Corporate Ventures: Creating start-ups when it’s no longer in your company DNA
Building start-ups inside big companies is a core piece of the work we do for major corporations (what we call ‘Founder-as-a-Service’), so we thought it would be original to sit on high chairs, drink beers and have a chat with David Bicarregui, responsible for Marcus by Goldman Sachs; Richard Lewis Jones, Unilever’s VP of Disruption; and Cat Jones, Founders Factory’s new MD for Travel and Media.
A few pearls of wisdom:
First off: building new ventures is nothing new — it’s feeling zetigeisty but Lockheed Martin started its Skunk Works project in the 1940s, and Eve probably launched a dried fruit spin-off shortly after Edengate. It might be your first rodeo but people have done this before.
Venture building makes most sense when launching a core or near-core proposition, where: 1) owning the business is important and acquisitions don’t make sense; 2) you can sell your service to people who currently aren’t buying it; and 3) your current infrastructure is too costly to provide the service you’d offer that new market.
Before jumping in with both feet, think about how you’re leveraging your unique attributes to bring something new to the table — for customers and your company, and why that’s important. A good idea alone isn’t enough; you need a good idea where you are ideally placed to win.
Success largely depends on getting the right alignment between the new venture and the mothership. Of course, there’s also all the product-market fit questions, all the timing questions, all the competitor challenges and funding complications… even if you nail all that, there are still more ways to get the structure wrong than right. What to do?
Walking the walk — key principles:
- Freedom & autonomy: People in the core business will weigh in on how to go to market, where to spend your money and who to hire. But it’s not their business, and it’s not their problem if it goes wrong. You need real autonomy to call the shots: if you fail, you’ll be out on your ear but (to mix metaphors) you need the rope to hang yourself.
- Practical buy-in: Having senior backers engaged is table-stakes — but it still won’t make the venture successful if mid-level machinations, politics and bureaucracy conspire against it. Pro tip: when people commit to something, follow up with an email detailing agreed actions to ensure everyone’s on the same page (and there’s a paper trail to point to).
- Authentic incentive structures: Running a new venture on the company dime while keeping a fully-fledged pay package and company benefits is literally without downside. Integrating real potential upside is crucial to get the right talent at the top and keep them motivated (even if that means they could ultimately make more than the C-suite of the parent company); shadow equity can be a simple solution for ventures that aren’t spun out. But nothing ventured, nothing gained: the team needs to buy-in and take real risk and feel some hunger — find the people who are willing to take a pay cut because they believe that they can ultimately get rich through their long-term persistence to making the venture a success.
- Multi-year budgetary commitment: Stage-gated funding is a no-brainer, but without a defined pot of money for the venture to ultimately access, three things will go wrong:
1. The venture’s success will be subject to the changing winds of company performance and shifting priorities;
2. Strategic planning and investment is likely to go out the window; and
3. Accessing funding during the dark bit of the revenue ‘J-curve’ will be tricky at best.
Agreeing in principle to fund through the awkward unprofitable years but when quarterly reporting pressures come to bear, which project is most likely to face funding issues first? Setting expectations around realistic timeframes to achieving product-market fit, break-even, critical mass and decent unit economics is key — after all, the average venture build takes 7.5 years to return money to its parent.
Where’s the upside?
No one’s claiming this is easy: start-ups fail all the time — but there’s also huge upside in pursuing this avenue:
- Experimenting means you succeed sometimes, and you also learn what doesn’t work so you don’t make the same mistakes again. Everyone says you have to make it ok to fail; start by not calling it ‘failure’.
- Yes, big company culture, bureaucracy, corporate structures and politics can hamper the creation of new ventures; this is no founder’s dream primordial soup. But proactively compensate for it and there are seismic advantages to corporate distribution, strategic access, technical and regulatory expertise, experience, data and at scale customer insight.
- Real financial upside — along with the strategic and competitive advantages of safeguarding your market position and protecting exposure from potentially industry shifting plays. Some companies take a wait and see approach, then spend a billion dollars buying the upstarts that are now eating their lunch — others try not to fall so far behind the curve in the first place (shout outs to Daimler’s Car2Go, LVMH’s Fenty, PingAn’s Good Doctor and Goldman Sachs’ Marcus).
- Everyone knows that talent is critical to success — whether for a new venture or an at-scale company. Building start-ups when you’re a corporate is a great way to attract people — with the additional upside that it gives an opportunity to bring in top talent from outside your industry, who can push forward new thinking and create best-in-class customer experiences alongside internal experts.
It’s not easy (but not doing it might be riskier)
Having a thought-through structure to help you side-step the major hurdles is essential. An ad-hoc, amateurish set-up is not ‘agile’ and will result in failure. But a good structure alone is clearly not enough to succeed. Real customer-centricity, quick decision-making and iteration, validation and the pursuit of solutions that move the needle for buyers are all critical.
Businesses don’t grow and thrive without persistence, devotion and luck. As Machiavelli recognised, luck can be mastered: leveraging a fortuitous situation nevertheless requires skill, intuition and experience in order to maximise the opportunity.
This is why founders’ second and third businesses are invariably more successful than their first: they’ve learned from mistakes, know how they perform in uncharted territory better, what additional skills they need and who to turn to in order to plug those gaps and make things happen.
Accessing that expertise is vital to ensure that a new venture stands the best chance of getting off the ground — the alternative being a well-intentioned but ultimately expensive game of pin-the-tail-on-the-new-business-model.
Choose your internal team and partners well; create the internal structures and environment that it can potentially survive; and accept that some ventures won’t lead where you want them to go, but that the hedge against that isn’t to do nothing at all: the companies that succeed over the long-term are real about milestones, they iterate, and they pursue a portfolio approach.
Founders Intelligence is a team of entrepreneurs and strategy consultants. We help corporates understand how digitally enabled business models are affecting their industries and what to do about it.
Our team has extensive cross-category experience, working with Fannie Mae, Visa Europe, Shell, Unilever, Diageo and numerous other FTSE 100 / Fortune 500 companies.