Why Corporate Venture Building is the best model for disruptive innovation
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Here at Byld, our mission is to sharpen a new model of entrepreneurship and new ventures by combining startups’ agility, flexibility and culture with corporations’ muscle, experience and resources to create innovative and disruptive solutions. We believe in startups’ potential to improve people’s lives and we know we can boost that impact by partnering with corporations.
“In the new world, it is not the big fish that eats the small fish, it’s the fast fish that eats the slow fish.”
Almost all industries have been challenged by startups. Disruption does no longer only pose a threat to tech companies… In fact, 60% of CEOs expect a tech-based, non-traditional competitor to enter their industry at any moment. A proactive approach is needed.
Big corporations usually innovate in matters such as process improvement and business model optimization, but are often slow to enhance radical changes that have a real impact on their long-term strategies. Corporations typically find it hard to reach the disruptive horizon, which is what startups do best for several reasons like agility, risk-seeking or new technologies usage.
Nowadays there are many different innovation initiatives like corporate acceleration, prizes and even co-working spaces that allow them to be in close proximity to startups. However, these initiatives are not generating satisfactory results because startups and corporations have mismatched goals.
According to the McKinsey innovation framework, there are three horizons of innovation: incremental, emerging and disruptive. We combined the 8 most common innovation initiatives from corporations into these levels in order to compare them, let’s see how they fit.
But in Byld we like to go further, so we also compared them into six dimensions. (There’s a glossary at the end of this article, just in case)
Accelerator / Incubator: Accelerators and Incubators have similar impacts, that’s why we are explaining both together. On one hand they stimulate a change in culture and internal learning, boosting company’s innovative image. However, on the other hand, due to moderate strategic alignment and cost, the results are not innovative enough. Compounding also that, according to research, the business impact is estimated on average to be from seven to ten years.
We believe it’s related to the fact that they are deeply embedded into corporations’ organizational structure in the case of internal accelerators / incubators. Or, due to the team’s involvement, in external ones. As they work in volume, providing consultancy to many different projects at a time, the team’s dedication and motivation isn’t the same, and building a successful startup demands a high level of engagement.
Venture Client / Commercial Accelerator: Venture clients are not investors, but clients. They have the right to buy the startup’s first product, becoming early-adopters as a reward. Although it can have a high strategic alignment, the corporation doesn’t have any influence or participation in any strategic decision on how the startup is being built or developed. It’s interesting to have as many as possible, but corporations shouldn’t expect anything more than the right to buy their first product.
Corporate Venture Building: Like a M&A in reverse, corporate venture building aims to fast-track the growth of startups through a combination of the best of several tools. The startup has full alignment with the corporation’s mid to long term strategy since day one, nurturing a full integration with the corporation once the startup is growing and scaling, enhancing an innovative image and attracting top talent with an entrepreneurial mindset for the startup team. In opposition to M&A, the cost is more accessible since it's build from scratch and the speed to market can be very high, depending on how fast the corporation can take decisions.
Venture Capital: Unlike Venture Clients, these firms only invest. They look for startups in their first stages, with huge potential and usually the VC don’t manage the invested companies. In a nutshell, the venture capitalist buys a stake in an entrepreneur’s idea, nurtures it for a short period of time, and then exits. The integration of the corporation with the business is very low while the risk is the highest of all the other ways to innovate as by their own nature they are unsecured loans.
M&A: Mergers & Acquisitions is definitely the fastest way to gain share in a strategic sector and immediately enter into a new market. However, the investment is very high and the integration is usually very difficult since corporations and startups have different mindsets, internal processes and forms of organization, making the integration dense and slow. This scenario jeopardizes the investment made and also the previous work done by the entrepreneurs who built the startup, making it challenging to sustain performance since the corporation tends to fit and adapt the new venture into its own personality, causing friction since both come from different worlds.
Events like hackathons, prizes, scouting missions, and sharing resources like co-working spaces are the simplest form of collaboration between corporations and startups. They usually require low investments, and are more relevant for culture creation and innovative image, than to actually generate market results. Since there is no structure to give them a proper continuity, they end up having different goals, just staying on the surface in terms of impact.
As we can see, they all have different levels of impacts. Corporations must properly define what impact they want to have in the long run. Defining their strategic intent early on will not only help them design an effective (and holistic) innovation strategy but also save time. Sometimes companies start working with a selection of startups before they even have a clear strategy and, once a proper assessment has been made, they realize these collaborations might lack enough purpose to justify the time and resources invested.
At the end of the day, it’s all a matter of understanding what your business needs and which option is the most appropriate considering your objectives, budget and timeframe.
When it comes to building disruptive innovation, we are convinced that corporate venture building is the most appropriate model, since it has full alignment with corporations’ mid-long term strategy, speed to market and a combination of low risk with attractive costs.
On top of that, it can foster internal learning and a shift to a more entrepreneurial culture, stimulating a creative and problem-solving mindset, refreshing the corporation’s image and helping to retain and attract top talent.
Last but not least, remember that 61,7% of unicorns — “the billionaire startup club” — have been funded by corporations at some point, proving that channeling resources through this model could bring forth the next big thing.
“We see more change in the next five years than there’s been in the last 50” ― Dan Ammann, President, General Motors.