5 Decisions Successful Corporate Venture Builders Get Right
Corporate Venture Building is one of the latest popular tools in the toolbox of the corporate innovation community. With more than one in five Fortune500 companies now actively engaged, it seems to be here to stay. It is the culmination of a generation of corporate innovators pondering how to escape the Innovator’s Dilemma. And it follows directions taken from the Ambidextrous Organization and Dual Transformation.
The core idea is that instead of limiting themselves to Open Innovation approaches, such as accelerators or Corporate Venture Capital, corporations can build startups themselves. While the formerly mentioned options are still part of the innovation playbook, actively building new ventures is seen as an addition that is promising where corporate assets can be leveraged. Through their sheer size and resources, companies can bestow an unfair advantage on their ventures, pushing them ahead of potential competition.
There are plenty of examples by now of companies who have seen early successes in Corporate Venture Building. The list is long and includes well-known names, such as ING, Bosch, Lufthansa, Vodafone, Citi, and many more. As the first movers have done much experimentation, many corporations globally are now looking to follow suit.
While every Corporate Venture Builder setup is different, there are some key questions they all need to answer. The configuration of the answers is usually unique to the corporation but needs to be thought through well.
The questions Corporate Venture Builders need to face are mainly around governance. They need to structurally think through the management of the various aspects of the setup and institutionalize them correctly. While venturing is inherently risking and sometimes seems more an art than a science, doing it repeatedly and in a structured way usually yields success. The model most often breaks when a venture succeeds, yet no one has prepared for what exactly that means.
Here are the five most important decisions to get right early on:
#1 Venture Building Strategy
Every startup begins in Exploration mode. That means the team is first in search of a relevant problem. One of the differences between Corporate Venture Building and typical startups is that corporations have an overarching strategy and agenda. Therefore a Venture Building unit should have a clear understanding of what that strategy means for them. They need to be able to break it down into clear choices and constraints, which then cascade down to the venture teams.
At ING in Singapore, for example, the theme of the Venture Lab is trade technology. ING, as a Dutch bank, has a rich history and current client base in financing international trade. Singapore, as one of the biggest shipping hubs globally, harbors many APAC headquarters of global players in the space. Hence there is plenty of fertile ground to find and solve problems within the industry that matter — a great example of cascading down corporate strategy into the Venture Builder.
At another end of the spectrum, Bosch is one of the biggest Automotive suppliers globally. It comes very naturally to them to venture into the mobility space, with startups such as Coop in Germany. They do have a rich understanding of mobility, to begin with, and are already a household name in the B2C space with some of their other business units.
The key is to reflect on the overarching corporate strategy and break down how it can inform Venture Building decisions.
It can be about the problem space, the potential solutions, or also trying something completely different on purpose. Every interpretation of the strategy is acceptable, as long as it is clearly articulated and shared.
#2 Corporate Assets
One of the key drivers behind Corporate Venture Building is the idea of an unfair advantage. The company has a big balance sheet, tangible assets, client relationships, and many more potential benefits. A critical decision is, therefore, which assets the venture builders will be able to access. This will often determine the configuration of their possible solution.
Staying with the example of ING, for example, one of their critical assets to the venture builders is the existing industry contacts. Being able to access senior people in shipping and logistics is essential to find relevant problems. Validating those problems and potential solutions always need real-world feedback. Hence these connections inform both the problem space and the solution space. They help the venture move very fast.
Typical startups would have problems in accessing those people. Trying to identify the right stakeholders can be a long process. Getting on their schedule without a warm introduction can be close to impossible. If the founders are industry insiders, they might have a good network, yet likely still a much smaller one. Therefore it is easy to see that the corporate venture builders have a natural scenario in this setup.
For your efforts, think about which assets your organization has that might be relevant in the context of the strategy. This can be a whole range of potential advantages, including technology, IP, relationships, and more. After deciding on which assets to leverage, it is essential to define how those will be made available. If relationships are crucial, then the existing relationship managers need to be on board. If IP is vital, then R&D has to support it. Ensure that there is buy-in from all relevant parties.
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#3 Relationship To The Existing Organization
As Corporate Venture Building is about creating new startups, these will naturally sit outside of the existing corporation. Yet how close or how distant they are can make a big difference. As discussed above, establishing a link is essential. That is the only way to confer the desired advantage to the startup. Yet being too close can also cause issues, as any veteran venture builder will tell you.
Existing business units who get interested in a project, might end up wanting to take it over. In other cases, the startups might threaten to cannibalize existing businesses and hence pose a threat. Business units losing budgets or headcount might also critically look at the initiatives, as they often have plenty of money and people.
The proximity to the existing organization can, therefore, determine how well venture builders utilize corporate assets, and how independent they can be.
There are trade-offs to be made, and not all organizations will be able to live with the same choices. It does depend on the nature of the business, as well as the culture of the organization, which option will be right for them. Making a choice is vital, however.
#4 Talent Sourcing
Startups are hard. Corporate ventures are no different. Creating something where nothing exists is never easy. And by all experience, it does take a particular type of person to do it. Startup founders often unite seeming paradoxes. They attempt something very risky, yet are excellent risk managers. They have a big vision, yet act very tactical. They operate with decisiveness and certainty, yet can change their opinion quickly if needed.
Building a venture is not for everyone. Hence a key question is where to find the venture builders. There are different opinions on the matter. Yet the fundamental choice is to work with existing teams or outside talent. Both options have distinct upsides and downsides, which need careful weighing.
Allowing existing staff to join the venture team will guarantee familiarity with the organization. They will more easily be able to navigate the politics and leverage existing assets. They are also easier to recruit. It can further be motivating for the organization to see people taking chances. On the other hand, existing teams might not be inherently entrepreneurial — hence their working at a corporate. They might also not have the frugality and ingenuity typically expected of venture builders, as they are used to dealing with plenty of resources and bigger teams and timelines.
Recruiting entrepreneurs from the outside who have previous experience can help avoid the eventual startup mistakes. They will have already cut their teeth and know how to progress. They will most likely be most resilient, pivot more often and faster, and hence are more likely to find success, given the right support. On the other hand, they are unfamiliar with the organization and do usually not want to work for a corporation. Hence cultural conflicts can ensure easily and need to be managed.
#5 Planning For Success
After we have the strategy in place, access to assets setup, the relationship to the organization clarified, and venture builders in the picture, we are good to go, right? Yes, but we still have one more decision to make. What happens in the case of success?
If we build a winning venture that solves a relevant problem and acquires paying customers, what happens with that venture?
In the life of a typical startup, successful founders go on to raise multiple rounds of funding, scale the company and eventually exit. The exit usually comes in the form of an acquisition of an IPO. It is a long, rocky road, yet it is relatively clear what success means.
A corporate venture has more potential success scenarios, and it needs to be clear from the start of what is desired. Will the corporation retain all of the equity? Will the venture builders receive equity incentives? Should the startup raise outside funding? Should it run standalone, or become a business unit? Or will a successful venture be absorbed by a legacy business unit, which needs renewal? These are all potential options, yet very distinct in the trajectory of how they can play out.
The critical decision is not only about the trajectory of the venture, but especially also the incentive mechanisms to founders and management. Further, the aspect of outside validation, e.g., in the form of funding, is a fundamental question. Every road taken comes with distinct challenges and requirements, which need to be thought through and planned.
Venturing To Success
Corporate Venture Building is a hot new topic. More and more corporations are setting up venture builders, as an answer to the Innovator’s Dilemma.
There is a clear impetus to act, as disruption seems to loom around every corner. The most promising future appears to lie in leveraging today’s assets to create a new tomorrow.
There are many good examples of companies that have been successful with that model.
Yet to be successful, corporations have some critical decisions to make upfront. They need to decide how the current corporate strategy will influence the venture building strategy. They need to determine which assets the venture builders can leverage and how. They need to structure the relationship of the ventures with the existing organization. Another critical decision is where to source talent. And finally — what happens in the case of success? Which scenario do we want to play out?
Successful venture labs, like those of ING, Bosch, or Lufthansa, all have excellent and unique answers to these questions. There is not one standard success formula. The answers can be very different. Yet all organizations have grappled with the key issues and resolved them in their unique way. That is what made them successful. Any company looking to set up a Corporate Venture Builder will need to find their answers, and implement them well, to venture to success.
MING Labs is a leading digital business builder located in Berlin, Munich, New York City, Shanghai, Suzhou, and Singapore. We guide clients in designing their businesses for the future, ensuring they are leaders in the field of innovation.
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