Venture Clienting KPIs
Unlocking the Strategic Potential of Startups for Corporations: A Deep Dive into KPIs of Venture Client Units
1 User-Driven KPIs: The Pull Dynamic of the Venture Client Model
In approving the establishment of a Venture Client Unit at BMW, Mr. Diess (back in 2014, then CTO of BMW) succinctly captured the essence of the approach, stating, ‘Let’s see if our engineers will make purchases from startups.’ Thus, the Purchase Order (PO) was established as the inaugural Key Performance Indicator (KPI) for the BMW Startup Garage. (In 2015, the BMW Startup Garage was the first corporate Venture Client Unit.) The premise was straightforward: if seasoned BMW engineers were willing to buy from a startup, it would be a strong validation that the startup offered a solution of exceptional value. And that the Venture Client Unit accomplished its strategic mandate.
This KPI is predicated on a Venture Client process that empowers the ‘problem owner’ — typically the engineer or unit facing a particular challenge — to make the purchasing decision, rather than a committee. This creates a ‘pull’ dynamic, where solutions are adopted based on their intrinsic merit and fit for specific challenges.
What is the Venture Client Model?
Watch this brief video for an overview of the Venture Client Model. Check out the related publications at the end of this story.
2 The Evolutionary Nature of Venture Client KPIs: A Runners Analogy.
As Venture Client Units grow within a company, their KPIs need to evolve in scope and complexity. Initially, these KPIs focus on simple metrics like the number of Purchase Orders. However, as the unit gains traction, a broader set of KPIs becomes essential, categorized into Strategic Impact KPIs and Operational Performance KPIs. The former measures the impact of startup technologies on the company’s competitiveness, while the latter assesses the efficiency of the unit’s team and processes.
Just like a runner who starts with modest goals and gradually aims for more ambitious targets, a Venture Client Unit should also adapt its KPIs based on its evolving capabilities and the organization’s unique circumstances.
3 Strategic Impact & Operational KPIs of Venture Client Units
The following key performance indicators (KPIs) and corresponding benchmark metrics will assist in goal-setting and performance evaluation for both nascent and mature Venture Client Units. These benchmarks draw upon data and experiences from over 20 Venture Client Units I’ve consulted, operated, and researched since launching the first of its kind — the BMW Startup Garage — in 2015.
Principal Strategic Impact KPIs of Venture Client Units
Principal Strategic Impact KPIs for a Venture Client Unit include metrics such as the number of pilots (with Purchase Orders) and the ‘adoption quota,’ or the rate of successful startup pilots. Other key metrics include the total venture capital invested in piloted startups, serving as an ‘outside-in’ innovation budget funded by external investors, which minimizes financial risk. Lastly, the ‘business case value’ aggregates projected financial gains or savings for each solved problem, formulated jointly by the Venture Client unit and the problem owner during the pilot’s lifecycle.
Principal Operational Performance KPIs of Venture Client Units
Operational KPIs for a Venture Client Unit focus on several areas. First, the unit’s skill in identifying startup-relevant problems is measured, along with the total number of startups that are discovered and evaluated. Second, the time span from the initial problem identification to the issuance of a Purchase Order is tracked to assess efficiency. Third, organizational reach is gauged by counting the number of departments that actively engage with the Venture Client Unit for support. Another crucial operational KPI is the Total Cost Per Pilot. It gauges resource efficiency, balancing resources like personnel and operational tools against strategic impacts such as revenue growth and cost savings. This KPI also considers the initial financial commitment to the startup as per the pilot contract.
Benchmarks for KPI metrics of Venture Client Units
KPIs for Newly Established Venture Client Units
For Strategic Impact KPIs, my recommendation is to aim for issuing around 10 to 20 pilot purchase orders (PPOs) annually within the first two years of operation. For corporations with revenues below 1 billion (either EUR or USD), a more suitable target would be between 5 to 10 PPOs per year.
As for Operational Performance KPIs, the unit should aim to identify at least four times as many problems as the number of pilot projects it plans to pursue. The time frame from the point of initial problem identification to the issuance of a Purchase Order should be capped at six months. Furthermore, active engagement from at least two to four organizational departments should be considered a healthy sign of internal reach and impact. While it might be premature to measure the Total Cost Per Pilot in the early stages, this KPI should be aligned with the long-term cost efficiency goals the Venture Client Unit aims to achieve.
KPIs for Mature Venture Client Units
For Venture Client Units with over two years of operational experience, I recommend concentrating on the assessment of the following Key Performance Indicators (KPIs) and striving to reach the accompanying metric benchmarks.
Strategic Impact KPIs
- Number of pilot purchase orders: Over 50 per year (companies with less than 1b revenue, 10–25)
- Adoption Quota: Over 50%
- Venture Capital Leveraged: Over $500 million per year
- Business Case Value: Over 3 million (EUR or USD) generated per startup within a 3-year period (or 1 million p.a.)
Operational Performance KPIs
- Number of Quality Startups Assessed: Over 1,000 per year
- Days from First Touchpoint to PO: Less than 100 days
- Number of Departments Engaged: Over 10 departments should be actively demanding and satisfied with services from the Venture Client Unit.
- Total Cost Per Pilot: Aim for a maximum expenditure of 200,000 (USD or EUR) for companies with revenue exceeding 1 billion, and a cap of 100,000 (USD or EUR) for companies with revenue less than 1 billion.
By focusing on these benchmarks, you’ll be able to better gauge the success and growth of your Venture Client Unit, while also enabling room for strategic and operational improvements.
4 Measuring Strategic Value in Corporate Venture Capital: A Comparison with Venture Client Units
One of the most pressing questions revolves around how Corporate Venture Capitals (CVCs) measure their strategic impact. As David Mayhew of GE Ventures noted in a Harvard Business Review interview, ‘It’s easy to measure financial returns, but nobody has cracked the code for measuring strategic returns in a meaningful, ongoing way.’ (See Corporate VCs Are Moving the Goalposts, HBR 2016)
The challenge to measure the strategic impact of Corporate Venture Capitals (CVCs) is owed to the fact that owning a minority stake in a startup through CVC doesn’t directly improve a corporation’s products or processes.
Allow me to illustrate this with a simple example. If a startup invents a game-changing car battery, an automotive OEM wouldn’t boost sales just by having its CVC own a minority stake in the startup. However, integrating this new battery into its vehicles will significantly impact the OEM’s sales and stock market valuation.
To mitigate this, some CVCs establish ‘partnership’ teams to integrate startup innovations into the parent company, technically making them similar to Venture Client Units. However, these CVCs significantly underperform in strategic impact compared to well-run Venture Client Units.
To support my conclusion, consider the following data: To enable 10 pilot projects, a CVC would need to invest in 100 startups. With an average investment rate of 3 startups per year and only 10% leading to strategic partnerships, achieving this would take 10–30 years and a $100 million fund. Fixed costs would range between $25–30 million, inflated by ‘partnership’ teams aiming for strategic impact. Even if the fund yields a positive financial return, the strategic output is generally poor, especially considering that 50% of VC funds underperform the MSCI World Index and 25% lose money.
Based on these CVC KPIs, it’s reasonable to conclude that, absent the allure of significant equity returns, corporations would be unlikely to employ a CVC unit as a strategic instrument for deriving benefits from startups. This observation also illuminates why so many CVC units shut down when financial performance declines, as well as why a mere 5% of large enterprises maintain a CVC unit in the first place.
Summary
The article provides an in-depth examination of Key Performance Indicators (KPIs) for Venture Client Units to derive strategic benefits from startups, and contrasts these with Corporate Venture Capital (CVC). It discusses how Venture Client Units operate on a ‘pull’ dynamic, focusing on actual needs within the organization and using Purchase Orders as an initial KPI. As Venture Client Units evolve, institutionalizing themselves as the strategic corporate vehicle, they adopt a more complex and multifaceted set of KPIs. These KPIs include both strategic impact and operational performance metrics. Based on extensive research and experience, the article also offers benchmarks for these KPIs. Finally, it argues that compared to Venture Client Units, CVCs are significantly less efficient and much slower at achieving strategic objectives, while also being burdening the corporate parent with high operational costs and enormous capital risks.
Main Takeaways
- The Pull Dynamic of Venture Client Units drive KPI setting: Venture Client Units operate on a ‘pull’ dynamic, empowering problem owners (i.e. the Venture Clients) within the organization to decide on startup technologies, thus generating an immediate strategic benefit derived from using and applying startup technology responding to pressing needs.
- KPI of Venture Client Units evolve over time: As a Venture Client Unit matures, it is essential for its KPIs to evolve from initially focusing on pilot purchase orders to a broader set that measures both strategic impact and operational performance.
- Benchmarks for KPI metrics from real corporate Venture Client Units: The article provides specific KPI benchmarks for both nascent and mature Venture Client Units, based on empirical data. These benchmarks help in setting realistic yet ambitious goals for Venture Client Units.
- KPIs of good Venture Client Unit outperform CVC effectiveness to accomplish strategic impact: The article questions the effectiveness of Corporate Venture Capital (CVC) in achieving strategic impact quickly. It points out that CVCs aim for strategic benefits through the high-risk / high-cost avenue of buying startup equity, which ultimately hinders technology transfer, as only a few invested startups result in strategic partnerships.
Resources to learn more about corporate Venture Clienting
Book about Venture Clienting
Summary of Buy, don’t invest!
Apple, Google, Microsoft — all share a secret weapon: They harness startup innovations to fuel unparalleled competitive advantages, raking in billions as a result. Wondering how your organization can do the same? Conventional wisdom suggests investing in minority stakes, an option that’s always expensive, risky, and time-consuming, with minimal strategic impact to show for it. In this enlightening read, Silicon Valley veteran and corporate innovation architect Gregor Gimmy uncovers the pitfalls of traditional investment-centric approaches. More importantly, he introduces you to a groundbreaking alternative. Regardless of your company’s scale, you’ll discover how to unlock true strategic value from startups — swiftly, economically, sustainably, and with high impact — thanks to the game-changing Venture Client Model.
Praise for Buy, don’t invest!
“At BMW, we pride ourselves on being pioneers, whether it’s in automotive engineering or corporate innovation. The Venture Client Model is one of our crowning achievements, a vehicle for innovation that drives us forward — no wheels needed. Since its inception at the BMW Startup Garage, the Venture Client Model has turbocharged our approach to harnessing startup innovation. ‘Buy, Don’t Invest’ is a must-read for anyone looking to leverage startups for strategic benefit in a corporate setting.” Stephan Durach, SVP BMW Group
“The first time I heard Gregor Gimmy present the Venture Client Model in 2015, I instantly felt it was a game-changer. This wasn’t just another corporate venturing strategy — it was a radical rethinking of how companies can strategically benefit from startups. Since its inception, the model has not only been a catalyst for change in the business world but has also ignited a wave of academic research. ‘Buy, Don’t Invest’ articulates this disruptive approach in a style that’s as direct as it is insightful.” Prof. Andreas König, University of Passau, Chaired Professor of Strategic Management, Innovation, and Entrepreneurship
Videos about the Venture Client Model
Short videos answering frequent questions about the Venture Client Model:
Articles: A selection of articles about the Venture Client Model
- Harvard Business Review: What BMW’s Corporate VC Offers That Regular Investors
- Medium: What is a Venture Client company, and what is a good one?
27pilots Knowledge Center about Venture Clienting
At 27pilots.com/knowledge you can find in-depth information about companies applying the Venture Client Model (eg, BMW), as well as information about the model itself, how it functions, reports, best practices and alike.
