It's About Accelerating Growth
According to de Sterke, only 1 of every 9 companies achieves sustainable and profitable growth for two simple reasons:
- They ignore the small opportunities that could be the big businesses of the future.
- Accounting metrics within the company typically direct resources to larger opportunities in known markets.
While it may seem logical to focus on the tried-and-true opportunities within your industry, this approach prevents your business from capitalizing on smaller opportunities that could help you grow. Change is constant in business, and in order to remain competitive, companies must be agile. These days, the future is more turbulent than ever, with economic shifts, technological advances, and new competitors entering the market. To stay relevant, it is important to explore growth opportunities outside your core business.
Three Organizational Stages
To illustrate his point, de Sterke outlines the three organizational stages of a business:
- Startup/ Scaleup: These are small, agile organizations focused on speed and establishment of the customer base.
- Incumbent: This stage includes established businesses of various sizes who are leaders in their industry. They benefit from a large customer base and established reputation; however, they no longer have the entrepreneurial drive that characterized the business during the startup phase.
- Struggling Bureaucracies: Established companies often turn inward rather than expanding, and though they may be leaders in their respective industries, they lack the agility to stay ahead of their competitors. At this stage, the size of the company has become a liability, and they are incapable of growth. In order to become competitive, the company is in need of radical change.
When considering the best way to approach radical growth, de Sterke points out growth models for successful companies such as Amazon and Google. These "Growth Machines" are among the 7% of companies that are able to grow by harnessing the speed of a startup with the scale of an incumbent business.
Corporate Venture Building is a Solution
Corporate venture building uses innovation to create solutions for businesses that need a catalyst for growth. In order to leverage the power of corporate venture building, your business must create an environment that encourages innovation. It can be difficult to convince leadership to take the risks necessary for business growth, so it is important to provide a structured plan that incorporates:
- Predictable Timeline: Outline a specific timeline with each development milestone and phase clearly delineated, from discovery through product launch and corporate integration. A predictable timeline will show that the project is organized and worth the investment. It will also help the project team to stay on task and ensure that the product development stays ahead of the competition.
- Established Scalability Potential: In order to convince leadership that a project is worth funding, the corporate venture team will need to provide numbers for expected revenue and scalability potential.
- Use of Existing Channels: In addition to projecting the scalability potential of new customers, the corporate venture team should be prepared to leverage existing channels of income in order to take advantage of existing partnerships when it is time to scale up.
8 Lessons Learned
In order to help companies on the road to sustainable growth, de Sterke shared 8 lessons he has learned during his years of venture building and growth strategizing with some of the largest companies in the world.
Lesson #1: Bring Leadership on Board
In order to effect successful change, company leadership must be invested in the success of the venture. This involves both a growth mindset and role clarity. Rather than working from a traditional controlling role, managers should support their teams without judgment and foster collaboration between business units. They should have a thorough understanding of the process metrics, in order to gauge the progress of the team throughout the project.
Successful change managers support the innovation team by listening, coaching, supporting, and celebrating success. They work to solve problems from a specific, not ideological perspective, and create an environment that is geared toward solving customer problems rather than internal complexities. With clear support from leadership and enhanced focus on the frontline, new products and services can be successfully developed and launched quickly and efficiently, thereby keeping your company ahead of the competition.
Patience for Growth, Impatience for Revenue
Leadership must also understand the importance of investing in the innovation process. Every industry has different goals and metrics to direct resources. The standard benchmark for fast-moving consumer goods (FMGC) is 50-30-20. 50% of the company's capacity is used to sustain business operations, 30% for innovating existing processes, and 20% for disruptive development. Although the percentage differs by industry, it is important to note that successful growth is dependent upon the allocation of company resources to disruptive innovation of products and services outside the core business.
Lesson #2: End-to-End Process
An established end-to-end process with predictable timelines is key to a successful venture. A clear plan will help corporate investors feel confident about the venture, and keep the venture team on task. A traditional end-to-end process typically follows a linear timeline from product development through marketing and sales before bringing the product to market. Unfortunately, this straight-line approach compartmentalizes each team’s efforts, reduces teamwork, and encourages finger-pointing when things don't go as planned.
Instead, de Sterke suggests a circular "Learn Loop" that combines Lean Innovation with a Direct-To-Customer business model to keep all team members involved through multiple iterations of the development process. This allows the innovation team to reassess the product repeatedly and bring it to a greater level of maturity before scaling.
Corporate Venture Methodology: 9-12 Month Growth Accelerator
According to de Sterke, the end-to-end process for a corporate venture should follow a 9-12-month growth acceleration plan with the following milestones:
- Ideation Sprint: The initial creation and development of the product or idea should be completed within the initial 1-3 weeks of the process.
- Customer Discovery Program: Following ideation, approximately 10 weeks should be dedicated to building consumer profiles, identifying pain points, determining the function of the product, and deciding whether there is enough market opportunity.
- Grow MVP Program: Once the customer base has been analyzed, the venture team uses the next 3 months to work with a control group to establish customer expectations, determine the volume and speed of sales, establish the product's viability, and make adjustments.
- Launch Program: The final 4-6 months is used to launch the program on a small scale in order to establish that the model is workable and ready for scaling, also involving existing salesforce from the incumbent to speed up scaling.
Using a skills-based timeline and multiple development loops makes the progress of the venture more predictable, thereby increasing the opportunity for funding and the chances of success.
Lesson #3: Forecast Scalability
To ensure a successful corporate venture, you must be able to estimate the predicted revenue. AARRR metrics are used to determine the number of customers the venture can acquire and how many of those customers will become paying customers. With these numbers, the business can predict the speed and volume of growth based on the amount invested. The venture team can then determine how many customers can be recruited in a specific time period, the percentage of those customers that can be retained, and the amount of money that can be made from the venture in that period of time. This makes the venture more predictable, and a more comfortable investment, especially for corporate entities.
Lesson # 4: Benchmark Success
In order to determine scalability, research benchmark data for sales metrics from your industry. With this point of reference, you can determine how well your product will perform within existing channels.
Lesson #5: Protect Your Venture
It is critical to differentiate your product from that of your competitors and protect your ideas from theft. The best way to keep the competition from taking your ideas is to iterate faster. In addition, there are a number of established strategies available to protect your innovation:
- Exclusive Distribution: Negotiate exclusive agreements with distributors and retailers to make it difficult for competitors to copy your product.
- Exclusive Supply: Create exclusive agreements with suppliers to make it harder for competitors to duplicate your designs.
- Intellectual Property: If you have a design or process that you can patent or a product look or name that can be trademarked, take advantage of these protections.
- Customer Loyalty: Create a story or narrative to make customers fall in love with your product. Alternatively, use incentives such as loyalty points or exchanges that create brand value.
- Network Effects: Use social networking and incentives to encourage your customers to market your product. By making their interactions with friends and family a source of product value, it becomes more difficult for competitors to copy your innovation.
It is best to prepare these protective strategies in advance in order to foster trust between the investors and the innovation team.
Lesson #6: Have an Exit Plan
The venture team should create a clear monthly recurring revenue model (MRR) and plan for integrating the new product into the greater business operation. An exit plan should clearly show that the project can reliably make revenue on a monthly basis in order to make both the venture team and investors more comfortable with the initial project.
In order to ensure optimal integration, team members from the core business should be included throughout the venture process. Involving the relevant business partners and core team members early in the journey allows the venture team to forestall any issues in advance. However, it is important to keep the need for quick movement at the forefront, so be sure to include the other stakeholders, but avoid getting bogged down.
Lesson #7: Your Team is Everything
Remember that your team is what makes your venture successful. When starting a venture from the ground up, you are faced with the challenge of establishing your venture within a given market. With corporate ventures, you also need the support of your corporate organization. Multiple playing fields means that your venture will require different skill sets at different points throughout the process.
Create complementary teams by balancing your energetic inventors with process organizers, and don't hesitate to switch out members of your team as you go through each step of the process. Each step will require different skill sets, and it is important to recognize which individuals you need. For example, if you use a team composed entirely of entrepreneurs and creatives, you may find your project insufficiently organized at the end. Don't hesitate to challenge your team by holding them to tight timelines and forcing them to prove that the venture can be profitable.
Lesson #8: Manage Problems Before They Occur
As with any group effort, frustration and miscommunication are guaranteed. To avoid problems, manage irrational frustrations by creating an environment of open communication and discussion. Have regular check-ins with the team and address any issues as they occur.
With these insights, committed leadership, and an established timeline, you can successfully use corporate ventures to diversify your product offerings, expand your customer base, and grow your company advance to the next level.