Business innovation today goes beyond simply generating new value. In a competitive world and a dizzying revolution due to the ravages of the Covid-19 pandemic, companies need to act immediately to not only not lose market share but to grow it. This demands investments for doing something more than reacting to today's changing trends: it must be proactively applied and used to defend the company against disruptive threats. So, a good option is to invest in a new company.
There are several avenues for corporate innovation today, but not all of them are effective. In recent years, several innovation labs have emerged where there is an extensive collaboration between intrapreneurs who, based on their own experiences, generate ideas and concepts in different industries. However, these ideas do not always become a reality as most of them are focused on improving what already exists in the market and usually do not seek the path of creativity. Therefore, they do not generate clear strategies for corporate innovation initiatives that can be translated into long-term results.
Another maneuver that several corporations do is to invest venture capital in acquiring start-ups that could open the way to new markets or technologies. The problem with this is that requiring a strong risk investment can generate a clash of cultures between the entrepreneurial company and the corporate. This situation integrates problems that often are not easy to solve, especially due to the merged employees’ resistance and that the company's management may think in a disruptive way that collides with the corporate's approach. The result may be that the entrepreneur and his team "jump ship" and miss out on the benefit of the corporate experience and its contacts, structures, knowledge, and several variables that could help consolidate their innovations and lose the possibility of a solid position.
Now the question would be: how to develop business innovation with a new venture?
One of the first things a corporation should keep in mind when intending to create a new venture is to determine the amount of minimum investment required to the type of industry, the scope of business, and the level of technification that will be required.
Considering an initial contribution of 10 percent of the estimated budget may be a reasonable amount, but always bear in mind that if you enter a technology-intensive sector, you may need to increase the estimated amounts, stagger investment costs, and not have several experiments going on at the same time, as there will always be financial risks and unexpected challenges to deal with. In addition to estimating investment amounts, the business strategy must be defined in advance.
Corporations with experience in an entrepreneurial culture and all that it implies, are the most suitable and successful in the creation of new companies, as they are willing to move based on "trial and error" where you try fast to fail fast, as each failure is a lesson to be learned to achieve real progress.
Building a business therefore requires a CEO capable of maintaining a high level of motivation so that all the variables involved (including areas of opportunity, the possibility of failure, and leveraging existing channels to market) are properly aligned to the corporate strategy.
It starts from scratch with the expectation of taking advantage of the opportunity to serve new customer segments, introduce new technologies, or cover areas of opportunity that the competition has not yet exploited. In this sense, it may be a new brand within the product catalog, the possibility of diversifying, developing an innovation that serves the public, increasing profitability for shareholders, capitalizing on some existing assets or resources, etcetera.
Despite the advantages that a new venture can offer when it is well planned and even though it is said that 11 out of 12 start-ups fail, there are still organizations that question the wisdom of trying to innovate through a new venture within their corporation. They hardly realize that the creation of a new company not only implies creating a business model that can help the corporation to face global challenges through business innovation and to generate more market share, but it should generate the next unicorn.
Contrary to what innovation labs do, Venture Building allows corporate entrepreneurship to be built from scratch, which represents an alternative for large corporations that wish to embrace innovation in earnest.
What is Venture Building?
It is a model for creating dedicated StartUps - typically in technology industries but not exclusively - that operate in conjunction with a large corporation. It is a combination of innovation and corporate expertise; a collaboration in which the Venture Builder brings flexibility, disruptive knowledge, adaptation, and freshness, while the large corporation contributes financial muscle, industry know-how, and key contacts. It is building a company different from the corporate in the form of a StartUp with a business model different from that of the group.
With the Venture Builder, a corporation can offer clear advantages through its infrastructure, processes, and other assets to successfully transform a StartUp into a successful firm by promoting highly innovative developments. In addition, the corporate's relationship networks make it easier for the new venture to meet local regulatory and legal requirements. The corporate knows the market and regulatory frameworks and Venture Builders can benefit from this experience by being able to focus on product development while leveraging the assets and structures of the corporate group.
Moreover, developing a new company based on this Venture Builder model makes it easier to match the corporate's strategic objectives, to develop new business models to access new markets, to diversify by developing complementary products or services, and to gain a competitive advantage through innovation. The advantage of this model is that corporations can satisfy their innovation needs in order not to lose competitiveness in the market. Corporations such as Carrefour have been able to reach international markets, while the Start-Up, for its part, reduces financial and technological risk and has the support of the corporate's experts.
Of course, the legitimate interest in return on investment is not excluded, but the focus is less on fast-growing companies and scalable products and more on long-term sustainable solutions.
A clear example of the benefit of a Venture Builder is the Start-Up BioNTech which, with the support of its corporate partner Pfizer in production, safety, control, and logistics, was able to develop and bring to market its Covid-19 vaccine in a timely manner.
Regarding the problems of integrating Start-Up and corporate teams, these occur mainly when employees feel that they are subject to the orders of the CEO and are afraid to speak directly about the risky ideas put forward by top management. The important thing is to create psychological safety so that employees can openly express their opinions about new ideas. When it comes to innovation, it is necessary to prioritize openness over hierarchy.
The Venture Builder model proposes that companies should be founded and run by a team where there is a diversity of ideas and skills in a multifunctional system where the priority is always to more than meet the needs of the customer. An idea is successful when the first to validate and accept it is the customer.
The cross-functionality of the teams facilitates integration if the corporate team is aligned to the interests of the company from day one and avoids corporate hierarchy to ensure that decision-making is done with the agility and speed that a StartUp does, in order to achieve a quicker return on investment. Avoiding that hierarchy allows everyone equally to explore disruptive and radical ideas that help to solve customer needs that could be packaged as a new brand, generate new customers regardless of existing perceptions of the core business.
As with all things that bright for success, a start-up can succeed when the following variables come together: the full support of the CEO; to count with experienced Venture Builder managers and founders; to design a streamlined investment committee; having clearly defined areas of focus and a separate legal status; and allowing the parent company to act as a mentor, not an imposer.
In short: innovation becomes a reality when the international experience of a large corporation with established channels and consolidated funding is properly combined with the disruptive ideas of new businesses. Moreover, when large corporations join forces with entrepreneurs, the odds of implementing great solutions in practice will always be in their favor. Especially if they are supported by Venture Builders that have a prolific proven track record.
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