In today's ever-changing market environment, organisations are becoming increasingly aware of the importance of Corporate Venture Building (CVB) as a way of revving innovation efforts to increase revenue and market capitalisation. CVB allows corporations to convert ideas into successful ventures that have the agility of a startup and the assets of an enterprise.
The ‘traditional’ ways of innovating, like innovation labs, CVC, accelerators, and more, even though popular, still leave a high degree of variation between the desired vs actual results. 74% of European companies believe their business model is at risk, while 61% see room for improvement in their innovation efforts.
So, how can companies bridge this gap and achieve sustainable innovation?
While there's not one right answer to this question, Corporate Venture Building is definitely a strong contender.
When implemented successfully, CVB delivers 3.3 times the return of corporate venture capital (CVC) and up to 2.9 times the return of mergers & acquisitions (M&A).
Venture building is often described as the fastest way to innovate and has become a critical part of companies' strategy to grow and develop. According to INSEAD:
“While classic venture capital has traditionally relied on ‘2 out of 10’ outstanding investments to drive returns for the entire fund, VBs can be perceived as requiring lower risk and lower commitment. One driver for that is the ability and willingness of VBs to pivot and redistribute resources (including teams) between ideas.”
However, despite the increased popularity and acceptance, 66% of the successful new ventures built in the last few years are owned by just 20% of the enterprises (source). So, what are these companies doing differently, and what should you be doing?
After working on more than 200 projects in the last four years, we at MVP Factory have identified our top five relevant factors that can act as catalysts for the success of a venture.
1. Define and make explicit the targets of the venture
A well-set strategy defines clear targets for your venture to set fair expectations and clarify the objective for all stakeholders.
Something you should bear in mind when setting up this process is to not measure the success of the venture in corporate terms - accept a high burn rate during the early stages and neglect profitability to finance sustainable growth.
The targets can range from financial goals like revenue, profitability, valuation and market share to strategic targets like penetrating new market segments or building new product lines. Discuss and enunciate the end goal with all key stakeholders to streamline decisions and facilitate a fail-fast approach.
Most ventures will fail. To be successful, you need to minimise the cost of failure and maximise the portfolio approach. Be consistent with portfolio management and shift resources, if necessary.
2. Corporate Governance acts as a catalyst for fast decision-making and a transparent operational framework.
A sound governance structure allows corporations to manage ventures effectively and minimise uncertainties. It leads to quick and easy decision-making and ensures the highest level of accountability and transparency during the venture process.
Don’t forget to keep the venture separate from the corporate. Managing ventures as independent businesses leads to higher speed, capital efficiency and relentless customer focus.
Some vital steps when building a governance framework are - allocating resources fairly, delegating responsibilities, and setting up effective team communication.
“There may be governance in place for post-incorporation but in the wrong way. KPIs and expected results are often based on classical projects, which results in a strong urge to get profitable fast, and in heavy reporting and stakeholder management work.” - Vice President, Food Tech
At first, this process might seem overcomplicated and overwhelming - which is why we recommend setting up decision gates!
From our experience, we’ve found that there need to be three crucial decision gates in the projects:
- After the Discover and Explore phase,
- After the Prototype and Validate phase,
- After the Build and Launch phase, or a few months after go-live.
3. Empower the teams to collaborate, experiment, and iterate with a systematic venture-building process.
Once you’ve established the strategic framework, KPIs, and goals, it’s time to apply them!
A coherent venture-building approach enables quick identification and evaluation of potential business opportunities and facilitates the speedy development of ventures.
What do you need to set up a systematic procedure? Agile methodologies that cater to teams and the necessary tools to help kick-start new business opportunities. The process should be lean and flexible, allowing the teams to adapt to customer feedback.
The trademark MVP Factory approach lets clients ideate, validate, launch and scale digital ventures at start-up speed. It involves the following steps:
- Understand & Explore
You have a problem? We have the solution.
Once we understand the problem you want to solve or the market you want to capture, we will help you define what impact you hope to achieve. - Design and Validate
The hypotheses emerging from Step 1 will now be validated with the help of a preto-/ or prototyping using extensive research methods. - Scope
In this phase, we formulate the product and evaluate the market scope. We will work on the structure and confirm everything is ready for development. - Build & Launch
Based on the outcome of the scoping phase, we will develop a digital product or functional MVP according to your needs.
4. A strong culture and a “fail fast” mentality are facilitated by clear communication, productive collaboration, and cost efficiency.
This might sound pessimistic but trust us - fostering a “fail fast” and “don’t fall in love with your ideas” psyche helps avoid spending huge budgets on wrong prospects and prevents misguided use of resources.
The journey from a potential business idea to an up-and-running startup is rarely linear, posing difficulties at every step, with complex processes and disruptive circumstances. Did you know that only 80% of startups survived after one year?
To avoid being in that 80% bracket, ensure that the corporate culture facilitates innovation. This entails:
- Candid and consistent communication
- Knowledge sharing
- Encouraging them to fail fast
- Structured feedback
While working with clients, MVPF has always promoted open lines of communication and a powerful mode of collaboration across teams, corporates, ventures, and top and middle-level management.
5. Ensure a venture’s success by providing founders with equity and extending courtesy to the organisation down the line.
You got the strategy right and streamlined all the processes - what do you need now? Talent and expertise.
Entrepreneurial-minded leaders are vital for the success of any venture. By bringing the ownership structure and incentive systems closer to startup practices, corporates can encourage founders and employees to go the extra mile and increase the likelihood of success of the ventures.
“Show me the incentive, I will show you the outcome.” - Charlie Munger, Berkshire Hathaway
Incentives may range from ESOP/VSOP models to cash bonuses or call-put options. Once the founders receive competent incentives and remunerations, they’ll be driven to fasten value creation and increase the growth of the ventures.
An essential learning from our experience building Venture Studio with DB Schenker is the friction between the corporate’s share in ownership vs the founding team’s autonomy.
A study states that founders should keep at least 50% equity in a startup, while investors take between 20-30%. It is also typical for startups to allocate 10-20% of the company’s equity to an ‘employee stock-option pool’.
Now that CVB is entering new spaces and more industries are digitising, product innovation is escalating. Get in touch with our team to discuss how MVP Factory can help you embark into the world of CVB and scale digital products and ventures.
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