Establishing product-market fit is critical for any new corporate venture, but that's just one component of successful corporate venture building.
As many of us know from first-hand experience, a venture's success is not guaranteed even with a product-market fit, as it may still face failure or termination by the corporation. To be successful, a venture must also match its mother company’s strategy at a given time. Misalignment can lead to missed opportunities, wasted resources, and even the failure of promising ventures.
And so, how can you ensure that your ventures are being steered in the direction of overall company goals?
During our recent Innov8rs Learning Lab on Venture Building & Scaling, we explored best practices for achieving true corporate-venture alignment with Michael Nichols (Director of Corporate Ventures at Mann + Hummel), Priyanka Mukherjee (Vice President at Olam Ventures), Antje Bulmann (Venture Builder at Airbus), Tino Klaehne (Director of Strategic Innovation & Intelligence at Lufthansa Innovation Hub), Fernn Lim (Chief of Staff at Nexus by SC Ventures, Standard Chartered Bank), Kilian Veer (Global Head of Scaling at EnBW Innovation), Younes Souilmi (Head of Portfolio at Amadeus), and Pontus All (Senior Venture Development Manager at Volvo Group).
Here's a summary of what they shared.
Why Is Corporate-Venture Alignment So Important?
Corporate ventures require strong alignment with the mothership goals and strategy more than anything else to eventually be successful, as Kilian points out. Corporate venture building generally aims to combine market potential (often the priority of external VCs or startups) with strategic fit (typically the emphasis of BUs). And this is where the corporate-venture alignment comes in, denoting the strategic synchronization between a corporation and its ventures. A good alignment results in a harmonious interplay between the mother company and its ventures, minimizing conflict.
“Many corporate ventures that achieve product-market fail anyway due to diminishing alignment with the mother company”.
Tino agrees explains that building a corporate venture means dealing with two challenges at once. The first is to understand the market and consumers to create a product that fits their needs. The second is to ensure that the venture aligns with the mother company and maintain that alignment.
In the following paragraph, we'll dive into what creates corporate-venture alignment and discuss proven best practices you can use to launch successful ventures.
Unlocking And Maintaining Corporate-Venture Alignment: A Practical Guide
Leadership support is essential for achieving corporate-venture alignment. Leaders provide the strategic direction, resource allocation, communication channels, and cultural support needed to empower ventures and ensure they’re aligned with the mother company's goals and priorities.
“Corporate ventures won’t succeed without the support of leaders”.
At Amadeus, they’ve recently adopted an “individual support strategy” so that a single leader is responsible for a single innovation project or initiative. As Younes shares, assigning a specific senior manager to sponsor each initiative has contributed to many ventures’ success. Other large corporations have already adopted a similar approach. For instance, an Amazon “Single-Threaded Owner” is a leader fully devoted to creating a new product, launching a new line of business, or executing a digital transformation. Such an approach creates a tighter bond and a more effective leadership commitment, strengthening support for the venture.
Priyanka adds that the management team must be naturally inclined toward innovation for venture building to reach its full potential. “Simply having an innovation agenda is not enough if there’s no genuine commitment. Leaders must have a real attitude toward building new businesses”, she says. In fact, according to her, Olam leaders’ DNA is rooted in building businesses, which has facilitated the corporate’s success in innovation for the past 30 years.
Therefore, securing the leadership's support is crucial to unlocking corporate-venture alignment. What can you do to maintain it?
1. A Safe Space for Experiments Steered by a North Star
Innovation requires a safe environment, either physical or legal, where failure is viewed positively. This is why at MANN+HUMMEL they have created the Digital Hubs. In these regional centers, their 23,000 employees can experiment and find the best solutions to current and future challenges. Within Digital Hubs, everyone is encouraged to bring their creativity and collaborate with like-minded people to develop new solutions quickly, more efficiently, and globally.
And according to Antje, this “safe space” should still be guided by one or multiple North Stars to ensure the newly created ventures align with the overall mother company's strategy. For instance, eight North Stars guide Airbus Scale’s innovation activities: climate change, smart aviation, circularity, crises alleviation, airport transformation, commercial space, global guardian, and UTM (Unmanned Traffic Management, i.e., building digital air traffic management solutions for the next age of aviation). These areas represent optimal environments for Airbus Scale to launch new ventures.
Antje also provides an example where a promising innovation failed due to a lack of such an alignment. The proposed technology, a waterless washing machine with potential applications in water-scarce regions, didn’t fit within Airbus's core interests, i.e., the eight North Stars. As a result, it failed to secure funding.
And the same happens at Lufthansa Innovation Hub. As Tino shares, at Lufthansa Innovation Hub they’re pioneering the future of travel and mobility for the Lufthansa Group and the travel industry by identifying the market’s shifts and translating them into new business opportunities. Their playing field is not necessarily the flying industry, and they pursue transformative ideas and build non-adjacent business models. Still, their ventures are guided by the broad goal – shared across the Lufthansa Group – to make travel easier, more convenient, and more enjoyable.
2. "Prove the Value": A Reasonable Request?
Building new businesses takes time. Yet sooner or later, you’ll get into a phase where the mother company asks for tangible results. Nothing could be more challenging: by nature, new businesses are not that predictable, and it can be very challenging to prove their ability to deliver relevant (future) revenue. And this is even more so in the early stages when the venture is still developing its offering and establishing its market presence. Of course, this imbalance between corporates' expectations and ventures' reality might heavily impact the overall alignment.
While it may not always be possible to prove the value of a corporate venture in the early stages, the following tips shared by Michael can help you demonstrate the venture’s progress and potential value, as well as build leaders’ support over time:
- Establish clear metrics: it’s crucial to demonstrate to leaders that you possess explicit criteria for assessing each of your ventures and are prepared to swiftly terminate those that do not succeed. As such, identify specific metrics that can be used to measure the venture's success, for example: customer acquisition, revenue growth, or market share. Once again, these metrics should align with the mother company's overall strategic goals.
“Many people believe that if you persist, you will eventually find an answer. Yet, that ignores the opportunity cost of persevering when you are losing”.
- Showcase early wins: even if the venture is not yet profitable, there may be early wins or milestones you can showcase to demonstrate progress and the offering’s appeal to consumers. For example, share if the venture has already received positive customer feedback or launched a successful pilot program.
- Demonstrate uniqueness: highlight the unique aspects of the venture's product or service that differentiate it from competitors. This can help you demonstrate its value and potential to disrupt the market.
- Be transparent: finally, it's always important to be transparent about the progress and challenges of the venture. Providing regular updates to leadership and stakeholders can help you build trust and demonstrate a genuine commitment to long-term success.
3. Corporate Assets: What to Use and When?
In a recent study conducted by Kilian, 17 critical assets have been identified, ranging from market data to sales and distribution channels to brand recognition. Using them all at once, however, is not a good idea. Each venture has its own focus that may also vary depending on the phase of development it is in. As a result, different ventures at different stages require different assets.
The study indicates that as ventures mature, they rely more on corporates until they’re able to develop their own assets. Kilian distinguishes four categories of corporate assets based on their importance throughout the venture-building process:
a. Constant importance: Talent
The significance of talent remains unwavering throughout every phase of a venture's journey. And when it comes to building corporate ventures, the composition of the innovation team and the talent they possess are of utmost importance. Many corporations don’t realize they already have venture-building talent with entrepreneurial skills within their existing employee base. Kilian’s research shows that around 2-3% of corporate staff are interested or qualified to work in venture building, “and in a company with 20,000 people, that’s a significant number", he says.
It's definitely important to combine external venture experts with internal talent to achieve success, according to Antje. “The tech team is one of Airbus’ most valuable assets, and without this team, we couldn’t build the hardware we need. But the team composition is not set in stone. It may vary with time, based on the venture's evolving necessities. Hence, we always look for external experts whenever we identify any skill gap within our team”.
Whatever the team composition, Fernn believes speed is a critical factor. Teams must be able to move quickly and avoid being bogged down by corporate bureaucracy, governance, and decision-making processes. To prevent these roadblocks, at SC Ventures they have established ring-fenced teams that operate independently, and even the HR function that serves them is separated from the rest of the organization.
b. Increasing importance: Expert Network
Having access to a network of experts is crucial for corporate ventures, particularly during the ideation and validation phases. In fact, experts bring specialized knowledge and skills to the table that the venture team may not possess, including: domain-specific knowledge, technical expertise, market insights, and experience with similar products or services. Leveraging this expertise can help the venture team develop more informed and effective solutions. Experts can also provide critical feedback during the ideation and validation phases and they can help the venture team validate assumptions, identify potential roadblocks, and refine the concept to better meet market needs.
c. Decreasing importance: Brand
As the venture timeline progresses, assets like brand, sales channels, machines, financial stability, and internationalization seem to become less important. For instance, the importance of marketing and sales channels decreases rapidly as soon as the venture establishes its own channels.
d. One phase importance: HR and other processes
Some assets, like HR and other processes and relationships with partners, seem to be significant only during specific phases.
4. Learn from (Your) Mistakes
Building and maintaining corporate-venture alignment is an ongoing learning process, just like everything else in the corporate context. There is no one-size-fits-all approach, and it's important to keep in mind that what works for one corporate may not work for another. According to Fernn, mistakes are an inevitable part of the venture-building process, and the key is to learn from them and apply those lessons going forward. By reflecting on past experiences, innovation teams can engage in constructive discussions about what didn’t work and why, helping to inform future decision-making and determine the most promising opportunities to pursue.
“It’s impossible to use the same playbook in two different organizations”.
Kilian’s study Fernn’s observations: there’s a correlation between experience and decreasing difficulty in venture building. Therefore, it's crucial not to get discouraged by the first failure. Instead, analyze what went wrong and learn from it to improve in the future. “Just because it didn’t work the first time doesn’t mean it won’t work in the future”, concludes Kilian.
