The growth of new powerful platforms has challenged the business models of traditional players in many sectors. We eagerly stopped using thick ‘Yellow Pages’ phone books to find information on local service providers, renting VHS tapes from Blockbuster or developing our 35mm films into photos at Kodak’s stores. Even more regulated industries, like banking, insurance or healthcare are being transformed in front of our eyes.
The corporations who have been leaders of their industries are facing a dual challenge. On one hand, they want to protect and leverage their heritage – their brands, processes and core competencies that made them successful in the past. On the other hand, they need to evolve by challenging the status quo and exploring totally new ways of doing business in the digital world. “Everything needs to change, so everything can stay the same” - these words from Giuseppe Tomasi di Lampedusa’s classic novel The Leopard describe the growing challenges of executives running established organisations. Like the Italian aristocracy after the Risorgimento, they need to break their own traditions to secure continued relevance and influence in a changing environment.
Over the last 20 years, I have worked with dozens of corporations, trying to navigate their way into the future. Through internal intrapreneurship programmes and digital labs, I have experienced many attempts to make it easier for new ideas to get identified, validated and implemented. While quite successful in generating a constant flow of incremental improvements, those approaches have often failed to result in major innovations. Quite frustrated with the corporate pace of change, I became a believer in open innovation, linking corporate resources, reach and relations with the speed of digitally-native partners. Joining forces with external entrepreneurs, startups and tech pioneers proved many times to be way easier than trying to develop new skills inside.
At The Heart, we have been part of that movement, bringing together an ecosystem of multinational corporations and digital startups for joint business development. Supported by our strategic partner, Mastercard, we have recently started building more than 16 digital ventures, taking full responsibility for their excubation as independent companies. With more than one company-building project starting each month, we are well on track on our mission to build a portfolio of 100 digital ventures in less than ten years. Together with multinational corporations, we co-create new digital suppliers, value added services or marketplaces. We try to fill the gaps in the ecosystem, focusing entrepreneurial talent on solving the most important problems for an industry.
My first reflection from this journey might sound obvious – the act of new-business creation is something quite foreign to many corporations. While being perfect in scaling a proven business model, they rarely excel in continuous exploration and creation of new ventures. The startup world finds this act much more natural – there are probably over 100 million new companies set up every year worldwide. However, the process is still quite random and unstructured, which results in 80-90% failure rate of new ventures. Only a small percentage of entrepreneurs succeed in building scale; more than 62% of companies in the US employ less than five people.
If neither traditional corporations nor startups seem to hold the secret of successful new business creation – where can we look for lessons in successful venture building? The management guru Clayton Christensen, who recently passed away after inspiring millions with his work on disruptive innovation, used to suggest studying anomalies as a way to develop better theories. In the world of venture-building, we can also find organisations that stand out in a spectacular way. They successfully built portfolios of new companies – not three or four as some serial entrepreneurs, but even more than 100 independent ventures. The ‘startup studios’ like Rocket Internet, IdeaLab or Flagship Pioneering had to reduce the risk and process volatility wherever possible. There are a few commonalities in their approach:
Perspective. The venture-builders are focused on creating valuable companies, and are not slowed down by internal corporate politics. They act independently from a major first customer or partner.
Process. Taking full responsibility of validating and incubating a portfolio of companies, those unique factories manufacture companies using an efficient process, and can launch an independent business even in two to three months. Ex-Rocket Internet’s Martin Bell has developed a famous 100-task toolkit, guiding new venture teams through every step of the journey.
People. Founding CEOs are often recruited once the idea has been validated (or pivoted), and it becomes clear what skill-set is required to execute it properly. Each activity in the typical venture building process is supported by professional shared-service teams. They bring in the necessary expertise in areas like IT, legal, HR or finance to the teams and let core team focus on product and customer development.
Portfolio thinking. Thanks to working on a pipeline of new ideas, company builders find it easier to kill bad ideas fast, reassigning resources to other ventures. They also try to leverage the synergy between ventures in their portfolio.
Some corporations, including Google or Cisco have successfully developed their own ‘venture studios’, excubating numerous new businesses over the course of several years. Many had tried, but failed to deliver the expected results and had their units closed. A great example was Unilever’s New Business Unit, that aimed to build five €100 million businesses by 2015 but was closed before any of them succeeded. Innogy had at some point engaged over 70 venture architects designing new businesses for the energy giant, but the approach did not work as planned and the company moved away from building to focus on investing in external startups. Coca-Cola’s Founders’ Platform had more impact, co-creating 12 businesses addressing important industry problems with new technologies. Nevertheless, the programme got closed down after a change in top management. Other units, like Axa’s Kamet, Daimler’s Lab1886, BSH Digital Ventures or Viessmann’s WATTx are still too young to judge the long-term sustainability of the model.
We also see an emerging model of corporations partnering with external venture studios to co-create digital businesses of tomorrow. Examples, beyond our strategic collaboration with Mastercard, include BBVA working with Anthemis or insurer Signal Iduna working with Finleap.
At The Heart, we believe the next wave of companies will be built in such models. There are multiple problems corporations need to address – from sustainability of the value chains to new ways of managing data or distributed workforce. Let’s join forces to bring those ventures to life.