Originally published in July 2022 here
After 6 years of working in Corporate Venture Building at BCG Digital Ventures and being interim CEO/CPO for almost 10 ventures from cradle to live in the market, I wanted to take some time to reflect on the experience and write down my learnings.
So if you are a potential client and thinking about working with a corporate venture builder, are active in the corporate Innovation field or if you are simply thinking about joining such a venture builder like BCGDV here is your briefing ;) Let’s start at the beginning:
Successful corporate innovation is arguably the most deciding factor if you as a company will have long term success or not. Just look at the most valuable companies in the world:
They are almost all based on innovation and younger than 50 years old. Nokia is an excellent example for both extremes: They successfully used corporate innovation to move from a paper company to lead the fast growing mobile phone market but then also came crashing down when they missed the switch from key-based phones to modern smartphones with a touchscreen - Apple and its iPhone won this and subsequently became the most valuable company in the world. So the short answer is: when you win the corporate innovation game you can become the most valuable company in the world. When you lose the corporate innovation game your company dies.
With this in mind I want to discuss the top 5 questions around corporate innovation to help you dear reader to “win” the corporate innovation game
- What different types of corporate innovation exist?
- What are the key drivers of successful corporate innovation?
- What are successful examples of corporate innovation?
- What should I know to do it successfully?
- How much does it cost?
So let’s get going and work our way through :)
1. What different types of corporate innovation exist?
For the purpose of this article I use corporate innovation as a broad term for any activity which makes a corporation “better”. So whenever a corporation gets more competitive and/or can increase its revenue or reduce its cost they have innovated.
For me it has proven to be useful to differentiate between 2 major approaches to corporate innovation: Improving something existing versus building something new from the ground up.
Most of the time companies (rightfully) improve their existing products, processes or organization. Changing a big existing organization is hard but if they can improve up to 10% every year persistently this will allow them to gain market share and become market leader. Typically these improvements are less risky since most of the implemented advantages have already been proven elsewhere and often allow short term payback. If you manage to increase your process efficiency by 10% you more or less directly can save 10% of the associated costs. Implementation wise you typically pilot them on a smaller scale and then aim to roll them out across your organization as fast as possible. Examples for this type of innovation can be a new product generation (e.g. a newer TV with more resolution, HDR etc) or a partially automated process (e.g. an AI automatically screening incoming customer service requests). There are lots of ways to improve products, processes or organizations - supporting this is the bread & butter business from my ex-colleagues from BCG and most of the other consulting companies in the world.
“Building new” is a completely different beast in contrast to “improving existing”. Here you operate like a startup and build something new from the ground up -” greenfield” if you will. Think about it in a similar way than with your home. If you want to upgrade it you can either clean it or even buy a new piece of furniture for your apartment to improve the existing or you can completely build a (small) new apartment. It depends on your situation which is the right approach for you. Building new allows you to create sth 10x better than before - you can completely reimagine how things work and dont need to consider how things have always been done. You should only pick & choose from existing corporate assets - ideally an “unfair advantage” which helps you to scale faster. However since you created something new you likely cannot use the full scale of the company from day 1 - you need to grow it yourself which typically takes longer and likely will increase your payback period to over 3 years. Also it may not work at all - what you are doing has not been done before and therefore has inherently higher risk. Still based on historical experience every few years/decades either a startup or a competitor will choose this approach and completely reinvent your industry - if you like it or not. Building new / greenfield is a completely different beast than improving existing ones and you need different skills to succeed here - we will come back to that later in this article.
Similarly to there are lots of different ways to “improve existing” there are also lots of different ways to build new. I like to differentiate between 3 different archetypes of building new: standalone, expansion or building block.
Standalone: This one is exactly like a real startup. Build everything new from the ground up: the Product, Go-To-Market (GTM) and the supporting organization (=newly hired people which will take over running the NewCo). Sometimes this new venture targets a completely new market but sometimes you can also build your own “digital attacker” competing with yourself. In both instances you need a completely new/separate product, go-to-market approach and organization. Let’s take UP42.com as an example: Airbus used to sell geospatial images & insights to big corporations and government customers. With UP42.com they now also allow SME customers (=new target group & GTM) to use a self-service platform (=new product) to derive their insights themselves. A completely new organization based in Berlin is operating the startup.
Expansion: In this archetype you typically have a new Product & GTM but you can use most of the existing organization - you just need to add a few capabilities here and there. So if you want to come back to the “upgrading your house” example I started above: You are building a garage attached to the main house (or a pool house). Typically you want to grow your revenue by targeting a new target group - e.g. going B2C or expanding from big customers to SMEs. Often these types of expansions are highly complementary to the existing business - therefore you don't risk the existing business trying to undermine a new in-house competition. When building the new product & GTM approach you will still need to ring-fence the dedicated team working on it - they still need to operate like a startup with the most limited amount of policies required. Remember that you are building up sth new - so some of your protections you have put in place to not risk existing revenue streams may not be necessary here. A good example for this archetype would be selling insurances also online/mobile (and not only offline) or any other form of “Direct-2-customer” offering both in the B2C and B2B space.
Building Block: In this variant you typically only build a new - as the name says - very specific building block or capability of your organization. Think of it like something you could outsource to a 3rd party with clearly defined interfaces between the process step and the rest of the organization. - but instead of outsourcing it you optimize/reinvent it yourself e.g. by leveraging AI to automate it. Once it works you plug it into your existing organization like a building block. A really nice example for this archetype is Mwise: https://www.msxi.com/ger/mwise/ - it is a new AI based capability to automate the checks you want to do with guarantee claims - e.g. coming in from car dealerships.
So the thing to keep in mind is that you should decide for yourself what kind of innovation you are looking for: incrementally improving the existing or building something really new. Interestingly you can use the “build new” magic not only for completely new startups / ventures but also if you want to expand into a new market and/or just want to add a new building block to your organization. As long as you can ring-fence the team operationally, building greenfield can be a good alternative for faster time-to-market and a higher chance of having the kind of 10x impact you are looking for.
2. What are the key drivers of successful corporate innovation?
Ok that we have understood what types of corporate innovation exist let’s look at what the key drivers & enablers of corporate innovation are.
A useful model to think about corporate innovation is to differentiate between different drivers & enablers: New tech available, business model innovation, changes in demographics/culture, legal/regulation changes and of course the internal perspective: what is the company strategy and which assets are available?
Tech Advancements (& Business Model Innovation)
This supply side driver is determined by the feasibility & viability of new products & services: What can we build in reasonable time & costs given the current state of technology. As companies, universities, startups et al do research, the level of technology (and proven business models) will increase over time which will enable new types of products & services for your customers. Please note that sometimes the most interesting innovations come from different industries. So something in your industry will be enabled by a research somebody else in a completely different industry did. Take the car industry as an example: Electric cars are enabled by battery tech developed for smartphones and autonomous cars will be enabled by computer vision research which started in the 80s. This “cross-industry” pollination makes it extremely hard to predict and keep and overview - still here are some major technologies/trends which will clearly affect almost all industries:
First there is technology which is already commoditized across most industries - so if you are not yet using it at scale you are late to the party :)
Then there is tech which has been already successfully used in some industries and use cases and is starting to be used in more & more cases - this is most likely the tech you want to focus on for you innovation game
- AI (see this article here)
- 3D Printing
- IoT (making the offline world accessible for digital intelligence)
At last there is technology which is promising but not yet ready for prime-time / production usage. For example
- Quantum Computing
Please note that this kind of overview needs an “per industry view”. Even the “old technology” like the Web (via Desktop & mobile) is far from finished in many, many industries. Looking at you, German bureaucracy :)
So overall to make it short: Research pushes the state of tech and this brings down costs and/or enables completely new types of products and services. This can completely change how your industry works and this can happen in a short time. Sometimes you have a window of 5 years to react, sometimes it all happens super fast in under a year. So keep an eye open what kind of new tech developments could impact how your industry operates. Also be beware: the rate of technological progress is exponential so things tend to move faster & faster.
Sometimes innovation is not mainly driven by a new technology but just by a new business model which has proven to be useful. For example the netflix model was also able to take off because people liked it that Netflix allows them to cancel monthly and they did not feel locked in like in their cable contract. In this case it was a combination of new technology (streaming over the internet) and a business model - and this has proved so successful that now everybody wants in (e.g. Disney+ etc.)
Customer / Culture / Demographics
The demand side is determined by the customers you have in your industry - and they may change as well. Here are some examples from my German perspective: The population gets older while staying fit - so you may want to start offering special holiday offerings for this demographic. The population also gets more diverse with a big group of turkish or arabic people - so offering a mobile phone offering just for this target group and in turkish or arabic could make a lot of sense for example.
Interestingly, sometimes introducing new products & services can also change the culture itself. For example when the mobile phone introduced texting this changed the whole culture from preferring synchronous communication to preferring asynchronous communication. These days a lot of people consider it rude when you call somebody directly instead of texting first.
Other good examples are people’s opinions towards (vegan) food. The German company “Rügenwalder Mühle” now makes more revenue with vegan/vegetarian food than with actual meat. Similarly some people actively want to save CO2 to help to do sth against global warming and now rather take the train than take a plane - even when it is (slightly) less convenient/costly for them.
On top of these general market trends you will have different industry specific market trends - e.g. nobody wants to own a car anymore and less people make a drivers license for the car each year. So watch out for these kind of changes and try to capitalize on them - e.g. you can offer a subscription model also for car ownership.
The good news is that you as a company typically have a longer time to react given changes in society/culture typically take longer - but this can also be dangerous in a corporate environment because you don't feel the pain directly. Don't be the slowly boiling frog :)
Oftentimes changes in demographics / culture and or technology will also result in regulatory changes. A good example could be a regulatory change that allows buses between cities which resulted in the creation of Flixbus. Or the legalization of marihuna in most of the US states in the last 10-20 years. Likely at some point it will also happen in Europe/Germany and then there will be a gold-rush of new businesses entering this market as well.
Internal company strategy & assets
Last but not least as a corporate you should consider the internal perspective as well: How does it fit together with your own internal situation? Do we have an unfair advantage? Does any proprietary technology exist? You want to find something in which you have an unfair advantage compared to your competitors and/or other startups. Building a startup in a corporate environment is hard due to stakeholder management and necessary legal/compliance alignments - you better also have some advantages compared to a “normal” startup.
Recombination is key
Ok now that we have understood the key drivers & enablers of corporate innovation. But how do I know which of those changes become relevant for my industry? How do I make the jump from “nice” trends' to “wow this changes the way my industry operates?”
The tricky part is that these technological and societal developments alone will not impact your company at all. Let’s assume you are facebook and offer social networks to your users. Only because somebody has developed a fancy AI which can detect the position of eyes in a video or picture does not necessarily impact your business. It only becomes relevant for you if somebody finds a way to put these drivers into a product, service or even completely new venture which competes with your current offering. In this example the answer was Snapchat which used the new ability to detect what’s going on in pictures and videos to offer “Filters” to users which those found entertaining (for a while).
So the magic of innovation is not only new tech and or reacting to societal changes: often the real magic lies in combining the existing building blocks into a new puzzle. How do existing blocks fit together in a new way so you get something new out of it. This is why it is not enough to just look at tech & market & regulatory trends. You also need to constantly screen the market on how people recombine the existing pieces - or you do it yourself. And this is also why changes sometimes can come super quick to your market. New offerings can be introduced not with the slow speed of technological advances of a few percent better every year. When you combine existing tech in a new way you can be 10x better in a few months.
Scouting startups in your industry and/or doing competitive research is a good way to see what’s going on - but at the same time is super hard to do. Companies popping out on your radar likely already have years of work behind them - so when you want to compete with them you will also need years of work to get up to speed. Or if you want to buy the startup you need serious cash - a startup with <10m EUR of revenue can easily already cost 100m EUR to acquire.
So in the spirit of “the best way to predict the future is to create it” you can also try being your own disruptor. If you believe that big changes will come to your industry - or if you simply want to have a real shot at winning significant market shares, you can try to be the disruptor yourself and try to build something new.
3. What are successful examples of corporate innovation?
So you want to build something new? What options do you have? Let’s try to bring some structure into the topic.
In general every company has 3 major things they need to operate:
- What does it offer to its customers? (Product & Business model, Revenue-side)
- How does it get customers? (Go-To-Market, Revenue & cost-side)
- How does it run internally? (Operating Model, Cost-side)
Most startups/ventures who build new have a clear focus point where they do most of their innovation. So let’s use this as a structure and overview for our different options:
You can treat these types of innovation as inspiration for your industry: Always ask yourself: How would such a business look like in my industry?
Product / Business Model Innovation
These types of corporate innovation focuses on new ways of generating revenue for the corporation by offering new products in a new way.
Moving from a one-time fee to a subscription business is a popular change across industries. I still remember when we learned in university that most people will be super reluctant to sign up for any subscription and most people will only have 3-5 subscriptions max in their life - including Electricity, Phone, Water & maybe Cable TV. This was true back then but this has changed. Low cost services like Spotify & Netflix have made it normal to sign up for a subscription - also because they typically can be canceled easily on a monthly basis directly on your smartphone (in contrast to previous times where subscription companies made it hard - looking at you Gym memberships).
By now we have seen successful subscription models in almost all industries and types of services:
- B2C: DollarShaveClub: https://www.dollarshaveclub.com/
- B2C: if i buy toilet paper Amazon asks me if i want it regularly
- B2B: Coffee & Food Management services for the office like thriver.com
- Even Apple has shifted its full business model from fully focusing on hardware sales to the service business and trying to sell you Apple One: https://www.apple.com/apple-one/
One idea which i haven't seen in the market yet but would love to is a subscription service for recipes/medication - it is just super annoying to have to go to the doctor every 3 months if you are a chronic patient (e.g. for high blood pressure).
Interestingly this subscription business model changes the incentives in the whole industry and can also be good for your customers. Since your focus shifts from acquiring new customers to keeping the existing ones you actually have higher incentives to increase product quality than ever before. Win, Win :)
So do you have a product which your customers need regularly but you need to convince them again and again to buy your product? Why not try a subscription business? :)
Managed service / Virtual forwarder
Another common model we have seen for years already is to build a thin digital layer on top of the existing “oldschool” business. This approach is especially practical if you have a very complex offering and “digitizing” this at once is not really an option in the short term and/or would take multiple years. Let’s look at a few examples:
- Virtual Forwarders in Logistics: This is at least to my knowledge the sector which has invented this model. Logistics is super complex and requires lots of personal calling, emailing etc. to coordinate the different stakeholders (Truck drivers, Dispatchers of different companies, subcontractors etc.). Startups like https://www.sennder.com/ and others have started to build a nice thin layer on top of the existing business. So you make it easy to get a price quote, see the status of your order, etc. and you don't have to worry about the complexity below. Sennder was valued at a few bn dollars even though they don't own any trucks. Asset light at its finest.
- Another example is banking which is also based on very old legacy tech and not very customer centric. The first wave of tech competitors also followed the model of the virtual forwarders and just built a nice new frontend while using an old banking system in the backend. N26 (https://n26.com) is a good example here. Only over time they applied to become a “real bank” themselves and got their own license. This model is so common in the banking world that you even have infrastructure providers like Solarisbank (https://www.solarisbank.com/en/) which make it easy for others to build their own bank.
Another example where I really would like to see this model is actually the government. At least the German bureaucracy seems to be very complex so a great first step would be to just build a nice digital full-service frontend on top of it but (for now) keep everything as is in the backend. Imagine having to do the “Registration” for your Berlin apartment fully online and then the service would do the rest for you.
So do people in your industry have a pain point where they have a hard time interacting with the operations? Then consider building a nice thin virtual layer which re-invents the service for them. Big advantage can be for you that you can also include your competitors in this offering and then your service sits between the customers and your competitors. Nice.
Self-Service / Automation
The Self-service or Automation model is kind of an advancement of the virtual forwarder model. But instead of managing all the complexity of the customer service and/or operation yourself you build the product in a way that it either does the operations fully automatically or the customer can do most of the manual work him/herself.
- A classic example is dating. Of course you could always do it fully “self-service” but at least if you have used an agency to find your partner this was a pretty manual process with highly paid employees matching you with potential partners. These days most people still use matching agencies but they are fully self-service and streamlined (e.g. Tinder.com)
- Banking / Wealth Management is another example where complex customer service has been simplified into a partly automated self-service model. A good example for this is https://de.scalable.capital/en for example. With this product now everybody can easily invest into ETFs and Equities - all automated by a robo advisor and digital onboarding.
So do you have a complex / FTE intensive customer service & operations which follows a structured process? Then building a self-service and/or automated platform might just be the right thing for your industry!
Marketplace / Ecosystem / Platform
This one's a classic and probably the most popular type of business to build. I have personally built it so often that I have already written an article about it a few years ago here: https://www.linkedin.com/pulse/how-build-successful-marketplaces-platforms-karsten-wysk
Marketplaces & platforms make it easier for stakeholders of the industry to interact with each other. Typically you get a share of the transaction between the parties and the more of the process happens on your platform the better for you (and the higher the value share you can extract).
A modern variant of the marketplace is the blockchain based platform. This can make sense especially when trust is an issue between participants, you want to have democratic governance without one participant owning the platform (who could later change the rules) or you want to link a transaction to some unchangeable terms via smart contracts. Read my article about blockchain if you want to know more
So do you have an ecosystem where people interact with each other regularly and is this complex? Hard to find prices? Consider a marketplace and/or platform :)
Data based models
These kinds of businesses are made possible by the fact that digital allows us to collect & anaylze much more data than ever before. In essence this allows you to move from broad proxies which are often being used today (=think the type of car you own in insurance) to a much better proxy (=driven km, your driving style etc) and price your service much more accurately.
This example is already reality - for example Beema (https://www.beema.ae/en) offers insurance in a modern way based on the number of km you have been driving. Tesla is also to offer insurance based on the driving style … and maybe soon based on the driving style of their own self driving car - see this article here.
Another interesting example is https://paperchain.io/#product which allows to speed up the royalty payment to artists based on the data available of streams on Spotify & Co. This is a service the GEMA should buy or build for Germany!
This development does not only happen in B2C - also in the B2B world you have offerings like https://www.factorypal.com/ which basically uses IoT to measure the reality on the ground in the factory and then calculate the best parameters for the production.
So do you (or somebody else) have data about your customers which you did not have before? Think about reinventing your offerings to make prices & service packages really based on data and not about a proxy you have used before? Consider building a data based services & pricing.
GTM Innovation: How to get & keep new customers
This type of innovation is not focused on the product or internal operations but rather about how to attract & retain customers for your products & services.
Lead Generation / Brokerage
You need to follow your customers. If their customer journeys change that you need to change too. If they are on TikTok then go there. If they are on Google go there. So often these kinds of businesses are driven by cultural & technological changes which have changed the behavior of your customers. To adapt you need to deeply understand the customer journey of your customers - so what exactly does which person on your client’s side do to end up buying your product?
One good example is https://matmatch.com/ which helps to find the best material for your product and easily source it. Matmatch simply leverages the fact that these days most material engineers also use Google to search for materials. Therefore having a SEO optimized material database makes a lot of sense which allows you to do a “reverse material properties search”. So you enter the properties you are looking for and then matmatch will tell you the best material for the job. Then you can also offer the best supplier for the material.
Having a lead generation tool which simplifies the process and allows people not to directly have a sales agent on the line helps tremendously to get qualified leads into your process. People are lazy and often don't like to talk to other people synchronously anymore - use that by offering a modern asynchronous tool.
Direct to Customer / Consumer (D2C)
This model goes one step further than the “Lead Generation” model described above. You are not only generating leads, you are actually selling directly to your customers - sometimes cutting out the middleman.
This model has been popularized by consumer brands like https://www.allbirds.eu/ and lots of others before it. However this also works for lots of other industries and even in the B2B space - e.g. in the United Arab Emirates you no longer have to go to a gas station - you can just directly order the gas needed for your business via https://www.cafu.com/
A typical unfair advantage to leverage here is an existing brand and/or reach.
Online Offline Bridge
This model leverages the fact that you as a corporate likely already have stores/warehouses/factories etc. in the real world. So let’s use them somehow. This can be in both directions: getting people online and then getting them to visit your stores. But is can also work the other way around where you leverage the people you have in your offline spaces and use digital services to increase revenue/decrease costs.
Somehow the use of this can be actually surprising:
- You have retail stores in prime locations but nobody is coming to buy anymore because everybody is using delivery services? Why not turn those into “dark stores” and use them as a basis for your own delivery network?
- You are a pharmacy and want to increase your share of wallet? Why not offer eye examinations in your store by a remote doctor but which uses a shared machinery which people dont have at home?
- You are selling glasses? Why not offer an AR experience which makes it easy to try out glasses at home and then picking them up & adjusting them in the stores?
So if you have an extensive network of retail / warehouse stores let’s find an elegant way to leverage this by combining online & offline
Loyalty programs are really not new but the mix of digital & gamification can make them much more powerful to keep existing customers active and/or monetize them better.
One really nice way where a loyalty scheme has been smartly used is Qantas Insurance (https://insurance.qantas.com/) - yes an Insurance from the Australian Airline Qantas.
Their trick is: when you do sports you can get points for Qantas and get better rates for your health insurance. So in a way loyalty programs are very similar to data based business models we have discussed above already.
For best practices I would recommend checking out for example how the gaming industry is using this kind of model e.g. in the steam store.
Personalization / Value based pricing
Personalization uses data science to personalize the offering you give to each user - “segment of one” for example. One example for this is https://formation.ai/ - a platform from starbucks which allows Starbucks (but also other companies) to give every customer using the Starbucks app a special offer (combinations & prices). This kind of approach can be useful for B2C but also for B2B.
Ideally you reach something called “value based pricing” where every customer pays for your product based on the value the customer gets. Let’s again take UP42’s satellite pictures as an example. The worth of a satellite picture is highly dependent on what you want to do with it. If you just want to check if a tree has fallen on a road it is probably only worth a few 100 hours (=the cost of a car driving there and seeing it yourself). If you want to see where the tanks are attacking your country the value can be much higher.
So in an ideal world you are able to understand the “value” of your product to each customer and then price it accordingly - this is the power of personalization both for B2C and B2B.
Operating Model innovation
These types of corporate innovation focuses on saving costs by optimizing their operating model for themselves or others. Basically how can we run our business more efficiently?
A common theme in these types of models is that you not only solve your problem for yourself but you make a business out of it. Think of Amazon for example. They needed digital infrastructure to run their own servers. However they figured that they are probably not the only ones with this problem and built it in a “product way”. The result was Amazon Web Services (AWS) which now makes billions of dollars in revenue and most of the profit of Amazon.
With that in mind now let’s take a look at the different types we see in the market.
Internal Tool / SaaS
This archetype takes an existing complex process (which may include lots of paperwork, decision trees, back & forth with lots of people internal & external) and builds a custom tool around it to streamline the process. Having a joint always available source of truth can often do wonders and baking the business logic / decision trees into simple wizards can also increase quality quite a lot. As discussed above ideally you find a process which you can sell also to others - this way you don't build this only for yourself but can actually set it up as a venture and make nice money with it.The process you support can be based on your own needs or even from your customers if you know how they work and want to enable them to become stronger.
A good example for this approach is https://www.tooltime.de/ where a bigger corporation which works a lot with craftspersons knew about their pain points and built a software to help them streamline their operations.
So if you or your customers have a complex workflow, then think about building a tool around it and solve the problem not only for yourself but also for others.
This archetype goes one step further than “just” supporting a process with a tool. The goal here is to fully automate a process (or part of a process). With the current state of tech almost all repeating processes can be automated. It doesn't matter anymore if they are already digitised or not since a lot of tech exists of the shelf (e.g. Automation Hero) which allows them to scan documents and “understand” what’s going on with AI. Please have a look at this article to understand more about the current state of tech in the AI space: https://www.linkedin.com/pulse/how-can-i-use-ai-my-business-today-karsten-wysk/
A good example for this is for example https://www.msxi.com/ger/mwise/ which re-invents how guarantee checks work in the industry and which we mentioned already in chapter 2 of this article. Instead of checking just a random sample of guarantee claims now the AI can first prioritize & check all (!) claims which increases the likelihood of catching an invalid claim immensely while saving significant costs in checking the claims manually.
In my opinion automation driven by AI + Robotics are one of the most important changes in the coming years. I even wrote a book about what (should) happen if too many people lose their job due to automation & robotics:
So do you have a significant share of your people doing repeated processes? Automate them and offer these automation capabilities to other players in the market with the same problem.
The Prediction archetype is very similar to the Data based archetype we discussed already in the Product / Business Model Innovation section.
In essence it uses available data & AI to more accurately predict outcomes along your value chain. Examples can be in your supply chain (e.g. how many items from which type do you need when in your warehouses?), in your sales pipeline (e.g. BCG: How many consultants do we need when in which markets?) or in financial planning (e.g. What is the expected revenue in Q3 2022?).
Do you have optionalities based on what happens in the market? Likely you can use AI to predict the state better than humans can and this could be provided as a service to your own company but again also to other players in the market.
Platforms / Infrastructure
This type of archetype builds on the market trend that you will have more and more “maschine to maschine” communication happening in all industries - up to the point when most processes will be automated. So while in the automation archetype you do the automation yourself (=searching for gold) in this archetype you are building the platform/infrastructure so others can further automate their processes (=selling shovels for the gold diggers).
Examples can be very broad and different again across B2C and B2B:
A great example are BaaS offerings (Banks as a service) which you can use to “easily” build your own Neobank. Without those services banks like N26.com and others would not have been possible.
But the grandmaster of these kinds of platforms is Shopify which enables everybody to build their own Amazon Style e-commerce marketplace. By now Shopify is almost as valuable as Amazon itself. So also think about not looking for Gold but rather selling the shovels for the Goldrush.
Physical to Digital Bridge
Similarly to the Online to Offline Bridge we already discussed in the GTM section, there is also a similar opportunity around the Operating Model archetype. On this type you often use IoT devices to bring information from the physical world into the digital realm and then optimize them with digital means. Good examples are https://www.factorypal.com/ which helps manufacturers to optimize how to operate their machines.
Another nice example is https://machinemax.com/ which basically makes it easy to know location & usage of heavy machinery by using IoT devices.
So whenever you want to optimize your offline world thing about IoT devices and what you could do with that information
So all of these Models are common themes we see across industries - check if they trigger some ideas for your industry as well. I hope it gave some inspiration & examples.
4. How to do corporate innovation successfully?
Ok let’s say this article got you inspired and you want to supercharge corporate innovation in your company as well. How do you do it successfully? Here is a simple step-by-step-guide for you:
- Step 1: Define your goals - what do you want to achieve?
- Step 2: Get the right team & setup in place
- Step 3: Ideate & validate ideas
- Step 4: Execute
- Step 5: Scale
Step 1: Define your goals - what do you want to achieve?
Defining your goals and ambition level is crucial because you will need a completely different approach depending on your goals. As discussed above: if you want continuous product & process improvements 5-10% better every year based on your existing status quo you will need a completely different approach than when you want to start from scratch and completely reinvent how things should be working - aiming for a 5-10x improvement.
So depending on your strategic objective you need to make a clear decision here.
Step 2: Get the right team & setup in place
Once you know what you are aiming for, you need to setup the right team in the right setup to make it a success.
If you are aiming for continuous innovation (5-10% better every year) then you need to build up the required capabilities in-house - e.g. have an R&D department for your product innovation. And maybe hire some Consultants from time to time to implement best practices from the industry in your company.
If you are aiming for a 5-10x improvement and want to “start fresh” then you typically need to start greenfield and have a dedicated group of people to do the job. Let’s explore the options do that quickly:
- Staff an internal team: Ring-fence some of your best people you already have in your organization and let them do the job. Maybe hire a few additional candidates to the team to fill capability gaps.
- Hire consultants + a tech team: Take your trusted management consultancy (e.g. BCG, McKinsey) and let those work with an external software development agency.
- Get a founder team and let them do the job. Give out 30-50% of your shares to a group of founders and let them hire the rest of the team.
- Hire venture builders: Get companies like BCGDV to do the job end-2-end.
So which option is the best one? It depends on your situation. Here is a quick decision matrix
As you can see there are some serious trade-offs to consider here depending on the money available, speed required, your internal situation and the idea itself. Here is a quick summary from my perspective:
- Hire a Venture Builder if money does not matter so much, speed is important and the idea itself is pretty much proven already (e.g. already working in another market)
- Hire a Founder team if the idea is pretty innovative and you will likely need some time to figure things out.
- Staff an internal team if costs are important, you have good people internally available and it is super clear what you want to do.
- Hire Consultants + Tech-team if Navigating the internal stakeholder landscape is the biggest risk and there is a close link to the core business.
In all cases it is important that a/ you have a dedicated team and b/ this dedicated team reports directly to the person interested in the corporate innovation. Don’t burry it in middle-management. The team needs a high-caliber SteerCo which can guide them and make sure they have the operational freedom they need.
Step 3: Ideate & validate ideas
Now that you have the right team with the right setup in place it is time to start with the actual work. Use the list with potential ideas for inspiration and most importantly: talk to the potential customers. Do what we call ethnographic research. Create a deep understanding of the customer journey of the people you want to sell your product or service to. Do it on the actor level (so of the people who are actually doing it instead of just their managers). Only then you can really understand their pain points.
Don't start with the status quo in mind but with the end in mind. Be like Amazon and write a press release / landing page / internal announcement email how the thing should look like when it is finished. Show this again to the actors on the customer side and ask them if they would love to use this service.
Have different options and then ask people if they would invest their own money.
A good framework is to use the following dimensions to evaluate the different options.
- Desirable (=people really want it, it solves a real pain point / problem)
- Feasible (= you can build it given current tech & resources available in time required)
- Viable (=you make money with it and you can scale it)
- Strategic Fit (=you have an unfair advantage building it and it fits to you broader company strategy)
The goal of this phase is to basically get an investment pitch similar to what a startup would also pitch to its investors for the Seed-Round.
Step 4: Execute idea - start building
Let the team start building in a startup like environment with operational freedom but clear deadlines (e.g. first co-creation partner uses this until end of the year). Give them goals, milestones etc. but let them do their stuff within guard rails
Be prepared to pivot. I mean really pivot. "You can be fully wrong". Keep at the same problem you want to figure out but in a really different way. Get live as early as possible and iterate from there. 3-6 months is typically a good time. If it has traction, great. If not, kill it and try again. Remember: the hard part here is not to build it right. The hard part here is to build the right thing. And the moment of truth is when it is live.
Step 5: Profit / Scale
After you have done this a few years be prepared to change the team again because often people who are good at going from 0 to 1 are not very good at scaling beyond that.
5. So how much does it cost?
If you build a completely new venture you likely need to invest as much money as any proper VC financed startup: it can cost anything between 5-50m EUR to become profitable. likely it will be around 10-30m EUR at least here in Europe. Please note this is not the cost for the venture builder or whoever is doing it for you but the overall money needed to get it until break even for the first 3-5 years.
Actual costs only for the internal team are in the following order of magnitude:
- Staff an internal team: You know their salaries much better than me. 10 People may cost you 1-2m / year.
- Consultants + Tech Team: 3 consultants are likely around a couple of hundred thousands / month + another couple of hundred thousands or so for the tech team… so this will easily cost 3-10m / year. This if course also depends if you buy at the top or low end of the market.
- Get a Founder team: Since everybody just gets salaries this will also only cost you 2-3m / year but you will also have to invest shares (20-50% of the company).
- Venture Builder: This will likely also cost you 3-10m per year including maybe 10-20% of the shares. There are also big price (&quality) differences at the top and low end of the market. Always try to negotiate less cash & more shares if you can to get the venture builder truly incentivized to make your venture a success.
Please note that when building you can say “stop” every few months - so you are really risking only a couple of millions for the first year or so. While when you buy a venture you have to pay 50-100m upfront and then see if you can integrate them in your core business.
I hope this little overview was helpful to give a good overview about how corporate innovation and especially venture building works. I am now back to the “real” startup world but please feel free to reach out if you want some advice to your specific situation.