How committed are large companies to transformative innovation now? (CSL Report)
Over the last month, I’ve spent meaningful time with global business executives at large and established companies (via Zoom). Eventually, they ask me two versions of the same question:
Should I continue to invest in transformative innovation?
Are my peers continuing to make those investments?
They are both fair questions. Six months ago it was, at least relative to today, much easier to make investments in transformative innovation. But, as is news to no one, this is an unprecedented time.
The answer to the first question (should you continue investing in innovation?) is pretty easy … YES. There is plenty of evidence around what companies need to do to survive and even thrive. The quick summary, which I find myself repeating multiple times every day in different settings:
Don’t focus on re-opening your business; instead, try to re-imagine it!
There are plenty of reports that back this up. My favorite, however, is the famous research by Ranjay Gulati, Nitin Nohria and Franz Wohlgezogen, which was later summarized in the HBR under the title “Roaring Out of Recession.” (For those unfamiliar, Nitin Nohria is the Dean of Harvard Business School)
The entire HBR article is worth reading, but the key is after looking at nine different alternative strategies, there was one approach that resulted in much stronger company performance after a recession:
One combination has the greatest likelihood of producing postrecession winners: the one pursued by progressive enterprises. These companies’ defensive moves are selective. They cut costs mainly by improving operational efficiency rather than by slashing the number of employees relative to peers. However, their offensive moves are comprehensive. They develop new business opportunities by making significantly greater investments than their rivals do in R&D and marketing, and they invest in assets such as plants and machinery. Their postrecession growth in sales and earnings is the best among the groups in our study.
The second question (what are my peers doing?) is actually much harder to answer. I know for many executives the “social proof” of others continuing to invest is helpful. But everyone waiting around to see what everyone else does first is hardly a sustainable strategy.
Taking the pulse of entire sectors’ plans for large innovation investments is hard to answer not just for lack of information, but also because even with perfect information, circumstances are changing rapidly, and people aren’t great at predicting their own future behavior to begin with (for example, think back to your own January 1st “resolutions”). Today’s intent doesn’t always translate into tomorrow’s action.
At the Corporate Startup Lab (CSL) we ended up with an interesting way to create a decent proxy (in my opinion) for that future corporate behavior, while simultaneously answering another critical question in the startup ecosystem right now.
We’ve been spending a lot of time recently with Corporate Venture Capitalists (CVCs). At CSL, we believe (and there’s plenty of evidence to back this up) that CVCs have become an integral part of the startup landscape over the last decade. When structured appropriately, they have served not only a financial support function but also provided critical input and connections to support high-growth startups’ strategies.
In April of this year, we initiated a survey to understand the sentiment of CVCs. Our goal for the survey was to understand the shifting mindset of CVC groups during this unprecedented time while considering the current rate of investment during this economic downturn.
If you’re interested in reading the initial report, you can download it here: https://www.corporatestartuplab.com/cvcsentimentsurvey20q2
We specifically asked one question about how companies plan to adjust their investments in traditional startups going forward, and combining those answers with other questions, we’re able to gain some insight about large-company commitment to transformative innovation. Specifically, across many CVCs, we compared prior 12 months of investment activity vs their forecast of future investment activity.
You can choose to interpret this optimistically or pessimistically. For those who know me, it’s probably not a surprise that I’ll take the optimistic interpretation. Specifically:
Over 50% of respondents will either increase or maintain their CVC investing activity.
If this is a good proxy for other investments companies can make in transformative innovation over the next 12 months, I believe you’ll see many of these companies not just survive but thrive.
If you want a little more “glass half full” thinking today, let me point you to a fascinating Fast Company article this week about another “unprecedented” time, specifically: How Dixie cups became the breakout startup of the 1918 pandemic