Circular Corporate Innovation Strategy: Why Corporates Need to Eat Their Own Dog Food
When I built my first startup, I didn’t use the first two product versions even once for myself — not even once! how would a product succeed if the founders don’t use it? After more design work and pivoting, I started using the third version and others did too — that was a big lesson for me. If you don’t use your own product why would other customers use it or even pay for it. This is the biggest learning I had from that first entrepreneurial journey — startups need to eat their own dog food — and corporates should do too.
‘Nobody really knows how to do corporate innovation well.’ I have been doing venture building and corporate innovation throughout my career and this is what I constantly hear from corporate innovation programs and venture firms. There are many programs and operating models out there that innovate in the venture building space. Some programs work in time constraint cohorts, others collaborate with accelerators like Techstars and Startupbootcamp, to engage with either external startups or with an internal team that will spin-out to an independent business.
After working and building ventures and working with startups in companies like Roche, Amazon and BP, I started building an open source list of venture builders and corporate ventures. This work led me to build relationships with people from different corporate companies and hear their stories and their pain points. I have talked with corporate innovation leaders from large software companies, big mobility providers and manufacturing businesses. They all understand they have to do something different in order for them to stay relevant 10–20 years from now. They all believe they have built a new and disruptive model, they all have conviction that they will change their organizations for the long run — and I hope they all will because this is essential for our society and economy.
The main thing that comes up from talking with corporate innovation leaders is the issue of their advantage — their ‘unique advantage’ over other offers. Every corporate innovation and venturing program believes that the connection and partnership with the mothership, their capital, and the program they have built with support of HR, technology and business development is their advantage. In reality, this is exactly the support any startup founder will get from a VC. Today almost all VCs give support in hiring, technology and leadership coaching. In fact, they also have one big advantage which is their ecosystem and network of their portfolio companies’ founders that can connect and help each other.
Most corporate venturing leaders think only about their advantage over other organizations, but not about the disadvantages they have. I urge corporate venturing leaders to ask two main questions. The first is ‘what are my main disadvantages comparing to other offers for startups?’ they might be too slow, not agile, have heavy policies and they are led by politics which is unhealthy for increasing their pace of innovation and the pace of their venture growth. The second question corporate venturing leaders need to ask themselves is ‘if I were a startup founder why would I go to work with a corporate venturing unit/program and not with a regular VC or an accelerator like Y Combinator). Asking those two questions allows to identify gaps and needs that might help you find your secret sauce in building your next venturing arm. Without addressing those you’re just likely to ignore your ability to find that ‘unique advantage’ you’re talking about so much.
There is one big advantage to all corporate companies that other VCs don’t have and they often miss — their internal customer base. The most important thing to drive the pace of innovation in any business or product development is customers. It could be in the incubation phase where you need customer feedback, but also in the selling point where you need your first paying customer. The most difficult work startup founders have is to get their first customers to use their product and even harder is to get their first paying customers. This is where corporate magic could happen but only if they fully commit to it!
If you build a new product or business as a corporate and the entire or even 70% of the business uses that product that’s a big success. If they pay for that product, this is money that goes and feeding your new venture and creating value for your corporate businesses. Amazon Web Services is a new venture that Amazon, an online retail store, created. Many of us don’t think of AWS as a corporate innovation or venturing business because it’s already too big — but it is. Amazon uses AWS for its own web services just like any other company, and circulate revenue and users back to the corporate creating the circular corporate innovation effect — that’s a big business in itself. A similar story is how Gmail was built and serves the entire Google workforce as the main enterprise email service and of course the Google Drive product.
Another great example is Slack which was recently acquired by Salesforce for 27.7 billion dollars. Slack was built as an internal communication tool for the team that was developing software games. The team used it and loved it.
Amazon, Google, Slack built something they could be their own customer and they ate their own dog food.
Circular Corporate Innovation serves a very specific strategy. There are other strategies of building moonshots which holds high risk venturing. But this strategy goes back to the most important thing in building new product which is your customers. It’s about choosing the right ventures and design them to fit to the internal user base with the ability to scale it to other companies. In the end, you want your own spitouts or startups to say ‘if 30,000 people use this product at company X, there’s no questions it will be valuable for us as well’.
The model starts with the ability to test it internally, then gain internal traction after you find your internal product market fit and then scale it in the company and beyond as shown in the below chart. It’s a way to scale customer trust using your great advantage.
Of course, that if you are building a moonshot like some of the things that The Team at X is trying to build it’s not always possible to design things for your internal customer base. But even with Waymo, the autonomous cars spin-out by X , you can design it for Google employees to be the early adopters and to act as first customers. The pace of learning and iteration is much higher than if a company needs to start from scratch. Instead of dealing with customer acquisition, you are dealing with customer retention which is a much better indicator for the ability to build a product people need and love.
So why corporate venturing initiatives miss that obvious advantage which is in their hands? it’s has a lot of parameters but the main reason in my view is lack of commitment. Most corporate companies see innovation and venturing as that cool startup kids on the block. They are the young geeks that build cool software but it’s not the real business — in the end the real stuff is the core business. Companies that want to do it well have to commit and believe that the new businesses and leaders are the real deal — they are truly the future of the company. Companies let them play with new ideas but they don’t want to commit until they see it’s a profitable business just like the core business or that it complies with the corporate objectives. Corporate companies need to commit to be the first customer — and not just a customer without any risk — first paying customers. They need to eat their own dog food and usually dog food is not so tasty at first but is nurturing and it becomes a delicious meal with time.