The “Real Reason” Why So Many Corporate Venturing Initiatives Fail To Produce Tangible Results
Introduction
Corporate venturing initiatives have gained increasing popularity over recent years. Popular examples are company-initiated -accelerators, -incubators, -VC arms and (one of the newest trends) venture studios. While there is a huge hype around these initiatives and companies are eager to jump on the bandwagon by establishing their own version of these initiatives, there is hardly any evidence for their success. So in this short article, I try to reflect on the possible reasons why these initiatives often do not produce the results they are aiming for. While companies often blame startups for their initiative not turning out as they envisioned, in this article, I will take on a counter position thereby arguing why it may not be the startup's fault after all.
The Types of Corporate Venturing Projects
In recent years a variety of programs were established with the main aim to connect startups and the corporate world. The most well-known include accelerators, incubators, and corporate venture arms.
Incubators denote places that provide different services to startups, mostly infrastructural services such as space (offices, laboratories, and production facilities) as well as accompanying services such as coaching and networking events. Another characteristic of incubators is that they are general in purpose (meaning that any startup can apply, irrespective of the industry the start-up is in and the technology it employs) and that they offer their services for an indefinite amount of time.
In contrast, accelerators are more focused programs. This means they are specifically tailored to a certain industry or technology (e. g., IoT, insurance, blockchain, AI, etc.). Also, these programs are more short-lived (usually they last 2–4 months) with the aim to get startups to speed and develop them quickly. To do so, accelerators employ predetermined milestones that have to be reached by startups attending these programs. Possible milestones include creating a prototype, a POC (i. e., a Proof of Concept), land a customer project or obtain funding.
Venturing- or VC -arms take this concept a little further. While they incorporate elements of the two previous mentioned initiatives they additionally employ a more strategic approach that aims at managing portfolios of new ventures.
The newest trend is venturing studios. Venturing studios are an attempt to not only jumpstart new ventures but to build better ventures. To do so, venture studios employ venture builders i. e., experienced entrepreneurs, innovators, and investors who work alongside founders and who use this expertise to help founders build successful companies.
In recent years a lot of companies decided to incorporate these concepts into their corporate strategies. Hence, the number of corporate incubators, accelerators, VC arms and venture studios is steadily increasing. Despite the popularity of these initiatives, there is still relatively little data that hints to the success of these initiatives. To better understand why this is the case we will closely examine the roles that startups and corporates take in these collaborations and try to identify possible causes that prevent these initiatives to turn out the way envisioned.
The Role of Startups in Corporate Venturing Initiatives
For corporate clients who take innovation seriously, (i. e., companies that do not see innovation as a sole marketing effort) startups are often seen as the source of new innovative solutions that has the potential to extend the corporate clients existing service offer or help to disrupt corporate clients internal processes or business model. One goal that these companies thereby try to achieve is to assimilate a startups solution either by partnering with the startup (i. e., a loose integration) or through buying the startup.
The value that startups can provide to corporate clients is mostly the following:
- Technological Expertise
- New Ideas and Business Models
- Proofs-of-Concept (POC)
In addition to what startups can provide to corporate clients, they also have certain needs. Thus, since time and resources are scarce in startups they participate in the above-mentioned initiatives not only because of goodwill but because they expect to get something out of these initiatives.
What startups expect in return:
- Network
- Partnerships & Projects (e. g., Clients)
- Funding
The Role of Corporates in Corporate Venturing Initiatives
Corporate clients can be seen as buyers of innovative solutions. Their main aim is to stay competitive. To do so, they need to infuse some innovation into their existing organization. Recently, a lot of corporates try to achieve this by partnering with startups. To make a partnership attractive they offer a variety of services.
What most corporate clients bring to the table:
- Infrastructure
- Resources (e. g. software licenses)
- Network
As already mentioned earlier corporate clients engage with startups because they face certain market pressures. This forces them to reinvent themselves. Hence, corporate clients are looking for promising technologies, novel business models or process innovations that allow them to stay competitive.
What corporates clients need:
- New Ideas/ Business Models
- New Use Cases & Proof of Concepts
The Divide Between Startups and Corporates
While a lot of the companies taking a corporate role complain about startups not being able to deliver on what was agreed upon or what is expected of them, hardly any company questions its own approach to corporate innovation. Even more, hardly any company seems to take responsibility for the outcomes of their corporate innovation partnerships with startups. What corporate clients thereby often seem to oversee is the fact that their venturing projects with startups fail due to their own shortcomings. This can have a variety of reasons:
#1 They do not know how to identify suitable start-ups
One of the biggest shortcomings of corporate clients is that they lack a systematic process to identify suitable startups. Thus, hardly any corporate client does a systematic validation of the team, the business model or the problems that startups are trying to solve. This is peculiar since it is of crucial importance to assess these factors beforehand in order to determine if the startup is a suitable venturing partner for any given company. This has some far-reaching implications for corporate clients since they often pick the wrong startup, to begin with, i. e., startups that usually do not fit their innovation strategy.
#2 They do not know how to efficiently work with startups
Furthermore, most corporate clients simply have not set-up adequate processes to work with startups. In fact, most of them think it is enough to provide space and enroll them into standardized collaboration formats. In some cases, these programs are so fully packed with meetings, workshops and pitches that it prevents startups to focus on the most important task i. e., building a business. In order to successfully work with startups, corporate clients need to come up with adequate processes that allow them to provide startups with the right services at the right time. Doing so requires them to systematically assess the needs of startups (e. g., do they need a network, customers or funding) and to devise suitable collaboration formats accordingly. Unfortunately, most corporate venturing initiatives — if they follow a systematic approach at all — simply employ a one-fits-all strategy that is not suited to cater to the individual needs of startups.
#3 They do not know how to efficiently monitor and track the progress of their initiatives
Another shortcoming of corporate venturing initiatives is that they do not track their actions systematically. This means that they have not defined any KPI’s, nor have they established any accounting practices in order to capture and measure the impact of their initiatives on startups. This has far-reaching implications for the management of these initiatives. Thus, without these measures, one cannot determine the effects of these initiatives. Another important reason why corporates should track their initiatives (or make them quantifiable) is for reasons of legitimacy. Thus, without tracking progress a corporate VC arm won't be able to communicate to its stakeholders that it provides value. In fact, without such a system anybody (usually start-ups participate in more than just one program or initiative) could claim responsibility for the startup’s success. Hence, employing such measures does not only put you in the position to evaluate your initiatives but provides you with an important tool to convince key decision-makers to support your program.
#4 They lack an overview of their internal organization and processes
Another factor that prevents corporate clients to fully utilize the potential of their initiatives is that they often are not knowledgeable of their own company and its boundaries. At the heart of this problem is often a lack of understanding of processes, legal roadblocks, and how to integrate key decision holders, etc. This often leads to promises corporate clients cannot hold and to delayed projects. Hence, in order to successfully cooperate with startups, the owner of the initiative must get acquainted with the companies internal organization and processes. Doing so requires to clear questions such as which infrastructure is the company using, what are legal roadblocks, who are the key decision-makers that need to be convinced to realize a project. These are all factors that must be considered and cleared beforehand when working with startups. Because if they are not, decisions could take a lot of time and by the time a decision is reached the startup is already dead.
How to Make Your Corporate Venturing Initiative Work?
Since corporate clients often have a tendency to blame startups for the failure of corporate venturing initiatives, they tend to forget that they are just as responsible for the outcome of their initiatives as the respective startups. Hence, my advice to corporate clients who want to get more out of their corporate venturing initiatives is to take on a different mindset, one where they feel responsible for the outcome of the initiative themselves instead of trying to cover their own inadequacies by blaming startups. To do so, companies need to take ownership of their entire corporate venturing process. This means they need to come up with procedures and processes for the selection of adequate startups, the identification of startups' needs and for the removal of corporate roadblocks in order to help start-ups integrate their solution into the companies ecosystem.
To help corporates with this endeavor we at Vencortex have developed a blueprint for such a process. So if you are serious about innovation and if you are interested to turn your corporate venturing activities into a quantifiable success visit us at https://www.vencortex.com .
