Why Intrapreneurs Are Not Rewarded Like Sales People and Why This Needs To Change

Added on by Alexander Osterwalder.

Intrapreneurs--people who build new ventures inside of a company--create billion dollar businesses for their companies, but they’re not rewarded like salespeople who also create billion dollar revenues for their companies. Why is that the case? Financial reward is not everything, but it’s an important one to retaining and rewarding talent that is responsible for your company’s future. In this post I share a few thoughts on what’s happening today, and why it should be changed.

Entrepreneurs will risk almost everything to build a company, and they’re rewarded for the success they create as founders and main shareholders. Intrapreneurs on the other hand might build billion dollar businesses for a company and enjoy continued job security. But the bonuses intrapreneurs get as rewards are usually nowhere near the value they create for their employers. Entrepreneurs enjoy a valued stake in the businesses they create. Why can’t something like that exist internally for intrapreneurs?

Why this isn’t the case today.

Sales teams have clear incentives for growing revenue. For intrapreneurs the correlation between results and financial reward structure are a lot less obvious. 

Sales teams have clear incentives for growing revenue. For intrapreneurs the correlation between results and financial reward structure are a lot less obvious. 

A good example of reward structures that are closely related to value created exist in sales teams inside most big companies. Sales generates revenue for a company, but within a known business model and value proposition. They close deals, churn out numbers, and are rewarded well to achieve these goals (a really good sales person can oftentimes earn more than the CEO). It’s a linear process that nobody questions because it’s just part of doing well in that role.

I asked Steve Blank, father of the Lean Startup movement, why this compensation system wasn't applied to intrapreneurship. “I think it’s because there’s an ‘apparent’ direct cause and effect for sales people that goes on outside the building,” said Steve over email. But building future growth engines aren’t as linear. “Intrapreneurs appear to be peers of people inside the building who are doing the normal day-to-day execution of the existing business processes," says Blank. 

Today, the people responsible for new growth engines within a company are essentially seen as project managers tasked with leading a new growth initiative. In fact, they are rarely called "intrapreneurs". If a successful future business model is found, the people in these roles are more likely to receive a bonus or promotion similar to that of a successful project manager, rather than a bonus for "finding and building" a million (or even billion) dollar growth engine.

Hence, it’s not enough to call these people managers, project managers, or product managers. These roles deserve to be seen as something bigger, and they deserve a title that represents their responsibility for building the future of a company.

Why this should be the case.

An intrapreneur is going to do more than just manage or oversee a task. To succeed they need to be "all-in" and search and validate a business model just like a start-up entrepreneur does. That's what will propel your business into the future.

We’ve written before about the risks associated with being an innovator/entrepreneur in a big company: it can be career suicide. There’s no prestige related to the role and responsibility; and for the most part an intrapreneur is more likely to undermine his or her career.

Let’s say your intrapreneur enjoys autonomous decision making within your culture and one day creates a $1 billion business. Maybe that person might have a shot at being CEO in the future, or be rewarded with a cushy title like Senior VP. Is that enough? To be honest it sounds a bit random--and what if he or she doesn’t get to be CEO one day? Then what? Ultimately talent will leave, and your company risks becoming disposable because you no longer have the people that could invent your future.

So how do we reward intrapreneurs? What’s their incentive to do a good job?

Be creative to reward the best people.

The question I want to pose here is this: what’s the best way for people to participate in the value they create for the company? It’s a tricky challenge.

I don’t believe it’s enough to give intrapreneurs an overall bonus or options plan structure based on the whole company. After all, many sales people are primarily reward based on their direct results and only secondarily based on the company's performance. The top sales person earns well even when a company is not performing well. Similarly, intrapreneurs work on one particular initiative, and they need to be rewarded for that particular initiative. Maybe you share part of the revenue with the people who helped create it? Perhaps companies could create an internal stock market where participants own and earn a stake in their efforts. What if intrapreneurs are allowed to invest their own money because they truly believe in the initiative? What sort of timeline do intrapreneurs have to earn from their efforts?

I asked Henry Chesbrough, inventor of “the Open Innovation” concept, if he knew of any examples where intrapreneurs were rewarded accordingly for their efforts. Chesbrough shared a personal example while building Plus Development, a subsidiary inside Quantum tasked with developing end-user mass storage products back in 1984:

There was a team of four people who started up Plus, and I was the youngest, most junior person on the team. We all got stock in the company, with Quantum taking 80% of the stock in return for funding us and granting us IP rights. Yet our small percentage still ended up being worth a lot when Quantum bought back the remaining 20% of stock in 1988, at a valuation of roughly $100 million. I’d estimate that our founding CEO, Steve Berkley, made several million dollars from the gain on his portion of the stock (he personally held perhaps 4% of the outstanding stock).

Chesbrough’s example is essentially a large company investing in a spinoff startup. Cisco has done this for years. It may not be the absolute approach, but it may offer some guidance for the types of structures companies could build for their internal initiatives.

Like I said: money isn’t everything, but we do need to take financials into account when retaining and rewarding top talent. It’ll help keep people inside the company, and it’ll ensure the right people are around to explore and invent the future of your company.

What are some other ways companies can reward intrapreneurs for their work?