4 pitfalls of corporate venturing and what we, at The Delta, do to mitigate them

As the CEO of a global venture builder, I have seen my fair share of successes, and losses, when it comes to corporate-venturing projects. But during my years spent working closely with corporates, I have witnessed problems arise that stand in the way of new ventures gaining traction or maintaining momentum and I like to think that we have learnt from them. Here are a few of the key reasons I’ve identified as to why corporates sometimes don’t succeed in starting new ventures and what we, at The Delta, do to mitigate them.

1. Not thinking at least one funding step ahead
Something I have seen on a number of occasions is that corporates are more focussed on the initial goal rather than planning the next steps or phases in advance. By the time you deliver or launch your MVP and you get to find out whether it works, or doesn’t, you need to be prepared for the best-case scenario so that you guarantee continuity. It’s also important to have a budgetary conversation to figure out how to fund the next step. When you lose all the momentum, the likelihood that the project gets revived is very low, so don’t limit your thinking to just meeting phase-one requirements.

The way we mitigate this in a few ways, one of these is by using a ‘70% rule’: To make sure that a project has continuity, you always need to have the following in place:

1. You need to have a clear idea of what success looks like for the venture at that stage.
2. You should have an agreement with the budget holder of what it means when that is achieved and what funding is needed or gets unlocked and, once again, a clear definition of what the goals of that funding round will be measured on.
3. Lastly, and most importantly, you need to have the runway to properly achieve (or not achieve) those goals in the current phase. If you don’t, it’s like building a plane to see if it will fly and leaving no budget for fuel.

The ‘70% refers to the latest into a project phase that we will go before having all three of the above to be clear and agreed upon. The last 30% is dedicated to proving the traction, while some focus shifts to making sure that the venture is covered for the next phase.

2. Putting the company above the customer
Something that happens a lot when it comes to corporate projects is that we’ll be presented with a problem that they are experiencing, such as needing to improve sales or distribution to get products or services to customers more efficiently to reach their annual targets. If you read carefully, that’s the corporate’s problem and not the customer’s problem. It’s okay if you want to solve a problem like that. I mean, all corporates have the problem of wanting to make more money — that’s business, right? But this line of thinking does not put consumers and their wants and needs first and can lead to some really tricky projects that struggle to gain traction.

What we do at The Delta to avoid this is to be incredibly robust and deliberate and make sure that we’re building the right product for the customer. It can be any customer, any problem, but the key is being deliberate and keeping yourself honest. This can be done by getting very academic about the term ‘product-market fit’, which gets thrown around a lot. The TL;DR version: You need to really check each stage of the following:

1. Customer: Do we know who we are solving for?
2. Problem: Does this customer have this problem?
3. Solution: Can this problem be solved?
4. Product: Can the solution be effectively embodied in some product which can be distributed effectively to the customer.

This doesn’t mean that the outcome of these four steps can not solve the corporate’s problem. On the contrary, that’s where the magic of corporate venturing lies. Keeping yourself honest about those steps will likely result in avoiding this pitfall.

3. Unacceptable admin VS learning ratios
Sometimes we come across structures that make it very difficult to test things. This can be for many reasons, but one of the most destructive is when the administration process around doing a small test or exploration reaches dangerously close to the amount of effort and cost it will take to do the actual test or MVP. The negative effect of the overhead may seem obvious, but the real killer actually comes in the way these pressures can warp the way people see ideas. Here are two examples:

1. To get something over the line and push through the barriers to get the go-ahead, people need to ‘believe’ in the idea enough. This is pretty much exactly the opposite of what should be done.
2. Once a venture or project is underway, it’s easier to keep the train going than to admit that all the things you had to say to get the project approved may not have been the case. What’s more, is you’ll likely have contracts to execute that work with external parties who also usually have no incentive to rock that boat.

In some cases, you can understand why things need to be controlled tightly in corporates. If you didn’t have some structure for managing these things it would truly get out of hand. But the balance needs to be found to get the results.

A lot of what we do at The Delta is designed to help our partners avoid these pitfalls. These are different based on the situation at hand, but a few examples are:

1. We are always willing to test something quickly at our own cost and share those learnings. Our passion is starting new ventures, and we are always working on becoming better at this. This helps the corporate partner aim their efforts in more useful directions, and makes the overhead more likely to be worth it.
2. We are very upfront when we think a project needs to pivot or has reached the end of the road. Even if we are a third of the way into the budget. We are here to build ventures that work, not execute contracts for cash. Period. In line with this, when a corporate partner is willing, we are always keen to get skin in the game. This is our seal of quality, that we would invest in something we recommend others do.

4. No funding plan in the event of a successful outcome
Corporates are big and, as such, their budgets are understandably rigid. In a smaller company, it’s much easier for you to be agile and take risks but, in a corporate economy, you have a lot of people fighting over and pulling from the same budget. When budgets run out, especially before the annual one becomes available again, projects can come to a standstill even if they had been showing signs of promising growth.

What The Delta does to mitigate this situation is to be happy to carry two or three months of the venture cash flow to give the startup the traction and continuity it needs and provides corporates with a buffer until they have been able to secure more capital to fund it at the desired scale. Having honest discussions around financing projects is important as it helps you to navigate the often-frustrating corporate structures effectively.

In my experience, the longer you work with corporates, the better you both come to understand your respective processes. This builds trust and eventually an effective new venture channel over time. This insight, along with flexibility and plenty of patience and perseverance, can lead to strong, long-lasting business relationships and ventures that disrupt the market and go the distance.

Want to know how you can prepare your business for the future? Reach out to me at louis@thedelta.io to kick-start your next corporate venture.