What if the fix was never inside the corporation to begin with?

Isaac Newton spent decades trying to turn base metals into gold. He wrote nearly a million words on the subject. He failed, because no amount of external force can change the structure of an atom.

Elliott Parker thinks corporate innovation has been running the same experiment for thirty years. The heat is the CEO mandate, the pressure is the quarterly KPIs, and the process is the ever-growing toolkit of sprints and accelerators. The outcome is the same: activity that looks like transformation but never produces a number the CFO can point to. 

The instinct is always to go back inside and fix something. “Tighten the stage gates. Sharpen the KPIs. Reorganize the team.” 

But after decades of using the same playbook, what if the fix was never inside the corporation to begin with?

In The Illusion of Innovation, Elliott argues that the conditions that true business model transformation depends on cannot exist inside a corporation. Once you stop trying to force them into existence inside, a completely different playbook opens up. 

This piece walks through what that structure looks like in three layers: the unit that does the work, the container it needs, and the capital that makes it possible.

Innovation, Elliott argues, has its own equivalent of the atom, which he calls the atomic unit. This is a founder inside a startup, who is able to produce business model transformation when five conditions are in place at the same time.

A corporation cannot structurally provide these conditions at full strength. The reason isn't that they are badly run. It's that the same design that makes them good at running a $50 billion business is what prevents them from holding the five conditions.

Each missing condition is held in place by something the corporation depends on for its core business: committee decision-making, salaried compensation, performance reviews, capital efficiency, and the reasonable expectation that managers will not waste shareholder money.

The same idea, given to the same person, plays out completely differently depending on whether they're inside or outside a corporation.

In the year 2000, Sara Blakely was a 29-year-old door-to-door fax machine salesperson in Florida with $5,000 in personal savings and an idea she could not let go of: a type of footless tights that would smooth a woman's silhouette under fitted clothes. She had no industry experience and no contacts in fashion or manufacturing.

She spent a year cold-calling hosiery mills in North Carolina until one returned her call. She wrote her own patent application using a textbook from Barnes & Noble. She talked her way into the Neiman Marcus buyer's office without an appointment and convinced the buyer to come into the women's restroom to see the product modeled on the spot. The buyer placed an order. By 2012, Fortune named Sara the youngest self-made female billionaire in the United States.

Now imagine the inside version. The idea is the same, the drive is the same, but the person sits on the fourth floor of a large CPG company.

The person takes the idea to their manager, who asks for a business plan. The innovation committee deliberates for two months before legal raises concerns about the patent landscape and marketing flags potential brand dilution. Finance refuses to approve any investment without a five-year revenue forecast, which cannot be produced because no comparable product exists. A request goes in to fly out and test the concept with buyers, but the trip is denied as non-essential travel. Then the manager gets transferred. The idea sits in a deck for eighteen months and quietly dies.

Sara in the first story wasn't unusually gifted. The conditions around her made every move she needed to make possible. Inside the corporation, those same moves would have been blocked, one by one.

But before asking what structure could hold the atomic unit, it is worth understanding why the atomic unit is vital for an organization.

Corporations fail for the same reason civilizations fail. The idea, originally from physicist and philosopher David Deutsch, is that problems stack up over time, and eventually one arrives that is too big to handle. The corporations that survive are the ones that have gathered enough knowledge and wealth to deal with problems they could not have predicted.

The operating business handles the wealth side. It runs efficiently, generates profit, and builds the financial reserves the corporation needs. What the operating business cannot do is gather knowledge about the future. No amount of trend research or forecasting produces data about the future. The only way to create that data is by taking action, running experiments that convert assumptions into knowledge.

That is the innovation function's job.

Not to generate revenue, not to close a gap in the P&L, but to gather knowledge on behalf of the corporation, so that the corporation is better prepared for future problems that are inevitable and hard to predict.

The problem is that inside the corporation, the innovation function almost always gets pulled back toward wealth gathering. It gets assigned a revenue target, measured against quarterly returns, and slowly starts to look like the operating business. This is why the atomic unit matters. Operating outside the corporation, with the conditions intact, the work stays focused on learning.

The conditions the atomic unit needs are not a wish list. They are what makes knowledge gathering fast enough to matter.

The real question is what structure can hold them.

If the atomic unit cannot live inside the corporation, the corporation needs to find ways to engage with it where it already exists.

There are four ways to do this, each way creating a different kind of container, meaning the legal, financial, and organizational structure that determines whether the founder's five conditions survive or erode. These are:

Not everything belongs outside. The first question the innovation leader has to answer is whether the work in question should leave the corporation at all.

Making a mistake here is expensive. Pushing internal work outside wastes the corporation's structural advantages in scaled execution, capital efficiency, and operational discipline. Trying to build genuinely external work inside the corporation removes the conditions the venture needs to survive.

The simplest way to know whether work belongs outside is a distinction Elliott draws between two types of opportunity:

A simple, practical test can help make this decision. If the finance team asks for a 12-month forecast and the team can produce one with reasonable confidence, the work belongs internally. If producing the forecast feels like fabrication, the work almost certainly belongs in a startup.

The first three routes each give the corporation access to the atomic unit, but each one comes with a trade-off. Investment gives a window but no involvement in what gets built. Acquisition gives control but usually erodes the five conditions. Partnership gives access but no ownership.

Venture building is the only route where the corporation has deep involvement in shaping what gets built, while the container still preserves the founder's five conditions. The corporation co-creates the venture from scratch, shaping the problem it solves and providing the capabilities it runs on, while the venture itself lives externally with its own cap table, its own board, and a founder who would never have taken an internal role.

The best entrepreneurs do not want to work inside a Fortune 500 org chart. They want ownership, autonomy, and the ability to build something from nothing. Venture building gives the corporation access to that talent, without asking them to join the hierarchy.

The sort is done, and the innovation team knows what to build, and where. But the hardest question remains unanswered: which is the most efficient funding path?

Most corporations come up with ideas first and figure out the funding later.

Inside almost every large corporation, there are two distinct pools of capital, governed by different rules and evaluated against different expectations.

This distinction maps directly onto the type of innovation being pursued:

When transformative innovation is funded as OpEx, which is how most corporations fund it today, the work is being held to an ROI standard it was never designed to meet, on a time horizon too short to allow the venture to demonstrate whether the bet is real.

The funding mechanism kills the work, before the work has had a chance. Therefore, the next meeting with the CFO should not be to argue for more OpEx budget. It is to fund the work as CapEx.

When looking into CapEx as a potential funding mechanism, there is one fact innovation leaders must internalize: CapEx cannot be unlocked by relabeling internal projects as strategic investments.

CapEx requires a structure the CFO can underwrite as a balance sheet investment. Internal innovation work, regardless of how transformative its ambition, gets booked as OpEx by default. The reason is straightforward. Internal teams sit inside the corporate entity. Their costs flow through corporate payroll, vendor invoices, and overhead. Everything they do hits the P&L.

The same activity, structured as a separate external entity that the corporation invests in, gets booked as a balance sheet asset. Same work, different accounting treatment, different funding pool.

This is why venture building and CapEx are intertwined. Put simply, an external venture is the only structure that gives the corporation accounting permission to fund innovation from the balance sheet.

One cannot work without the other.

Once the work sits in an external structure funded from the balance sheet, three types of benefits unlock, that are normally impossible under OpEx:

CFOs grow enterprise value through three levers: revenue, expenses, and the multiple applied to earnings.

The first two are hard for innovation to influence. No innovation team will move a $50 billion company's top line meaningfully in the near term, because the base is too large and the new venture too small. Cost reduction belongs to the operating business and its continuous-improvement teams.

The third lever is where innovation wins.

Enterprise value is calculated by multiplying a company's earnings by a number the market assigns based on how it perceives the company's future. This number is called the P/E multiple.

The difference the multiple makes is significant. A company earning $4 billion with a 13x multiple is valued at $52 billion. If the market's perception shifts and the multiple moves to 14x, the value rises to $56 billion. That is $4 billion in new market value without a single dollar of additional revenue.

When a corporation builds visible, externally validated ventures, ideally co-funded by tier-one venture capitalists, it changes how the market perceives its future. The market sees a company actively creating new growth paths, not just optimizing the existing business.

That shift in perception is what moves the multiple.

Once the venture is structured externally, it can take investment from other parties alongside the corporation's. This is what Elliott calls OPM: other people's money.

A corporation pursuing a $1 billion idea will eventually need $500 million or more to build it. At that scale, partners are inevitable. The question is whether the structure invites them on day one or after three years of internal funding has already gone in.

If the external structure is designed from day one to receive outside investment, with a clean cap table, a credible founding team, and corporate terms that do not scare off third-party investors, the corporation's own capital becomes a starting position rather than the only position.

As a result, the corporation's exposure drops, the venture's velocity increases, and the CFO sees a co-investment structure that resembles every other deal already on the balance sheet.

When other investors place capital into the venture, they are independently pricing the work. That price is not a number the innovation team produced. It is a number the market produced.

A $100 million valuation set by a tier-one VC becomes the validation the innovation team can carry into the boardroom. The corporation's investment can be defended against it.

This is the metric no internal scorecard can replicate.

Five years ago, Elanco, one of the world's largest animal health companies, was preparing to launch a feed additive that, mixed into a dairy cow's daily ration, reduced the methane the cow produced.

The science was solid. The economics were not.

Without a regulatory mandate, no farmer had a reason to pay for the additive. Cattle margins are thin, the additive added cost, and the carbon benefit was an externality the farmer captured nothing of.

The downstream piece existed. Large food companies had made public commitments to reduce Scope 3 emissions, and 75% to 90% of those emissions sit at the farm gate. The food companies wanted reductions, the farmers had the means to deliver them, but there was no marketplace connecting the two.

Building that marketplace was something Elanco could not build inside its own organization. The marketplace would need to serve the entire US dairy industry, including Elanco's direct competitors, and no food company was going to put its carbon credits through a marketplace owned by a feed additive supplier.

The marketplace had to be neutral, which meant it had to be external. What did it look like when a corporation lets go of control to make a venture possible?

Elanco launched Athian as an independent entity. Aaron Schacht, then leading innovation at Elanco, anchored the partnership on the corporate side.

For the founder seat, Alloy and Elanco found Paul Myer. Paul came from three generations of cattle ranchers in the Southwest, and he had spent the second half of his career building and selling SaaS companies. He had also lived through a venture studio that didn't work, in a previous role with an incubator in Southern California, and had walked into the Athian conversation knowing exactly what to look for in the structure. He took the founding CEO role and brought a working understanding of both sides of the table.

Here’s how the Elanco/Athian story can be mapped against the three layers:

The outcome? Within six months of launching, 85% of the US large dairy industry had invested in Athian's seed round. Customers now include Tyson Ventures, Newtrient, Chobani, General Mills, Agri Beef, and California Dairies.

And Elanco's estimated future annual revenue from its methane-reducing feed additive Bovaer, unlocked in part by Athian's existence as a marketplace, sits at hundreds of millions.

The Elanco story is not just an animal health story. It is a capital allocation story.

The three layers Elanco used are not new. Corporations have invested in startups, built external ventures, and funded strategic bets from the balance sheet before. What is new is the argument that all three must hold at the same time, because each one depends on the others to survive.

Fund the work as OpEx, and the time horizon collapses. Build internally, and outside investors never show up to validate the bet. Assign the founder role to an employee, and no one has the standing to reshape the model before launch.

The failure is never in one layer alone. It shows up when the layers don't reinforce each other. For innovation leaders who have spent years trying to make transformative work survive inside the operating budget, the reframe is structural, not strategic.

The balance sheet has always been there. The question is which venture moves onto it first.

Trey Closson didn't set out to become a founder. He studied philosophy at Furman, got into logistics by managing emergency air freight for BMW, and spent a decade building a career in international supply chains.

By the time he was running international logistics at Georgia-Pacific, one of Koch Industries' largest subsidiaries, he expected to stay there for the rest of his career. "It was an amazing opportunity," he says. "But even better, the culture [in Koch] is incredibly entrepreneurial. I got to scratch that itch of working with a scaled organization, but then also explore my curiosities along the way."

That curiosity is what led him to open a company-wide email he normally would have ignored. Koch was looking for people with supply chain experience and an interest in startups to join a week-long sprint exploring how to make industrial supply chains more resilient. Trey almost didn't reply; the ask was to take a full week away from his day job, and he assumed his leadership team would say no.

They didn't. Instead they were "incredibly encouraging and excited."

The sprint week ran fifteen-hour days. By Friday, running on two or three hours of sleep, the participants had landed on an idea. And then came the thought Trey hadn't expected.

His boss and the supply chain leadership at Georgia-Pacific supported his departure, helped plan the transition, and treated the move as something to celebrate. Trey left to start Amplio.

Koch didn't try to build the venture in-house. They didn't slot it into an internal innovation team or assign it a steering committee. Amplio was set up as an external, independent startup; with its own cap table, its own board, and a founder who had left a salaried role to bet his career on it.

Koch's private ownership and long-term orientation made this easier. As Trey puts it, Koch is comfortable backing experiments with a low probability of success but a positive expected value, because they are not having to drive towards quarterly earnings reports. They are looking to make outsized returns over the long run. A publicly traded company, under pressure to justify every dollar to shareholders each quarter, would have had a harder time letting the idea walk out the door.

Operating now as an independent founder, Trey set out to build a software product that could take a manufacturer's bill of materials, map it against demand schedules, and predict which parts and suppliers were most likely to cause a shortage. The tool generated risk scores that could flag tens of millions of dollars in potential exposure. It worked well enough to raise a seed round.

But six months later, the growth started to slow.

Customers were signing subscriptions for ten, fifteen, twenty thousand dollars. One early customer was frank enough to say they would never pay more, because the product wasn't mission-critical. Then, another customer came to them during a quarterly business review with a different kind of problem. They had millions of dollars of brand-new inventory sitting in a warehouse — electronic components, raw materials, still sealed in the box — that they no longer needed for any active production line. They'd tried to sell it before and failed. Their plan now was to pay someone to haul it away and recycle it, then write the whole lot off. Could Amplio find buyers and recover some of that value before it went to the scrapyard?

Trey had no idea how. But he and his co-founder Taha, a former vendor he'd worked with for four years at Georgia-Pacific and who had already built and sold a company of his own, felt confident they could figure it out. When they started asking around, they found that other manufacturers had even more surplus, and nearly all of them were recycling it or throwing it away. Nobody was solving this problem consistently.

This is also the moment where the external structure earned its keep.

Had Amplio been an internal Koch project, the software would almost certainly have lingered, maintained by a team that couldn't kill it and couldn't grow it, while the surplus opportunity passed to someone else.

Today, Amplio is a surplus industrial marketplace that enables manufacturers to sell decommissioned equipment, raw materials, and inventory that would otherwise be scrapped. In early 2025, Amplio closed an eleven-million-dollar Series A led by Hitachi Ventures, with participation from Yamaha Ventures.

In hindsight, Trey left a senior role at Georgia-Pacific to start something that might not work. When an early product failed, he treated it not as a defeat but as a successful experiment: one that surfaced better data about where the real opportunity lay. And when that data pointed somewhere new, he moved, without asking permission, because the structure he was operating inside didn't require him to.

Koch still holds equity in Amplio, and the marketplace solves a problem that Koch's own subsidiaries experience. But a surplus marketplace owned by a single manufacturer would never be trusted by its competitors. For it to work, it had to be independent. For Koch to benefit, they had to let it go — and they did.

By releasing control, Koch ended up with a stake in something more valuable than anything it could have built internally. Trey's advice to corporations considering this path is blunt: if you're not placing bets on new ventures outside your walls, the company will eventually die. The container is how an organization makes sure those bets get a real chance to play out.

That’s it for today.

I could almost see the lightbulbs appearing above the heads of our members, when Elliott shared these ideas in a recent community session. Curious what’s your take-away?

Next time, we’ll share how external innovation programs at ExxonMobil and Nestlé Purina succeeded by doing the internal work first.

Hans Balmaekers
Founder, the Compass and Chief @ Innov8rs

PS- Don’t forget to participate in the first global benchmark of how AI is embedded in corporate innovation by sharing your input here.