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“Innovation comes from long-term thinking and iterative execution.”

Excellent blog post today by Reid Hoffman, about the future prospects for PayPal, what happens when activist investors get involved in your company and the issue of long term value of innovation vs. short term profitability.

While he frames the discussion as Silicon Valley thinking vs. Wall Street thinking, it can easily be viewed through a slightly different lens:  entrepreneurial thinking vs. “big company” thinking.

Good entrepreneurs can survey their market landscape, identify the emerging opportunities to exploit competitive weaknesses, innovate as fast as they can, and implement a strategy to gain market share over time. They are not afraid to take risks or suffer short term sets backs, because they make course corrections quickly. Good entrepreneurs are able to stick to their overall plan because they ultimately believe their vision will lead them to victory.  And good entrepreneurs know that if they have the right product, right market, right strategy and enough time, they can win BIG.

The “big company” approach has absolutely nothing to do with vision. In fact, vision only introduces risk — and the “big company” approach shies away from risk as much as possible. Time and iteration isn’t really a factor, because getting enough consensus to make course corrections take too much time to be really effective.  The only real strategy that is applied is how to execute the best “transactions” — like navigating corporate red tape and politics just enough to yield a short term win, meeting an earnings goal, making a bonus target, or getting a title change. The “big company” approach succeeds simply by not losing.

As Mr. Hoffman highlights, inevitable problems ensue when you have an entrepreneurial business unit being managed by an organization/stakeholders that are risk averse — particularly the risk of losing in the short term. The entrepreneurial approach rewards the believers — the “big company” approach rewards the people who execute transactions the best.  Without being freed, the entrepreneurial unit can never meet it’s potential.  The weight of the transactional approach by the “big company” will crush the vision and send the believers to look for the next challenge. And that, my friends, is a shame.