here in town, work in the federal government, or NGOs, or social ventures, or even for profit businesses. There’s something motivating them other than making money, isn’t there?

GUEST: Yes, I agree with that. I think there is a lot of other intrinsic motivations beyond just making money, and I think Washington is a great example of that. And there are people doing great work here, in spite of various comments people might make about the government. There are really good people doing good things in the government, in and around the government and in government contracting, people doing amazingly innovative things to try to deliver value to the citizens of the country. And and they’re doing it. You know, sometimes in challenging environments. But I think a lot of it is about creating an environment where risk taking is tolerated.

To Mark’s point, and I think companies are figuring out how to do that. You know, figuring out how to be tolerant of failure, and to allow people to do that. And you have to figure out how to do that. If you’re running a nuclear reactor, you don’t have a high tolerance for risk. You don’t have a high tolerance for innovation, you have to have a lot of procedures for making changes to reduce risk. If you are innovating around enterprise software, you can have a process that allows lots of innovation, because the cost of failure around small changes is very low.

So you have to adjust to what your customers need, and what your customers can tolerate, in terms of small failures along the way as you move forward in markets. So you have to adjust to the environment. Good companies understand that. You know Boeing had a computer services business for a long time, and they ran that very differently. You know, the process changes to change a bolt on an aircraft. That decision was very different than making a process change in the computer services business, as it should be.

ABERMAN: You know, Boeing is a great example, because if you look at what’s happened with the 737 Max, in some ways, they did operate with more ambiguity or more forward movement than they have in prior generations of aircraft, and it’s harmed them. Good example. So, it’s risk. What else?

GUEST: With entrepreneurship, I always think of three dials if you will. On one dial is inventiveness, innovation, people that are just creative, that can synthesize a whole range of things and see an opportunity. So that’s one dial, getting the right people involved. Second dial is what both both Gene and Mark have already mentioned. What’s the upside? What’s the reward? And the third one is, what’s the price for failure? And what happens is these dials sort of naturally in the wild, if you will, for entrepreneurship, they get moved at certain places, and magic happens, and a startup emerges. Inside of a larger organization, you still have those dials. You’ve got to have the right people, you have to have creative people and innovative people that want to do this.

You have to have some kind, I think Mark mentioned, some kind of a reward system, some kind of an upside for them. It may be recognition, there may be a whole range of rewards, and you have to be able to dial up and down the price for failure. You know, if you still have those elements, those variables involved, and it’s really, really hard. I want to say that getting it right is difficult. If you look at companies that have written about their intrapreneurial initiatives inside their company, some have been incredibly successful. For some, they have made it, you know, from the top down, from the CEO down. It is a strategic initiative to bring that in, and it almost has to be to be able to have management backing the movement of those dials. Without that, I don’t believe that can just magically happen inside of companies.

ABERMAN: It seems to me that we, first of all, have to change the definition. What you and I, all of us are talking about, is what I would describe as entrepreneurial behavior. We, in town and around the country, use the word entrepreneurship to describe those behaviors, and then have tied entrepreneurship with business formation, thereby completely creating a blindspot where what really we all care about is: how do you get innovators in a position where they can drive change in an organization?

GUEST: I think that’s spot on, and I would argue, I don’t think we chronicle how this happens as well as we should. I know we’ve had some conversations in your new status at Marymount, it’s perhaps a wonderful platform to pursue this. But I don’t think we chronicle and celebrate when it has happened. I mean, there are so many stories, large, medium and small, where exactly what we’re talking about on this show has happened.

ABERMAN: Gene, I’ll turn to you. Share with us one of your intrapreneurship examples from your own career.

GUEST: Like a lot of people, before I got involved in entrepreneurial companies, I worked in a larger company, and I think frankly, it’s critical to have that kind of experience before you go off and try to start a business. In my case, I worked for a large software company, and what I witnessed there was a particular entrepreneurial, or in this case intrapreneurial executive, who took one idea and ran with it, and came up with a unique product idea inside the business. And ultimately in the course of his efforts, that idea became the foundation of the entire company. The company was, over time, really struggling with its direction, and his one idea really subsumed the entire company. And the whole company wound up getting behind his one idea, which in the early days was 5 or 10 percent of the revenue, and over the next five years, it became a hundred percent of the revenue. So it really saved the company and changed the direction, and ultimately produced a very successful company. So it can really make a difference. I give that guy a lot of credit for what he did.

ABERMAN: And if I remember correctly, that guy you mentioned went off and became an angel investor and helped start companies like eBay and AOL, and other companies. And you went off to become a V.C. That formative experience created a lot entrepreneurial behavior. Ed, I know your career has a similar arc, doesn’t it?

GUEST: It does. I started my career with IBM, and right out of school I went into the academic focused division of IBM, trying to figure out, can we sell into universities, these new things called PCs? This was at the very beginning of the PC era. Because IBM sold the big iron, and they sold the big giant mainframes, they didn’t really pay that much attention to the PCs at that time. They were seen more or less as sort of a toy. What was interesting about our small office, actually based right here in the DC area, was we had a lot of latitude to go and figure out how we were going to sell to students, PCs that were at the time priced at three thousand dollars. We came up with an idea, and actually we’re in Chevy Chase now, right. It was Chevy Chase Bank, if I remember right. We had this idea, hey, why don’t we let students finance their PCs? And we worked with the bank, they came up with a real simple application, and voila. We started selling to students. That program ended up selling more PCs than anywhere else in the country, because we went through all the schools on the East Coast, and basically used that model, sold tens of thousands of PCs using that approach. So at that time, because we were not core to IBM, that PCs were new, growing, not a significant amount of revenue, we had that latitude. That’s where some of this intrapreneurship can really take hold.

ABERMAN: It’s interesting to me, and all three of you are investors, as am I, that if you look at the overall successful exit rate, it’s founders that are in their 40s. You know, we talk about the outliers, the 20 year olds that create the unicorns, but the probabilities are, you’re more likely to be successful as an older entrepreneur. And those are people that learn how to be entrepreneurial business starters in large companies.

GUEST: Ed, how was the reward structure? How did IBM reward this program?

GUEST: I’m glad you bring that up. The sales people, which I was one of them, actually got commissions on a 3000 dollar computer. That drove us. Ten percent commission was significant carrot, and it drove us to find a way: how do we sell a whole bunch of these things? So you know, I think that freedom to do that, in any other division within IBM, would have never been able to do some of these things. So that reward was strong and forced us to really figure out how to do it.

ABERMAN: Walsh we talked about entrepreneur behavior. Can you teach people how to be entrepreneurial?

GUEST: Some say you can learn to ride a bike by reading a book, but you learn how to fall off a bike by trying to ride a bike. So the idea of learning a whole bunch of features and structures and economics, and all of the elements of startup or even intrapreneurial behavior can happen in an educational environment. But I think the experiential, and often the failed experiential element, is probably as important as all of the book learning. So I think there’s always going to be a yin yang going on in teaching it, and then experiencing it. That’s point number one. Point number two is, I happen to think that very few entrepreneurial efforts at universities, large and small, and I’m talking the West Coast, East Coast, Northeast, whatever. Very few of them think the word intra is a cool word. So, I think that differentiating the behavior from entrepreneurship to intrapreneurship is going to be a really kind of a moment in higher ed moving forward, and I know that you guys are really kind of pushing the envelope a little bit on this. And I think that the third point, and the final point is that, I don’t think intrapreneurship is sexy enough yet. And I think it’s going to be kind of a media moment as well. Where we’re, much like this conversation the three of us are having with you, we’re talking about cool stories, where interesting stuff happens. I mean look at Gene’s point, the AOL and MCI, they spawned entrepreneurs whose overall impact is fabulous compared to the actual intrapreneurial event. So I think there’s going to need to be some media coverage that makes intrapreneurship as interesting and as sexy and as sort of celebrated as some of these millennial unicorns that we celebrate now.

ABERMAN: I would argue as an educator that you can’t teach somebody how to be entrepreneurial, but most people have entrepreneurial characteristics. You know, they have communication skills, they have a desire for autonomy, they have a tolerance for ambiguity. It’s just a question of helping people self identify and develop these coping skills, it seems to me.

GUEST: Yeah, if I could add to this. I think about what can be taught and is being taught in universities now, versus what was taught when I went to school. You know there’s real skills that are being taught, they’re useful in larger companies and in entrepreneurial businesses, but really can be applied in intrapreneurialism efforts. You know, I’m thinking of things like teamwork, universities are emphasizing working in teams, related to that collaboration. Also, how to find and develop creativity. You know, there are tools or processes to bring out creativity. An emphasis on lifelong learning. You know, nobody really talked about that when I was in college. Thank God I adopted it as a behavior, and we all did. But that’s a really important attribute. Leadership skills. Nobody taught that then, people teach that now. And project management, those are all traits that contribute to successful intrapreneurship.

GUEST: I think that’s a great list by the way. I would add one more: communication. So you ask Steve Case one of the great skills he learned before he joined Quantum Computing, which became AOL, with some other folks we know. He worked at Procter and Gamble, and Procter and Gamble’s rigid demand that you can make everything onto a one page memo. Whatever idea you have, whatever new product you want to launch at Procter and Gamble, if you can’t put it on a one page memo, then it ain’t real. And Steve often, to this day, will often credit Procter and Gamble, fresh out of Williams College, as a place where he learned to crisply, and with a sense of urgency, communicate what he wanted to do at P&G, which I think became a key point when he started at Quantum, raising money and growing the company. So, communication’s another skill that intrapreneurs need to know too.

ABERMAN: You know, as we think about this conversation we’re having. It triggers a lot of thought, which is, there’s so much focus right now with local employers. You know, whether it’s Amazon, Cap One, and others, they’re talking about soft skills. We need soft skills, people with soft skills and technical skills. I think what they’re really saying is they need people that are good intrapreneurs.

GUEST: Well you know, my business is very much focused on talent acquisition, recruiting, so I hear a lot about this particular issue. How do you attract people with these skills? I think I’m going to come back to a comment I made earlier, which is, can you teach this? I think there are some things that are innate. It’s sort of like an athlete. You can definitely teach anybody how to play ball, you’re not going to necessarily create a world class champion that’s one in a million, but you’re going to have somebody that really loves to play ball, and can play ball, and do and stay healthy and so forth. So you know, there is a need to identify, I believe, and attract on the part of organizations, that inventive skill set. Those people that have the skills that lend themselves nicely to intrapreneurship. There are people that can learn all the skills, they can learn all the tools, they can do this. But that innate willingness to take chances to maybe bet on something is difficult. That’s where I would say that’s probably not what you can teach, but you can teach a lot around that.

ABERMAN: It almost seems to me, as we tie this up, that this really gets to the startup community as well. Because ultimately, startups need people to execute the founders’ vision.

GUEST: Well I mean, if you’re an angel investor, of which I think everybody in the room is, or a V.C. partner, or a private equity partner if you’re scaling up or whatever. I would argue that you will need to cherish and value an intrapreneurial experience, be it failure or success, as much as you might want to see that CEO or that founder have an entrepreneurial experience that was a failure or a success. You know, the old saw was, I’m never going to invest in somebody that didn’t have a big failure in their past. You want that stripe as an investor. But I think having a less than robust intrapreneurial experience is as educational. Go back to the list Gene said earlier. If you check that list off as an intrapreneur, you try, it was a good idea. If it failed for reasons that are outside of your control, I think you’re as valuable as a CEO going forward to a V.C.

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