Boeing executive offers cautionary tales on corporate startup ventures
By Lauren Otis, Business Editor
Is the phrase “corporate entrepreneurship” an oxymoron?
Although he did not offer a definitive answer to this question, Walter Skowronski, senior vice president of The Boeing Co., did offer up several cautionary tales drawn from the huge, Seattle, Wash.-based commercial airplane, space and defense products manufacturer’s experience which indicated how difficult it can be for a large corporation to inspire and nurture the entrepreneurial spark.
Based on his experience at Boeing, where Mr. Skowronski is president of Boeing Capital Corp., the corporation’s finance subsidiary, “I don’t know if entrepreneurship is just not in the DNA of large corporations,” he said.
”Boeing is a bureaucracy, you slap on business challenges and anchors to things, you are not going to go anywhere,” Mr. Skowronski said. Although Boeing management solicited and backed good entrepreneurial ideas, the timing was often wrong or their financial impact was too small for Boeing to pursue them, he said.
Entrepreneurs often are “risking the company” by the very nature of their ventures, but too often at Boeing “these were afterthoughts, not risking the company,” Mr. Skowronski said. Even with a successful venture on its own terms, at Boeing “the numbers get lost, it is a grand slam for the people who did it but it got lost in Boeing,” he said.
Mr. Skowronski spoke on corporate entrepreneurship on Tuesday, Nov. 13 at the Friend Center on the Princeton University campus. His talk was the fifth and final in a fall series organized by Princeton’s Center for Innovation in Engineering Education exploring entrepreneurship in a number of settings other than in startup businesses.
Boeing “which is an absolute powerhouse when it comes to technology,” had a $200 million fund for investment in promising technology startups around the globe, according to Mr. Skowronski. The goal was to identify and capitalize on new technologies for Boeing, but “we found it very very difficult to pull technology out of these companies,” he said.
After seeing “a lot of money going in, not much technology going out” in 2003-04 Boeing dissolved the venture with “significant losses,” Mr. Skowronski said.
Boeing’s business is a very cyclical one, according to Mr. Skowronski, and in the year 2000 when “we were going through a trough,” Boeing’s chairman instituted an “innovation initiative” designed to “keep our engineers engaged, keep them learning and inventing through a trough.” The plan was to identify promising ideas from the engineers, back them, even spin them off if they became successful businesses, but after four years and almost $100 million invested “only two companies were spun out and they had a book value of $1 million,” Mr. Skowronski said.
At the height of the engineering innovation initiative the overhead involved the salaries of 100 people, and the initiative was eventually wound down and terminated, Mr. Skowronski said. “It was a great opportunity but we didn’t have much come out of it,” he added.
Also in 2000, Mr. Skowronski said, Boeing created a number of new business units, hoping they would evolve into operations with a multi-billion dollar potential, something with a big enough fiscal impact to “change the needle,” in boosting Boeing revenues.
The first was an air traffic management initiative, designed to enhance the currently outdated and overtaxed air traffic control technology. Boeing gave the project a $50 million annual budget, and moved 200 staff into brand new Washington, D.C. offices, Mr. Skowronski said. But the current air traffic control system had many entrenched players and contractors, who were capable of lobbying for the status quo, he said.
For its investment, all Boeing received in return was praise for its “thought leadership,” Mr. Skowronski said, and the Boeing board of directors understood “you just can’t spend $50 million a year for ‘thought leadership,’” and so pulled the startup project.
Another business unit, which he called “Connexion by Boeing,” was to utilize mobile antennas, satellite and wireless technology for “putting Internet connectivity on moving platforms,” specifically domestic commercial aircraft, Mr. Skowronski said. The plan was to offer fast Internet to domestic passengers, which had not been feasible before and “was technically a huge opportunity,” he said.
”Nothing had been done like this before. It was a real startup, entrepreneurship situation,” Mr. Skowronski said. “We had a partnership with all the major U.S. airlines, and this agreement was going to be signed in mid-September 2001,” he said. Four days before the agreement was to be signed the Sept. 11 terrorist attacks occurred, and domestic airlines went from wanting to develop new business ventures to simply struggling to survive, he said.
In 2002, Boeing did launch the business internationally, signing up such airlines as Lufthansa and Virgin, but “the assumptions all completely flipped” — everything from satellite transponder availability and cost, to the fact that long-haul international air travelers wanted to sleep not surf the Internet — and in 2006 Connexion was shut down, incurring a $300 million writedown, Mr. Skowronski said. To make matters worse, its demise “ticked off” the international airlines who had signed up for it, airlines who formed Boeing’s longstanding customers for its core product of commercial aircraft, he added.
Mr. Skowronski said ventures like Connexion and the air traffic control initiative took up huge amounts of Boeing executives’ time yet generated no revenues and income “and we have a $60 billion business which is our core business which we are trying to run.”
Still, Mr. Skowronski did not completely preclude a role for entrepreneurial ventures at a large corporation such as Boeing. In retrospect, he said certain guidelines should be adhered to. “Bring existing technology to new customers, you are probably okay, or bring new technology to existing customers, those two you are probably going to be fine. What you don’t want to do is bring new technology to new customers, that is going to be a disaster,” he said.