29 June, 2022
A Proven Model for Corporate Venturing from BCG
Large companies are upping their emphasis on growth through innovation by building new businesses, products, and services. Here’s how Boston Consulting Group sees how to overcome the odds and find breakthrough success.
Large companies worldwide are upping their emphasis on growth through innovation by building new businesses, products, and services. But there’s a problem. The odds against breakthrough success in building successful corporate ventures are long, and large corporations have traditionally focused on sustaining their current business models and pursuing incremental rather than radical innovations. There’s also a solution: a model that BCG Digital Ventures and its corporate partners have pioneered and refined over the past eight years, marrying the strategic competitive advantages that most large companies have spent years developing with the lean approach and processes that most startups follow.
The venturing model pioneered by BCG Digital Ventures and its corporate partners has proven to be two to three times more likely to produce a success than the models used by traditional venture capital or corporate venture capital as can be seen in the graph in Exhibit 1.
The article gives the key components of success:
This approach takes advantage of three key enablers:
· Top talent works in multidisciplinary teams and brings together digital skills (such as software engineering, design, and product management), creativity, and human-centred design. Teams are multidisciplinary, which ensures a diverse set of perspectives, especially early in the development phase.
· Rigorous methodology maintains unwavering attention on customers, their needs, and their points of friction. Teams focus on achieving rapid in-market delivery, usually launching an initial version of the venture within weeks rather than months.
· Agile governance, achieved by setting up small, senior investment committees, ensures fast decision-making and an environment that encourages teams to experiment and take risks, while ensuring high integrity in areas such as data, reputation, and legal and regulatory compliance. This approach circumvents often-complex corporate governance processes that slow or block progress because they lodge decision rights in many separate functions.
Digital Ventures’ eight years of experience in launching new businesses with corporate partners have yielded rich lessons. Among the most important are the following:
· Recognize that inventiveness and process discipline are compatible. Follow a structured process, but leave room to exercise creativity and to pivot to new directions as you accrue experience.
· Learn from experience in the market. Constantly challenge the team around speed to market, and incorporate rapid test-and-iterate loops in the process.
· Ensure that the venture has fit-for-purpose technology. Achieving the goal may entail building a standalone technology stack or leveraging APIs to access corporate systems and data.
· Be persistent. It often takes several iterations of the business to get it right. Watch for weak signals in the market reaction, and be prepared to experiment. The mindset to do this is very different from the typical corporate environment's approach to waterfall investments, where progress versus plan is all-important.
· Ensure that governance is agile. Follow the model of top-quartile VCs, as opposed to using standard corporate governance mechanisms, by focusing on milestones and deliverables, rather than weekly reports—and be prepared to pull the plug when things don’t work. Get comfortable with a lower level of certainty, but make sure that the investment boards understand the economics of the business and how it scales. Empower the management team to run the operations with the right level of freedom, especially from corporate processes.
· Look ahead. Think in advance about how to scale the business (such as IT systems, data models, channels, and recruitment) and how to avoid the need to customize technology and rework software down the road.
· Understand the difference between support and interference. Put your greatest effort into attracting and retaining outstanding talent and building a resilient, entrepreneurial culture. Identify the CEO and key positions early, challenge them but back them, and don’t punish people who take calculated risks.