Innovation is essential for corporate success, providing a competitive edge by introducing unique products, services, or processes. It drives growth by attracting customers, enhancing operational efficiency, and fostering adaptation to market changes. In a nutshell, innovation ensures long-term sustainability in a dynamic business landscape and is the key to growth for any organization. But fostering innovation can be a daunting task, especially for corporates that have been around for a while. This is where the venture building ecosystem comes in, with venture partners playing a crucial role in supporting corporates in their innovation journey. In this article, we will dive deep into the venture building ecosystem and understand its key components and the role of venture partners. We will also explore why innovation is important for corporates and how venture partners can support corporate innovation.
Key points
Corporates prioritizing innovation have different strategies to pursue it, including venturing and acquisitions.
The choice between "make" or "buy" approaches depends on knowledge gain, speed of deployment, and financial returns.
Corporates can decide to maintain innovation internally or spin it off as a new venture, depending on their goals.
Corporate venture builders offer holistic support along the venture creation process and maintain strategic alignment with corporates.
The different innovation strategies: how to pursue growth and sustainability?
On the road to innovation, the biggest challenge for a company is to determine where to invest their efforts and assets. Key factors in this decision are the amount of risk they are willing to bear and the potential of the market they are operating in. Depending on these factors, the company can pursue different ways of innovation strategy such as market expansion or entry, product or business model innovation, and venturing.
Market Expansion/Entry
A company can decide to enter an adjacent market (dictated by the rules of the existing business) or a non-core activity presenting synergies (with new rules and players). This type of innovation does not disrupt the existing products or business model but expands the corporate’s business and expertise.
Product or Business Model Innovation
By deciding to create a new business with an innovative product or business model, the company can cause a (r)evolution within the market itself. This innovation strategy typically has a higher upside in case of success, as the company is placed in a dominant position (implementing the blue ocean strategy described by C. Kim and R. Mauborgne in their eponym book), but also a higher risk of failure if the operation is not well prepared.
Venturing
A venturing strategy, for its part, can prove less risky and more profitable. It involves creating a separate entity that operates in a non-core or adjacent business with an innovative product or business model. This approach eliminates constraints from the parent company's existing structure, business, and politics, but most importantly maximizes the potential magnitude of innovation by implementing the disruptive ideas in the most adapted conditions.
Corporates have different degrees of experience in different types of innovation strategies but most of them are reluctant to experiment with the more radical and unsure types of venturing. This is why a venture partner can prove useful to exploit the biggest opportunities and generate the highest returns.
Challenges in Fostering Innovation and Role of Venture Partners
Corporates can either choose to innovate in-house, creating their own innovation lab and making their own research, or choose a trusted partner with more experience to help them navigate the market. Venture partners play a crucial role in driving innovation within corporates by bringing fresh ideas and perspectives to the table. They go beyond the conventional norms, encouraging experimentation and fostering a culture of innovation. By helping corporates embrace risk and overcome resistance to change, venture partners facilitate the adoption of an entrepreneurial mindset. Additionally, they provide access to startup networks, industry trends, and emerging technologies, inspiring corporate innovation. Venture partners also contribute to the development of new business models, products, and services, fueling corporate growth. With their expertise and support, corporates can leverage the venture building ecosystem to unleash their innovative potential and stay ahead in today's dynamic business landscape.
Different types of venturing support are offered by various players, each with their own value propositions. They vary in terms of expertise, level of involvement, and strategic alignment with the agenda of the corporates.
Strategic Consulting, the thinkers
Traditional strategic consulting firms have entered the Venture Building segment. They approach this new segment with deep involvement in strategic alignment and limited implementation capabilities. Their services are typically compensated through fee-based schemes.
Accelerator/Incubator, the builders
Firstly, these players offer access to a portfolio of start-ups that they have supported, which are aligned with the strategic fit previously defined by the corporates. Secondly, they may also offer ad-hoc acceleration or incubation programs sponsored by the corporates with the specific intent of creating ventures that could generate a strategic advantage. Their level of involvement is high in the daily operations, but they offer less strategic expertise.
Corporate Venture Capital (CVC), the investors
Traditional venture capital funds leverage their corporate finance knowledge to identify, invest in, or acquire existing start-ups at different stages. Their main objective is to pursue financial returns rather than the strategic intents of the parent company. However, CVCs may contribute to creating strategic advantage through focused acquisitions and partnerships.
Corporate Venture Builder, the holistic approach
Corporate Venture Builders, for their part, support corporates along the full value chain of venture creation, from the design phase to Serie A funding. They cover product development and other critical phases of venture creation. Corporate Venture Builders ensure high strategic alignment with the corporate's existing strategic agenda as they are involved in the discovery phase with the company. They may adopt different combinations of fees and equity as their remuneration schemes, but always maintain a good extent of "skin in the game" through equity participation, which ensure they are success-driven.
Conclusion
Corporates encounter common challenges when fostering innovation. These challenges necessitate a clear strategy and business model for successful corporate innovation. However, venture partners play a vital role in overcoming these obstacles. With their expertise and support, they enhance the chances of successfully navigating the innovation landscape. Collaboration with venture partners offers corporations a valuable opportunity to leverage external knowledge and resources, augmenting their ability to overcome innovation challenges.
In the innovation field, Corporate Venture building is a holistic approach maximizing synergies by interconnecting the strategic thinking, the go-to-market implementation, and the financing expertise. It maximizes the chances of success and minimizes the risks of missing a crucial element for the new venture’s performance on the market. This is why corporate venture building as-a-service, which in addition allows the corporates to externalize the process and rely on a trusted partner, can take a lot off the CEOs’ shoulders. Indeed, venture partners can guide and educate companies in their entrepreneurial journey thanks to their experience in venture founding, while securing the operations’ success.