In Q1 2017, VC backed companies in the U.S. saw $13.9B in total financing across 1,104 deals, according to CB Insights. During this period, corporate innovation teams and venture capital arms represented 26% of this financing ecosystem.
Despite the long-standing prevalence of institutional investment and corporate VC, there isn’t a standard open innovation model for large organizations. Take a look at this report from Innovation Leader, which surveyed more than 20 executives at companies like Walmart, Home Depot, Ikea, MasterCard, and Target. The trend that the qualitative research study uncovered was that all innovation teams are unique. Every initiative aligns with a more fundamental, long-term business initiative.
“We increasingly see large companies creating something they call a lab as a way to cultivate and test new ideas, separate from the demands and pressures of the business units,” explains an Innovation Journal report that delves into 11 corporate innovation team.
“More often than not, they exist within companies that haven’t traditionally had research and development teams. And they typically have some kind of ‘showcase’ element to them — they’re intentionally designed to look and feel different from the rest of the company, serving as a place to expose employees to new tools, approaches, and technologies to bring in outsiders like entrepreneurs or customers for collaboration.”
In making acquisitions, corporate innovation teams take big risks with often unpredictable rewards. Whether you’re running a business experiment with a startup, looking to make an acquisition, or seeking out investment opportunities, you’ll want to minimize the potential for costly wrong turns. Here’s how.
Step 1: Outsmart Naysayers—Squash Immediate Risks by Taking Smaller Steps to Investment and Acquisition
With a lack of structure, corporate innovation efforts lose money, fail to align with long-term goals, and struggle to produce tangible outcomes. Corporate innovators are well-aware that the goal of wanting to think, act, and operate like a startup will often fall flat. It’s this reason why Fred Wilson, co-founder of Union Square Ventures, called corporate investment “dumb.”
“I think corporations should buy companies,” Wilson said at the CB Insights Future of Fintech Conference. “Investing in companies makes no sense. Don’t waste your money being a minority investor in something you don’t control. You’re a corporation! You want the asset? Buy it.”
What this perspective overlooks, however, is that acquisitions are jigsaw puzzles. When you buy a company, you need to make sure that your technical systems and operational workflows are in alignment. It could take years for a newly acquired startup to become a new business unit. By the time two companies fully converge the product you’re building may be obsolete.
There are many ways to minimize risks, pool resources, and build viable investment and acquisition arms. A simple first step to take is to establish a formal program that keeps potential resource drains to a minimum.
Companies like Lufthansa Cargo, Ingram Micro, and Kaleido have recognized, for instance, that innovation in the transportation and logistics industry requires open communication between fellow corporations and startups. What corporations bring to the table is long-term industry knowledge and R&D. What startups bring to to table is agility. So multiple teams joined forces to create Silicon Valley’s first logistics tech accelerator.
The outcome of these first steps was a series of pilots, opportunity for learning, and trial runs. These sprints fold into longer-term R&D plans. You can read more about the inaugural accelerator program here.
Reach for low hanging fruit before deciding whether a resource-intensive and costly acquisition or investment makes sense for you.
Step 2: Align Your Partnership Model with Your Long-Term Goals, but Be Fluid in the Process
Where does your corporation need to be within the next five years? Is your corporate innovation team charting the right path, at the right rate, to get there? Is the “low hanging fruit” actually worthwhile or a distracting signal?
It’s this introspective analysis that will help corporate innovators develop the right partnership style. Most likely, you’ll be looking at one of the following categories:
- Product co-development
- Licensing & procurement
- Venture capital
- Mergers and acquisitions
- Co-branding and distribution
But you probably won’t know the exact right answer until you jump into execution mode and run some simple business experiments. You don’t need to have a clear path from day one.
“We were deliberately pretty vague in [our operational plan] at first,” says an innovation leader at a major bank in a recent report.
“Part of getting going...was helping the rest of the organization understand...and trying to figure out the level of planning and strategic resourcing from it. It took us three or four months to do that. It cultimated in a...two-hour workshop with the board of directors where we set out the plan to take all of the data of the bank and try to build some automation technology with it using data science as the backbone of the opportunity.”
The team was comfortable with ambiguity and allowed its operational plan to unfold through a fluid process. There was a goal. With every step forward came a new stepping stone that culminated into a long-term plan and creative business vision.
Step 3: Map Out Your Innovation Strategy with a Tangible Operational Plan
The translation process between an idea and clear execution plan can easily become convoluted. That’s why it’s important to build anchors for a clear plan.
- Start by looking at your organization’s long-term strategic roadmap
- Assess current capabilities
- Conduct a needs assessment to identify gaps
- Refine your niche and market opportunity
- Build your blueprint according to the parameters above
This level of strategic planning precision will help your corporate innovation team create isolation from industry noise.
“The main piece is product fit analysis,” explains Brad Strum, Director at RocketSpace. “In that, we look to determine product specifications, resources needed to customize and integrate the products in terms of whatever optimal partnership is. We then look at the next main category in terms of structuring for success.”
From this analysis, corporate innovation teams can identify working capital requirements to execute and get started.
“Examine current team capabilities and figure out incentive structures that drive collaboration,” says Strum.
Think of your corporate innovation plans as a series of stepping stones rather than giant leaps. Success doesn’t happen overnight, even when chasing progress in sprints. Take baby steps, along a linear methodical path, before making a big jump.
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