New growth calls for new governance: the rise of entrepreneurial growth boards
What stops corporate ventures or digital units from reaching their potential? Could digital growth boards offer a structured solution to nurturing digital teams?
We consistently reinforce how bringing outside-in expertise (e.g. through collaborating with entrepreneurs) is essential to established corporations. Every company worried about the role innovation plays in securing their future does it, has tried it or at least has plans to do it soon. We covered this strongly in Fightback.
To innovate like startups, companies must behave like them.
However hard the challenge of innovating like startups is, the smartest companies are proof that it’s doable (in Fightback the book we showcase many, including Chinese insurance company Ping An). And they’re doing it by shifting from efficiency-focused operating models to more entrepreneurial ones so new ideas can flourish within rigid organisational structures.
They’re installing Entrepreneurial Operating Models
In this scenario, while researching FightBack, author Felix Staeritz discovered that at the heart of innovative corporations sit well-organized groups, who make decisions to fast-track the future, behaving differently from classical boards of directors. These so-called growth boards act as vital links between the core and digital sides of their businesses.
The Entrepreneurial Growth Board (EGB)
Improving corporate governance keeps CEOs awake at night. The EGB is the sprinkle of lavender on the pillow — boosting innovation governance to achieve startup speed.
To innovate with startup speed, corporates need to make quick, clear decisions about the projects presented to them, in a system. — Eric Ries (Author of Lean Startup and The Startup Way)
The EGB is considered an innovation steering committee. It’s strategically positioned, and set up, to make fast and impactful decisions; meeting regularly to review, discuss, and ultimately fund or kill new growth initiatives. In the Entrepreneurial Operating Model, it governs how and when the Fast-track the Future unit can leverage the assets of the core organization and it has the authority to take crucial buy/build/partner decisions that may well determine the pace and direction of innovation.
The impact of growth boards has been proven widely. Jud Linville, CEO of Citi Global Cards, says:
“Installing growth boards led to a dramatic change in how we resource and support growth at Citi Cards. It ensured we could move fast on big opportunities, forced us to kill startups when needed, and helped us think like startup investors, searching for imperfect signals and good-enough answers rather than demanding unknowable forecasts from our teams.”
So what principles make a digital growth board work efficiently? Based on best practices among leading companies we have established seven best practices.
1. The right people at the table
The makeup of the board will dictate what it can achieve and how fast, covering corporate governance and embodying the principles of consistency, responsibility, accountability, and transparency. Considering that substantial exploratory funds will be allocated to the digital unit, it is essential that there is full transparency on how exactly the funds are spent, with the concomitant financial disclosures.
In many companies, a core part of a corporate transformation is venture building. And, for venturing to work it is essential to have external innovation/venture experts on the board. Along with internal digital innovation representatives. By focusing on teams and problems instead of solutions, growth boards can discover growth instead of just planning it.
2. Integrating external, entrepreneurial expertise
A digital growth board will need to leverage domain expertise (digital venture building) along with the perspective of independent stakeholder for a top-down look at the business and potential opportunities. At least one tech entrepreneur should advise on the best approaches for fast execution and scaling of new ideas. Tech entrepreneurs who have successfully scaled to exit are in a unique position to advise on what will work and when a project should be killed.
3. Aligning incentives (and vision)
There is no room for politics. Thus, expectations need to be defined from the start.
What is the goal of a new business? Should it explore new markets? Is it to counteract digital disruption? Will the digital vehicle eventually cannibalise the core business if it scales? Will it exist as a standalone entity or return to the core in time. And how should the team be incentivised over the short and long-term?
Rewards need to be defined differently than in the core business, where timeframes are shorter-term. How should external experts be rewarded? Perhaps it is a case of combining growth targets with valuation goals. Just like a startup looking for funding, a digital venture can be valued independently, and this can be used to reward the team.
4. Mix & match of innovation tools
There is a wide variety of options for a company seeking to find disruptive growth in a new market. We point to two things: Platforms and digital ventures. The first as a way to add exponential value to customers, while orchestrating relationships for multi-sided value. Recent studies estimate that digital platform business models could mediate 30% of global economic activity in the next five or 10 years ($60 trillion in annual revenue). Digital ventures are proven catalysts of growth. For these, corporations need to master the Buy-Build-Partner circle.
5. Agility (preferably stage-gated)
Fundamentally a growth board should seek to respond to market changes at speed. Legacy processes are bypassed and agile methods utilised. Thus, growth boards are a lightweight practice for scaling the engagement with the lean governance necessary to allow broader agile efforts to thrive — while systematically managing uncertainty and risk.
A structured system for selection, experimentation, funding and termination of new growth businesses minimises the risk. Both from the offset and as time goes on. Rigorous validation phases or stage gates avoid the ‘zombie project’ effect that is so often seen in large companies; innovation projects that sounded exciting and were given generous development budgets, but were never adequately validated. Egos keep these projects going. A key attribute of the entrepreneurial mindset is an instinct for when to pull the trigger on a venture that’s never going to make it. Calculated ruthlessness!
6. Clear, KPI-based decision framework
The growth board should own a specific problem (or problem area) and understand how it aligns with top-level business objectives. For example, exploring opportunities in the “buy online, pick up in-store” space as part of increasing sales by $30M for the fiscal year. Performance indicators are crucial to the stop-go methodology. If a digital venture is falling behind on KPIs, with no justification; it will quickly be removed from the portfolio. Entrepreneurs are don’t like wasting time or money given that both will dictate the success or failure of a given digital venture.
7. Up to date funding models
Like our bodies need a circulatory system, new businesses need a funding one. Without a working heart, corporate ventures don’t get enough blood to function (at least in the discovery/validation phase). The problem with traditional funding models is that they don’t suit startups. And, similarly, they don’t suit the corporations trying to innovate like them. We can learn a lot from the portfolio approach taken by venture capitalists.
The growth board has the mindset of a VC, as it installs and governs the right capital-investment model to meet the needs of different initiatives. This investor mindset looks at initiatives not as standalone investments, but as part of a balanced portfolio to secure the future of the company. Growth boards can apply learnings from each new venture, which can be integrated into the core business.
FoundersLane works with large corporations to design and execute new digital business models like platforms and ventures. The digital growth board is a cornerstone for linking the core business with the innovation wing and acts as a catalyst for the rapid launch and scaling of disruptive businesses.
Read more in Fightback
