Harnessing gazelles? Realising innovation through corporate venturing. By Dr Gary Dushnitsky, associate professor of strategy and entrepreneurship at London Business School.
The well-known dictum "I know that half of my budget is wasted, but I’m not sure which half" was attributed – depending on the side of the Atlantic – to Lord Leverhulme (Unilever’s founder) or John Wanamaker (father of the department store) as they pondered the challenge posed by their advertising budget.
Advancements in ad tech have alleviated such concerns for chief marketing officers. Yet, they remain front and centre in today’s C-suite. CEOs and senior executives face a similar dilemma: "How can my firm successfully pursue innovation, and specifically, where and how should I allocate my innovation budget?"
A new strategy, corporate venturing, offers a way forward. Increasingly, big corporations balance entrepreneurship and strategy by turning to innovative start-ups.
Why start-ups? Simply put, entrepreneurial ventures contribute a growing fraction of current innovation. This can be attributed to a number of trends. Highly creative and/or technically sophisticated individuals are seeking the entrepreneurial career path.
Why start-ups? Simply put, entrepreneurial ventures contribute a growing fraction of current innovation.
It is an attractive first job to the millennium generation, and a viable second career for more experienced talent. Also, the cost of starting a business is falling due to a favourable technological and regulatory environment. Together, these trends lead to a growth in the number of start-ups and, importantly, the innovative potential they afford.
Which begs the question: how can an established firm harness innovative start-ups?
There are at least three approaches to corporate venturing. First, consider the BBC Worldwide investment in Viki.com, a Singapore-based venture, which, by crowdsourcing a community of passionate fans, offers a variety of the world’s TV and movies translated into multiple languages.
BBC Worldwide, along with its 2011 investment, licensed 270 hours of programmes to Viki. Within a few weeks these were translated by thousands of enthusiasts into several major Asian languages. The outcome not only brought down the language barriers, but also resulted in winning distributors’ attention and opening up new markets faster and more efficiently.
The second approach is about a systematic scan of the entrepreneurial landscape. Consider Coca-Cola’s Venturing and Emerging Brands (VEB) unit. Since 2007, it has been investing in nascent brands in North America, reviewing 150 to 200 brands each year.
Matthew Mitchell, director of business development, explains what success looks like for VEB. "By identifying trends early on, we are reducing our total overall investment costs," he says. Mitchell notes that Coke’s 2007 acquisition of Glacéau Vitaminwater was a powerful transaction for the company, but it begged the question: "What if we could have identified the opportunity three or four years earlier?"
The final corporate-venturing approach has to do with proactively growing an ecosystem. Intel Capital is a case in point. Earlier this year, it launched a $100m Perceptual Computing Fund. The objective is to accelerate the development of software and applications that enable natural and immersive human-computer interactions.
Intel’s first experience with growing an ecosystem dates back to at least 1999 and the launch of the Intel 64 Fund. Using capital from Intel and other firms, it supported hardware and software businesses that took advantage of the Intel 64-bit architecture. The fund assisted in realising the value proposition Intel’s 64-bit architecture offered potential customers and thus accelerated demand growth. Notably, it achieved all that by drawing only in part on Intel’s own budget.
Corporate venturing charts a new approach to directing innovation efforts and budgets, one that harnesses innovative start-ups. It is adopted across a wide set of industries, and enables incumbent firms to balance corporate strategy entrepreneurship.
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