Now that it’s baseball playoff season, you’ll likely hear countless nuggets of wisdom about the importance of balancing offense and defense, from “offense wins games, but defense wins championships,” to “the best defense is a good offense,” and on and on.

Today, we take a look at an offensive strategy for mission-driven startups and a defensive strategy deployed by large companies looking to stay on top. In the first, Kellogg’s William Towns offers advice on how to court impact investors. Then, we hear from Sara Moreira, an associate professor of strategy at Kellogg, about how patent-hoarding behemoths can stifle innovation.  

Balancing mission and profits

There’s a tension that leaders of mission-driven startups face when approaching investors: tout the company’s positive impact on society or prioritize the bottom line. But to Towns, who teaches in the social impact and sustainability program at Kellogg, the simple answer is, “why not both?”

What can help attract investors is leading with information about the organization’s business fundamentals and following that up with its societal benefits. Integrating the two into a transparent vision for the company is key.

“It isn’t that I’m either an impact investor who doesn’t care about financial returns or a capitalist who has no concern for society,” Towns says. “An impact investor applies the rigor and discipline of modern finance while intentionally pursuing measurable social or environmental benefits.”  

Another critical aspect of making the case for investors is committing to transparency around the goals and the position of the company. Credibility comes from acknowledging tensions and trade-offs the company faces in balancing its mission and its financial obligations—a task that requires good data collection and presentation. 

Towns views this focus on transparency as a form of risk mitigation.

“A full-disclosure mindset matters,” he says. “You do not want to hide something because you think investors may perceive it as negative. Eventually, everything in darkness will come out into the light.”   

Read more in Kellogg Insight.

How big companies play defense

In popular perception, a patent is generally viewed as tangible legal shorthand for an innovation. Discover or develop something new, register it, and you essentially own its rights. Big companies have caught on to that and are registering patents at a faster clip than ever. 

That should be a positive thing for innovation, right? Well, not exactly, according to new research by Moreira and her colleagues. They found that most new patents that are registered by large companies are used to block competitors from developing similar products. The patents themselves lie dormant.

In their research, they found that while filing more patents appeared to be associated with companies introducing more new products and features, there was a clear difference between small and large companies. The link from patenting to product introduction “is so much weaker for larger-market-share firms,” Moreira says.

For larger firms, an increase in patents led to higher revenue—even if those patents never resulted in products. Instead of driving new products, patents acted to shield big companies and their existing products from competition by up-and-coming companies. 

The researchers argue that policy changes and more-robust requirements to patent applications will help boost commercialization of patented ideas in ways that spur innovation—rather than stifling it. 

Read more in Kellogg Insight.

See you next week,

Fred Schmalz, business and art editor
Kellogg Insight