Editor’s note: Jeffrey Phillips is the vice president of sales and marketing for OVO (www.ovoinnovation.com), a developer of processes and application software for innovation and idea management. He has responsibility for OVO corporate identity, marketing, public relations and sales. Jeffrey recently co-authored an article entitled “Innovate On Purpose” for the Harvard Management Update. More of his work can be seen at www.innovateonpurpose.blogspot.com/ and workingsmarter.typepad.com/ . This column is the latest in the Entrepreneurial Spirit series done in partnership between the CED and WRAL Local Tech Wire.

RALEIGH, N.C. — Entrepreneurs exist because they seek to deliver a better product or service than is in the market today, so innovation thrives as entrepreneurs enter a market with new ideas.

Unlike larger companies, most entrepreneurs have one central idea and the success of that idea is the focus of the entire organization. As the startup grows and matures, however, it can be difficult to retain that focus on innovation. As demonstrated by many larger companies, innovation can be bred out of a company as it grows larger and its focus shifts from upstart to established player.

Over time, as a startup matures and adds people, processes and overhead, how can it keep its focus on innovation?

There are at least three intertwined factors that shape how a company keeps a commitment to innovation over time. Those factors are culture, compensation and strategic direction. The culture aspect takes into account what the people in the organization value and what they reinforce about their business. A well-defined compensation program helps motivate employees and encourages them to focus on what the company thinks is important. The strategic direction of the management team indicates what the goals of the company are over time, and where resources should be allocated.

One company that has managed to stay innovative through a rapid growth spurt is Google. They might serve as a good model for you and other entrepreneurs to follow.

Google is the proverbial rags to riches startup, founded by a couple of master’s students who formed their business while still in school. Over the last seven years, their story has become almost iconic with the rapid growth in search engine technology and the increasing reach of Google products and services. Yet, Google is constantly innovating. Google continues to introduce new products and services, even after growing from 20 people in 1999 to almost 5000 people today. I believe Google has been successful based on its culture, compensation strategies and strategic direction.

Google’s culture is still one of a small company focused on its core capabilities. Google started out with a singular focus on search technology but has morphed into a company that provides powerful yet simple web applications for a whole host of users. Google is synonymous with the web, especially search, yet it constantly seeks out new niches. Google ensures that all employees have time to work on “pet” projects, and from the start has made it simple for people to submit or recommend new products or other ideas. Many new products that Google has developed are a result of these “pet projects”.

Google Labs has positioned Google to quickly and easily launch new “alpha” or “beta” software, with the statement that Google should release software “early and often”. Google’s culture is very collaborative and collegial, yet there are specific processes in place to ensure new ideas are captured and evaluated consistently, and receive the feedback they deserve. As Google has grown, it has reinforced its focus on innovation within its culture. Growing companies need to reinforce the key aspects of their culture to retain a solid focus on innovation, as they grow and become an established player in the market.

Google’s compensation model rewards failure and experimentation instead of punishing people who try new things. Employees who generate ideas are called on to lead teams to develop the new applications or solutions. Google Desktop, for example, was built by an engineer who recommended and built a sample desktop search engine. Unlike larger companies where a failure may be career-ending, Google recognizes and learns from failure and incorporates that failure into new initiatives. Employees are encouraged, compensated and motivated to convert great ideas into new products and services.

Since Google is a publicly traded company, there is clearly a significant pressure to achieve quarterly results. However, Google continues to invest heavily in new products and services to drive growth. As your company grows, ensure your compensation models and evaluation techniques provide the means to reward people who innovate and take risks.

Google’s success is also based on the strategic direction of the management team, composed of the original founders and some experienced executives brought in from other organizations. Google’s founders declared their mission as “organizing the world’s information”. The management team understands the opportunities that search technology and web advertising present, and are constantly setting aggressive growth goals that can only be met by creating new products and services. They set a clear vision for innovation, seek out and are actively involved in the evaluation and prioritization of new ideas and new product development to ensure Google’s growth and set the pace for the industry. As your company grows, demonstrate the value of and your commitment to innovation by spending time advocating innovation and aligning your corporate culture to support innovation.

It remains to be seen if Google can continue to retain its position as a consistent innovator over time, but Google has been successful at maintaining an innovation focus after significant growth in its business. Google had the option to defend its search engine leadership and slow down its innovation growth, but instead has chosen to continue growth through innovation where other companies have retreated into a protective, steady-state position. As a company grows, maintaining the focus on innovation becomes more difficult as there are established markets to defend. Companies which can retain their innovation focus as they grow stand a much better chance of consistent profits and growth over time. The factors that enable a company to retain its innovative edge as it grows are tightly aligned to its culture, how it compensates and rewards innovators and risk takers and how the management team communicates its goals and vision for the company.