Facebook. Google. Netflix. They're some of the fastest-growing, most innovative companies in the world. They are the New Age Corporations. They came to disrupt, and disrupt they did — all in less than two decades each, these tech giants have grown from nothing to the corporates-in-residence on the Fortune 500 list.
Because they are quick, nimble, and relentlessly true to their entrepreneurial roots, these New Age Corporations stay ahead of the curve and continue to innovate by looking outside, instead of focusing internally. They keep their startup sonars on at all times — they know the majority of innovation happening in the world is coming from outside their four walls.
The New Age Corporation knows that in order to keep it - they must follow the 80/20 rule for innovation — 80 percent of its innovation strategy activity is external, and only 20 percent is internal. That is, 80 percent of the corporation's innovation strategy pipeline is filled from the open market. The remaining 20 percent of the time, when the company is unable to find suitable partners on the market, it finds ways to build solutions internally. Not every corporate need, after all, can be satisfied by the open market.
Some corporate veterans rely on a majority internal innovation strategy, believing that they can cook up everything they need in-house. Corporate innovation, though, necessitates startup connectivity and engagement.
Approach innovation like a New Age Corporation
What makes the fast-growing tech giants better innovators than their legacy competitors?
They understand startups. Having been startups themselves not so long ago, they maintain the entrepreneurial DNA that enables them to move fast towards the futures they envision. They've grown up quickly within a startup context, and they appreciate the entrepreneurial journey, so their leaders know that the only way they can continue to stay on top will be to continue to engage and work with startups on an ongoing basis.
Facebook CEO Mark Zuckerberg presents at the company's 2016 F8 developer conference (Photo courtesy of Facebook)
Continuous engagement with startups can lead to numerous partnerships and opportunities, and sometimes can result in great acquisitions. Let's take Facebook, for example. The social networking behemoth has created numerous partnership and has been on a heavy acquisition path. Over the past many years, they have acquired virtual reality pioneer Oculus in 2014 for $2 billion; Whatsapp in 2014 for $19 billion; and Instagram in 2012 for $1 billion, all to power its 10-year roadmap, focused on a trajectory towards mastery of video, messaging, connectivity, artificial intelligence, and virtual reality. For corporations that can't afford to take out their wallet and throw billions at startups to acquire them, a cheaper alternative is to set up a process for startup monitoring and engagement aimed at building partnerships that can create even more powerful results.
Why does Facebook acquire so many startups? Innovation and talent. This isn't a new strategy; in 2010, CEO Mark Zuckerberg explained the company's startup acquisition strategy quite succinctly at a startup accelerator event:
"The fact that so many of the people who are leading products within Facebook are coming from environments where they were most recently at a startup as a founder just creates an incredibly entrepreneurial environment at a scale where you can build stuff that millions of people are going to be using."— Mark Zuckerberg on Facebook's startup acquisition strategy
Disruption at scale — that's why New Age Corporations win.
You don't get lucky with innovation. It happens with strategy and execution and only flourishes with an understanding of how to work with startups.
Facebook, with acquisitions and partnerships, often keeps its new partners independent of the mothership, letting the technology and brands develop on their own. Instagram, Whatsapp, and Oculus are all examples. While the original entrepreneurs continue to grow and develop their apps, they can use Facebook as a platform to reach new users, resources, or opportunities. Facebook doesn't disrupt the technology or mission of these companies, but instead plugs them into the Facebook ecosystem for accelerated growth.
Facebook isn't the only New Age Corporation putting a startup-based innovation strategy to work. Uber recently acquired self-drive truck startup Otto for $680 million in August to power its self-driving project. An example is Shopify, which acquired Kit earlier this year, the virtual digital marketing assistant company (a RocketSpace alumni startup), to drive greater sales for Shopify store owners through automated marketing.
Revamping Your Corporation's Innovation Strategy
So, how can a legacy Fortune 500 that's quickly falling down the charts get its act together?
As 500 Startups Founding Partner Dave McClure puts it: "Hedging your public company stock by buying potentially disruptive unicorns for only 5–10 percent of your market cap may be one of the simplest ways to defuse the startup threat and keep on trucking... this is the Unicorn Hedge."
Innovation must start sooner, though, with strategic intent and with purpose. Fortune 500s need to be tracking potential partners early on, instead of acquiring them too far down the line. They should partner with entrepreneurs and let them do what they do best: Build. Meanwhile, corporations must leverage their own strengths: access to capital, a large user base, a portfolio of phenomenal partners, visibility and credibility based on their history and shaped by branding and PR expertise. In summary, the process for launching a startup strategy looks something like this:
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In the end, every corporation must have a startup strategy and program in place in order to stay relevant in today's rapidly changing marketplace. New Age Corporations get that — the rest should jump aboard before their lunch gets eaten by the new kids on the block.
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