The Central Role of Problems in Corporate Ventures
Corporate entities are often brought into being in response to some problem. When the Otis Elevator Company began in the mid-1800s, its leaders focused on the problem of elevator safety. They didn’t invent the elevator, nor were they the first to produce one. Other companies had already done that. They just hadn’t figured out how to do it safely.
At this point, most elevators didn’t transport people; they lifted heavy materials from one floor to another in factories. Imagine a plastic bag company. Railroad cars outside are filled with pellets of resin. Somebody unloads the pellets into crates, each of which ends up weighing about a ton. These crates are wheeled into the main floor of the factory, but they have to be dumped into the huge machines that will melt them and turn them into plastic bags. That means we’ve got to get each 2000-pound crate from the first to the third floor, then dumped into hoppers at the top of each machine. That’s what elevators were used for in the beginning: to transport industrial materials.
But there was a problem: the cables used for these elevators would sometimes break, and the elevator cars would fall. Workers would be injured or even killed. Elisha Otis thought of a solution to this problem. He created a system of clamps that would grab onto the sides of the elevator shaft as soon as the cables were severed.
Funny thing about Elisha Otis. He came up with ideas like that, but he didn’t have the commercial instincts to do anything with them. His son Charles, on the other hand, did. So, in what surely must have seemed an odd reversal of roles, the son kept badgering the father to make something of his life, while the father frittered away his time tinkering with whatever project happened to appeal to him at the moment. The Otis Elevator Company came into being out of this intergenerational conflict.
As it turned out, of course, cities began to swell in population in the latter half of that century, and it was mostly because of the sudden growth of large corporations. Industrial centers expanded horizontally, but office complexes expanded upward. Elevators were now needed to transport large numbers of office workers up and down the gigantic towers that resulted.
Thanks to Charles’s financial know-how, the Otis Elevator Company benefited from this trend. Even though Dad had come up with a solution to the industrial elevator problem, Charles was able to market the solution more broadly. Elevator safety was more important than ever before, now that human life was at stake.
Even to this day, that’s what the company is all about. I was riding an elevator in a hotel in Canada last summer, and there were Otis people there doing tests and communicating with each other on phones. It isn’t just about elevators; it’s about making sure the elevators are safe.
But Elisha Otis’s solution was not the only possible one. There was another guy named Otis who also found a way to make elevators safe. His name was Otis Tufts, and he created an elevator that would ride on a threaded track like a giant screw. There were no cables in his system. Steam power would move the car up and down this track. And there were other guys besides Otis Tufts. Somebody else came up with the idea of making elevator shafts airtight; if an elevator car fell, it would land on a cushion of air.
Each of these alternative solutions had their weaknesses, but so did Elisha Otis’s, and his own sons discovered it. In some cases, depending on which side it was of the car that the cable broke, the brake system might not be activated until the car was already falling too fast for the brakes to engage. That’s a serious weakness.
The important point here is that the Otis Elevator Company was committed to this particular solution. Staying within that framework, they found ways to minimize its drawbacks.
This is something I noted when I told you about the PET Milk Company. Once a corporate entity comes into being, the people within it work very hard to keep it going. Setbacks don’t cause them to give it all up. They find workarounds.
But here’s the thing I want to emphasize today: that corporate ventures are often institutionalized solutions to some problem. For the PET Company, the problem was how to can milk without sweetening it. For Otis, it was how to move people thirty or more floors up and down a skyscraper without killing them. The identity of a corporate venture is largely determined by the problem it was designed to address. To understand the company’s mission, we have to know what problem it exists to solve.
If you want to read more about the Otis Corporation, I can recommend Jason Goodwin, Otis: Giving Rise to the Modern City (Chicago: Ivan R Dee, 2001). The company also has a nice history presentation on their corporate website. The PBS program NOVA tells the other side of the story in an article about Otis Tufts on their site, and Kyle Allwine, a former student (and currently an admissions counselor) at the University of Mary Washington does a wonderful job of pulling it all together on his blog.