Why Corporate Venture Building is the New Gold Standard for Innovation Success
If you want to win at corporate innovation, build a venture, not a product.
Over the past ten years, I’ve been working with corporate firms big and small, in-house and as an innovation consultant, to help them succeed with their innovation goals. Even during this period, I’ve seen a defined decline in the average lifespan of corporations and multiple shifts in what’s considered best practice in innovation.
Today, even as competition from startups balloons and disruption reigns supreme, many corporate organizations are still using yesterday’s innovation playbook. As a result, the internet is littered with examples of organizations that failed to innovate and went bust, were acquired, or simply faded away. To beat the odds and win at corporate innovation in this new environment, firms need to go beyond mergers and acquisitions (M&A), research and development (R&D), and corporate incubators and build corporate ventures instead.
At Amsterdam-based corporate venture building studio Aimforthemoon, we’ve helped build multiple ventures for companies including eBay, Miele, Booking.com, Wolters Kluwer, Pon, Baas, Renwei and Klasmann-Deilmann and launched future-fit ventures like EV charging solution Revolt.
As a result of this experience, I have become a strong proponent of corporate venture building and in this post, I will introduce the conditions which gave rise to the approach as the new gold standard for corporate innovation success.
Crises expose cracks in logic and shifts in society
After the 2008 crisis, the inefficiencies of the “standard innovation process” were laid bare. In the years after, concepts like the lean startup approach, zero to one, and design thinking began to gain prominence — changing how corporations innovated for the better and laying the foundations for corporate venture building.
Too often, it used to go like this: Create or buy something amazing, spend thousands bringing it to market, only to realize that no one wanted it. This led to the common boardroom mantra; the vast majority of new products introduced to the market every year fail. These failures have undoubtedly had an effect on many large organizations’ abilities to stay relevant as the market changes.
As a result, the lifespan of a corporation has declined more than threefold over the past century. Today, the average corporate lifespan sits well under 20 years; meaning that it’s not only more than likely that you and I will outlive the average company, but that our grandkids probably will too.
Fast forward 12 years and the corona crisis has only accelerated this reality: Corporate lifespans continue to decline, innovation plays an increasingly important key role in companies’ economic performance, and M&A, R&D, and corporate incubators may no longer be the best ways to innovate.
Why mergers and acquisitions aren’t the solutions you’re after
I don’t know whether this will come to you as a shock, but buying seriously expensive companies may not always be the best idea.
This rings especially true when considering that the vast majority of mergers and acquisitions struggle to integrate into the larger company. In fact, the amount of M&As that fail could be nearly as high as failed innovation projects, sitting somewhere between 70% and 90% according to this Harvard Business Review article.
When you invest in a promising product to diversify your portfolio, you’re actually investing in people. Forced to deal with added bureaucracy, culture shock, and system changes, the acquirees’ employees can begin to find themself in a foreign environment. On top of people challenges, integrations can fail due to a host of many other challenges — from inaccurate information to a leadership vacuum.
While the expenses of these failed integrations are far too often dismissed by executives who want to take shortcuts to new products, people and business models, some are beginning to discuss the negative effects of M&As on corporate innovation performance. As a result, M&As may not be the silver bullet they were once seen to be when considering growth through innovation.
Innovation goes beyond research and development
R&D is only a fraction of the innovation process, yet far too many business leaders confuse the two. R&D is a process intended to create new or improved technology that can provide a competitive advantage. To iterate and improve. While that sounds similar to innovation — an idea that has been transformed into practical reality for the market — actually, it’s only a small part of it.
Innovation goes beyond R&D as it takes into account not only the discovery of new products but other factors including how to incubate them and take them to market. However, for many corporate leaders, when R&D hands the “innovation” over to a product team, that’s where the process stops. At this point, product teams can struggle to take ownership of the new product and leaders start questioning their investment.
This emphasis on the creation of the product itself and then taking it to market rather than developing models or market strategies outlines an even bigger challenge with R&D: when it doesn’t work, leaders begin to rethink innovation and cut their budget. As a result, R&D is no longer seen as an innovation playbook.
Corporate incubators, accelerators, and innovation labs are just the first step
Corporate incubators or accelerators are, in comparison to other innovation processes, relatively new kids on the block. Corporate incubators usually help innovation teams validate new ideas or foster promising startups in their early stages by giving them access to the necessary resources to scale. At the same time, they’re effective for cultivating the type of conditions which underpin successful innovation projects and as a result, they became the go-to strategy for many corporate firms for new business creation.
However, the growth of in-house incubators or accelerator programs has been relatively short-lived. While incubators do often validate new ideas, often these ideas don’t have the momentum to scale. Whether it’s due to a lack of resources, hierarchy, or no systematic scaling approach, these failures then amount to a serious dent in the innovation budget. As a result, many corporate incubators and accelerators have shut down or been outsourced prematurely — often before the product reaches maturity. This short-sighted approach fails to take into account one crucial fact: rather than seeing them as a stand-alone concept, it’s better to consider accelerators as a tool in the corporate venture building shed.
Whilst accelerators, incubators, and innovation labs do play an integral role in the corporate venture building process, they are not interchangeable. Successful corporate innovation can not go without a place where new ideas are born, cultivated, and selected to be taken into a corporate venture building program. Accelerators are crucial to this early stage of innovation. They motivate teams, engage stakeholders, and help to determine whether an innovation direction is feasible. But that’s by no means the end of the process.
Corporate venture building brings sustainability, longevity, and viability
If you’re working at a large corporate or a multinational organization, innovation is essential to bring sustainability, longevity and viability to your business. Each of the strategies mentioned can contribute to innovation success. You may be doing one, or even a combination of all three. However in today’s economy — where corporate firms’ lifespans are dwindling and change is the only stable factor — none are foolproof strategies.
By building a standalone venture outside of the organization, we’ve found that corporate venture building increases the chances of innovation success and mitigates the force of disruption. Whether they end up as a spin-off business or are integrated back into the organization, this freedom gives the venture the opportunity to break away from many of the factors which contribute to unsuccessful innovations.
One crucial factor is that while the venture is owned by the parent company but it is independent in its ability to organize and operate, as long as the venture has strategic-fit with the parent organization’s goals, the venture can be fundamentally different — in terms of values, business models, and/or capabilities — from their parent. This allows the venture to bypass key challenges in innovation — bureaucracy, organizational structure, lack of employee buy-in — and tap into new markets with the resources of a corporate and the entrepreneurial drive of a startup.
OK, but how is Corporate Venture Building fundamentally different?
By operating more like the startup that’s aligned with the organization’s long-term strategic goals, the venture has more freedom to create innovation that may eventually unseat the parent from their market position. With many projects, this kind of disruptive innovation is often considered internal cannibalism and is usually killed far before it has an opportunity to become a disrupting force within the organization.
At the same time, startups are rapidly bringing disruptive innovations to the market and market leaders are finding it increasingly hard to counter these innovations. Starting a business is easier than it’s ever been and access to capital is at an all-time high, these disruptive innovations are eventually going to be brought to market and challenge every product or business model. The fact is that startups and competitors alike are looking to disrupt market leaders in almost every way; whether it’s by harnessing new technology, sustainability, or any number of the emerging social trends, you can almost guarantee that a startup’s tapping into it. The only question is whether it’s built and brought to market by you or a competitor.
Corporates need to develop a capability to launch market-disrupting innovations as fast, and if not faster, than startups do to stay competitive. To win, firms not only need to create new products and bring them to market, but to create a system that builds market-tested, future-proof business models, consistently, quickly, and economically from within the organization’s sphere of influence. Corporate venture building does just this by lowering the risk of the organization’s investment and increasing the sustainability, viability, and longevity of the innovation. As a result, corporate venture building is quickly becoming the new gold standard of innovation.
Want to learn more about how to build a corporate venture? Our CVB assessment might be the perfect first step to provide insights on what you need to build a successful corporate venture. Feel free to get in contact with me via firstname.lastname@example.org and I’ll share it with you directly.