What is a Venture Client company, and what is a good one?
In 2014, I coined the term “Venture Client” at BMW. Today, multiple companies adopted the term, and have established Venture Client units. Here I describe what a Venture Client is, and what distinguishes “good” ones.
Intro
I coined the term “Venture Client” back in 2014 while I was working at BMW to describe a new approach to gain strategic benefits from startups: The Venture Client model. In 2015, I created the world’s first organizational unit that applied the Venture Client model to boost the strategic benefits a company can gain from startups: The BMW Startup Garage. Today, the term Venture Client is used by companies worldwide. And multiple companies followed BMW and also established in-house Venture Client units — including Bosch, Siemens, and Holcim. The Venture Client model also ignited a new field of academic research and teaching. The pioneer here is Professor Andreas König, Chair of Strategic Management, Innovation, and Entrepreneurship at the University of Passau. Other forward-thinking schools followed soon after, among others IMD, INSEAD, HHL, IESE, TU Munich, ETH, and WHU. INSEAD published a case about the BMW Startup Garage.
Given the growing interest — by companies and academia — in the Venture Client model, I decided to publish a series of writings and videos to explain what it is, why it makes a difference, and how it works. In this story, I provide a definition of what a Venture Client is. And what distinguishes “good” Venture Clients.
What is a Venture Client?
A Venture Client company is an organization that buys and uses startup products. The term “Venture” Client illustrates that buying and using startup products entails more risk than buying from incumbents. Just like the term “Venture Capital” illustrates the risk related to investing in startup equity. Startups entail a higher probability of failure, as their products are less proven. Compared to established companies, a startup has a more fragile organizational structure. One day it can look like the next Microsoft and be gone a week later.
As any company that buys from startups is a Venture Client, almost every company is a Venture Client. Startups, after all, wouldn’t exist if their products would not be used by companies. So, there are hundreds of thousands of Venture Clients. From huge corporations to small, ten-person firms. In 2000, 350 companies became Venture Clients of Google, back then a startup with a disruptive advertising solution called Adwords. In the early 2000s, thousands of small businesses became Venture Clients of Salesforce. Back then a revolutionary startup with an affordable CRM solution for small businesses.
The fact that many Venture Client companies do exist does not mean that all are good ones. Just like not every Venture Capitalist is a good one. Most companies, in fact, seem to be struggling at being a good Venture Client. Tales about conflicts between companies and startups are dominating the corporate venture discussions. You probably have heard (or experienced) your share of David versus Goliath stories.
What makes out a “good” Venture Client?
What distinguishes “good” Venture Clients from the crowd? Here are four basic quality indicators that will help you answer these questions:
- A good Venture Client has a well-defined purpose of strategic relevance. Startups form the world’s most powerful ecosystem of innovation. Dealing with startups should be strategic, i.e. an upper management priority. A good Venture Client company has specific short-term objectives and a long-term vision that defines why and how startups are relevant. If the purpose is not ambitious or it is ill-defined, chances are that your operations become a startup theater. Your Venture Client team will be seen as a group of hip people that, yeah, run around in sneakers dealing with startups, because it is the fashionable thing to do. Because it makes your company look more innovative. However, beyond some superficial and short-term innovation-PR, it will not be taken seriously. Neither by fellow corporate colleagues and certainly not by exactly those startups that can make a difference to your company.
- A good Venture Client can identify internal problems that startups solve best. Any company that is not capable of unearthing hundreds of problems per year is like a hungry person walking through a supermarket, not knowing why to buy what. Startups succeed because they solve problems better than your company. This is the nature of startups, it is in the DNA of good entrepreneurs. They do not start new ventures because they did not like their boss, or because they could not find a job. The dynamics of the startup ecosystem are such that startups that are merely a little cheaper or a little better in solving your problems, will not survive. So, every good startup out there probably has solved a problem you have been knocking your head on for some time. Or, it has discovered a problem you are not even aware of yet. Each year, 50 million new entrepreneurial ventures are started. If you can only come up with 10 problems per year, your Venture Client unit is seriously underperforming.
- A good Venture Client can quickly and effectively adopt a large number of startup products. About 5 to 10 startups per year is a good number to initiate your Venture Client operations. Then, as you are getting more proficient, you should be able to double the number of startups each year. Large corporate Venture Clients can benefit strategically from well over 100 startups per year. Of course, just filling up your shopping cart with startups won’t make a difference, if your organization rejects them. If this happens, you have a deficient Venture Client process. Your team either fails at sourcing the right problems and thus finding appropriate startups, or its adoption mindset and methods are faulty. Or both.
- A good Venture Client knows how to measure the operational performance as well as the strategic impact of startups on the company. Depending on the complexity of the problem to be solved, a “buy” decision for the startup solution should take a few weeks, sometimes a few months. If it takes 2 years, you are too slow. In addition to operational excellence, a critical competency is to be able to measure the strategic benefit of startups. A good benchmark for the impact a startup solution should generate per year is one million Euros (or US dollars). Too high? Well, there are numerous examples where startups enabled corporations to generate hundreds of millions, even billions. Just ask Apple, Google, BMW, or Bosch. Or Pfizer. In 2018, it signed a cooperation agreement with the then startup BioNTech. In 2021, Pfizer is generating $35 billion in new revenue, just from the BioNTech product. (Hint: You can make more money from startup products than from their equity.) Sure, this example is extreme. That is why, pursuing one-million-dollar startups, and being able to validate their impact, seems like a reasonable ambition. Right?
How to become a good Venture Client?
To become good at Venture Client you need a qualified in-house Venture Client team and corresponding competencies. This is no different from any other business function. If you want to be good at marketing, you need an in-house marketing department. If you want a great design, you need an in-house design team. Based on my own experiences at BMW and what I have witnessed while working with other Venture Client companies, I see an in-house Venture Client organizational unit as a must-have. This does not mean that your Venture Client team should do everything without external support. It should not. Design departments become great, among others, because they are able to leverage top quality, value-adding external resources, such as design agencies, design software, etc.
In upcoming publications, I will describe in more detail the Venture Client Model and Venture Client Units.
Summary
Any company that buys from startups is a Venture Client. A good Venture Client has an ambitious, well-defined strategic purpose. Further, it knows how to identify those problems across the organization that startups solve best. At scale. It can adopt startup solutions efficiently, at a lower cost than the measurable impact of the startup solution on revenue or profits. A dedicated in-house Venture Client unit is a prerequisite to becoming a good Venture Client, and through it harnesses the full strategic potential from the startup ecosystem.
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:
- What is the Venture Client Model?
- What are the top 3 benefits of the Venture Client Model for corporations?
- What is the return on investment of a Venture Client Unit?
- More videos about Venture Clienting
Articles: A selection of articles about the Venture Client Model
- Harvard Business Review: What BMW’s Corporate VC Offers That Regular Investors
- Medium: Venture Client KPIs: Unlocking the Strategic Potential of Startups for Corporations — A Deep Dive into KPIs of Venture Client Units
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.
