Previously, we explored why corporate venture building seems to offer a better path to innovation and growth.

We outlined the key elements of the end-to-end corporate venture building process in this article: from alignment with the mothership and leadership buy-in, to governance and funding models and the team setup. In the follow up article below, we’re diving into corporate venture building in practice, summarizing what cross-industry innovation leaders shared about their approach and lessons learned so far at our recent Innov8rs Connect on Venture Building & Scaling.

You’ll hear from Antonio DeLorenzo (Head of ING Labs Asia at ING), Marika Reis (CIO at Maersk Drilling), Christian Lindener (Head of Airbus Scale at Airbus Group), Younes Souilmi (Head of Portfolio Amadeus Nexwave at Amadeus), Deborah Barta (former Senior Vice President, Provenance & Strategy at Mastercard), Sören Lauinger (Vice President Cooperations, Innovations, Partnerships at B. Braun Supply Solutions, Aesculap), Christopher McLachlan (Head of Company Builder at EnBW), and Anne Cathrine Fleischer (CEO at LEO Innovation Lab & LEO Ventures).

Let’s dive in.

1. What Does It Take To Win The Race?

Antonio pictures corporate venture building as a race: it is challenging, but if you have a well-tuned recipe of capabilities – an engine, a driver, a pit crew, and a sponsorship for the car – you can compete.

Adopting an open innovation approach to ferret out good opportunities

ING wants to move beyond banking to better serve customers with new solutions that address their unique needs. Their innovation teams actively involve employees to understand what they're seeing and hearing, actively monitoring the market through them to ferret out new good opportunities.

These newly collected ideas are then refined and validated into actual problem statements. At this stage, ideas are useless, just like crude oil that needs refinement prior to fueling an engine. How to go from finding an innovation idea to defining a problem statement to building a venture?

Validating and refining problem statements

Looking for new possibilities to solve customers' needs can't be a one-off activity. Instead, for innovative solutions to work, innovators need to design a well-structured process to validate and refine opportunities with persistence and empowerment involving people – both employees and customers – before setting a product or a service ready for the market.

With that in mind, ING has developed PACE, a structured innovation process that allows corporate innovators to refine crude oil into actual fuel to start running that race. PACE consists of five phases: discover - customer opportunity definition; problem fit - problem definition for customer segment; solution fit - solution response for customer problem; market fit - business potential validation; scaling - search potential for growth.

Securing business sponsorship early on

To win the race – i.e., for your venture to succeed – securing business sponsorship early on is paramount. Unless you've got this kind of commitment coming in from the business side, it isn't easy to push things through. And later in the article, we'll dive even deeper into this topic.

In order to secure buy-in from the business people for your initiative, be clear on why you're building this venture, clarify what problem you're solving for (and for who), who are the other actors in the market that would receive either a benefit or even lose business from this innovation coming forward. In a nutshell, create a connection with the business sponsors to make them more inclined to support you.

You can either win or learn

Antonio adds a warning. It's undeniable that running the race's ultimate goal is to win. However, if you don't win, you've got to learn and rerun the race.

“If you don’t learn from failure, you do yourself a disservice.”

2. Your Focus Informs Your Approach

The challenges along the innovation journey can create frustration, even if your “machine” is set up properly. To make the whole path easier, be mindful from the beginning of what you want to create: is it an improvement to your core business? Is it a new product or service related to what you're doing today? Or is it an actual new business that is completely different? Indeed, different types of innovation require different approaches.

Over her career, Marika has learned that there is no one-size-fits-all when it comes to innovation. And if you want to succeed at innovating, building, and scaling ventures, be clear about the objective of your innovation journey from the start. You will need different approaches – in terms of strategies, skills, and processes – if you want to have a higher chance of success.

For optimization projects and improvements to core, take ownership within the core business where all the needed skills are. Involve innovation units just as a support.

For new business areas, or things closely related to the core, innovation and core should work together as one team throughout the development of the new business area.

For new ventures, or things that are supposed to be very different from the core business and what you do today, separate it from the core as soon as possible. Trying to adapt the transformative solution into existing processes can, in the worst-case scenario, kill the new great ideas; in the best-case, they can get stuck in the company's bureaucracy.

3. Structuring The Venturing Unit For Speed

Unfortunately, many companies only have an internal focus and never look at what's happening outside. Devoting all efforts on the inside makes companies lose the perception of what’s happening in the market and eventually grab a new opportunity. Similarly, seizing opportunities just to follow a passing trend can be hazardous. Is there an ideal setup for creating profitable ventures?

Having one foot in the corporate and one foot outside

Building new ventures following trends can be risky. And that’s especially true for big corporations like Airbus. Those are risk-averse and don’t want to jump on every hype innovation trend – their products are complex and require colossal investment.

Airbus has established a separate corporate venturing unit with its own mandates on new and adjacent markets. And this is bearing fruit already, as Christian outlines.

Airbus Scale – the Airbus’ startup accelerator and corporate venturing arm – thanks to its position within the technology function, can leverage the mother company’s assets and network. Airbus Scale combines Airbus' corporate expertise with mature, later-stage startup experience and know-how to generate value for both sides.

Its own complexity slows innovation at Airbus down. However, through Airbus Scale, the company can also focus on the external market to constantly look at new trends and seize the most promising innovation opportunities while nimbly identifying and avoiding hype trends.

As you can see in the snippet from his session, Chris firmly believes that not only the “big” innovation trends are worth grasping. As a venture builder, you have to adopt a portfolio approach and be ready to continually sift through both small possibilities with an immediate impact, as well as big opportunities that have a longer-term impact.

Speed is important: be fast, don’t focus (only) on revenue

At the end of the day, what matters is the top-line growth: how much revenue you can create with the ventures and how much value you can drive. However, that’s not all. The speed in building the new venture is also a central element that heavily impacts your company. Indeed, a slow venture-building process can heavily drain corporate resources.

“The faster you are, the less you spend, the more you get to know your market, and the sooner you can stop things that don’t work.”

4. Embracing Innovation's Low Success Rate

Younes agrees with Antonio: not learning from failure is itself failure. And, he adds, the same goes for a low success rate: it will happen that new ventures do not reach the expected success rate, at least immediately. Yet there is a way to mitigate the negative effects this may cause, as we can learn from Amadeus.

As innovators, we know the average success rate for innovation is low, especially when trying to build new business models, and we often have to justify that. But within Amadeus, this message is widely embraced and accepted even by leaders.

Of course, corporates have to manage this uncertainty and its consequences. What works for Amadeus is having a Stage-Gate process to handle the uncertainty of being lean in terms of process, resource allocation and utilization. To give this more relevance, Younes shares an example.

Through Amadeus Nexwave – the business incubator within the Strategic Growth BU – Amadeus is committed to shaping the travel experience of today and tomorrow. One example is Traveler ID. The venture aims to streamline the traveler documents verification process by introducing more digitalization. When COVID slowed down the overall growth at Amadeus, particularly in the airline industry, Traveler ID had a setback.

However, because of the widely embraced awareness about how innovation works and that success rates are typically low, instead of killing the venture, they saw an exciting new application for Traveler ID. Due to COVID, many new documents now must be verified when traveling: PCR tests, vaccines, etc.

Today, Traveler ID is a successful platform already used by 20+ airlines. The platform digitalizes identity and health document verifications at every stage of the traveler's journey and provides all travel partners the means to perform identification and document verification at any travel checkpoint.

5. Secure Business Sponsorship And Bring In Legal Early

We've already mentioned how having business sponsorship is paramount for the venture's successful transition. And Deborah brings out its importance even more. According to her, you need this kind of commitment not for a few months, but 3-5 years like a normal startup. Furthermore, for your innovation idea to get to actual commercialization, you have to identify the riskiest areas first and work with relevant stakeholders dealing with those issues.

Large organizations in the financial industry, like Mastercard, are highly regulated. Several other functions play a role in protecting the brand along the innovation journey. To navigate this system, identify the riskiest areas for your project first and involve the right stakeholders from the start. If you end up punting the most challenging elements to the end, that can actually kill your idea.

One of the corporate functions usually brought in at the end of the process is legal. Instead, Deborah shares how vital it was for Mastercard Provenance Solution – Mastercard's first commercial blockchain product – to bring it in early.

Provenance Solution encompasses many different industries, even unrelated to Mastercard, and refers to different countries with various regulatory requirements. Mastercard's innovators would not have had some key information without involving the legal function, thus endangering their project.

“Work together with the riskiest areas as a cohesive group that is up for the same mission. Once you want to move the needle on innovation, but not haphazardly, that really is where you begin to gel as an innovation organization. Otherwise, there's a lot of friction between functions just trying to do their jobs."

6. Collaborating With Sales To Leverage Assets

As we’ve seen before, cross-functional collaboration is paramount for a new business to succeed. Venture builders can increase success odds by leveraging corporate assets and learning from other units. If the legal function can be a hurdle, sales seems to have even a more crucial role in such a context.

Within any business, you’ll find two separate groups working under one roof. On one side, people are working in the running business with a lot of knowns – customers, value chain, partners – and have a three-month to one-year horizon. On the other side, people are looking for new, profitable business models, face many unknowns, and have three to five-year horizons.

A lack of collaboration between the two groups – core and innovation – is a major cause of the success rate to be only 10-15% for the new venture. And the incompatibility shows up even more when it comes to corporate sales.

Corporates have many assets that innovation leaders can leverage to create an unfair advantage for their new ventures. And most of these capabilities directly relate to sales: salespeople already know the customer and possibly also the problems the innovation unit is trying to solve.

But salespeople are too rational and focused on small improvements, although they constantly ask for innovation. To explain this issue, Sören draws on the Lego world: “sales usually asks for the next Lego brick to build another layer of Lego bricks. Sales doesn't really appreciate the big non-incremental solution”.

How to overcome this hurdle? Involving corporate sales as soon as possible in the innovation process and creating an ad-hoc unit where sales and innovation can interlink has greatly helped Aesculap sell innovations.

7. Venture Builders Shouldn’t Just Build Ventures

Christopher agrees with Antonio and Deborah: successful transition requires business sponsorship. And creating a connection with the business sponsors is vital to secure buy-in. But how to engage them in the innovation journey?

Act as a translator between the corporate and the startup world

As a venture builder, you should “have your eyes and ears out there in the market to see what's happening and when new disruptive trends may come in. Also, learn from the big shocks in your market as they can create a constructive paranoia that prompts you to rethink yourself on a day-to-day basis”, says Christopher.

However, he adds, your role can’t be “limited” to this. Nothing should be taken for granted in building ventures, not even how information is transmitted internally. Indeed, it is precisely the information that guarantees or not the venture's success. Accordingly, venture builders should act as a buffer, a translator between the traditional corporate and the startup world.

Ultimately, Christopher addresses Chris’ idea of not going beyond adjacent markets. Instead, he believes sometimes it’s crucial to think ahead and beyond to seize opportunities. And the role of venture builders as a translator is decisive when it comes to communicating this urgency.

Virtual Power Plant: going beyond adjacent markets

At EnBW, venture building is insurance against disruption, says Christopher. Right after the Fukushima disaster, EnBW's leaders invested in innovation to build new businesses outside the typical growth areas. Having huge nuclear power plants, they felt the need to reconstruct the entire business model. And that has translated into investing in renewables.

However, there's also the need to think beyond as many other companies disrupt their business model towards renewables. As such, there’s the need to invest and build new businesses beyond the adjacencies and thus seize opportunities – e.g., digital business models, Virtual Power Plants.

Future power plants will consist of many small units generating electricity. They form a virtual power plant, a swarm of decentralized electricity generators if organized correctly. And the energy world is being increasingly shaped by such networked and agile systems.

Intelligent swarm control makes it possible to reliably and cheaply supply energy to customers without overloading the grids. In a nutshell, virtual power plants represent a major opportunity for EnBW to transfer its knowledge on the safe operation of complex systems to new digital business models.

8. Investing In Competitors To Save Time (and Money)

Beyond being the translator, one step further is actively investing in competitors. Indeed, running a corporate venture capital and investing in competitors in parallel with building products in-house as a venture builder can help you save both time and money. Anne shares the story of Omhu, a concrete example of how LEO Innovation Lab used the learnings from excellent external investments to build something internally excellent alike.

Founded in 1908, Leo Pharma is the oldest pharmaceutical company in Denmark. Despite that, the fire for innovation is still very much alive. In 2015, Leo Pharma established LEO Innovation Lab as an independent venture builder unit as part of a long-term strategic decision to focus on patient needs.

Why invest in competitors? “We can't rely on having the perfect product to solve a big problem. We really have to understand what other companies do, why they do it that way, why they have designed their products the way they do”, says Anne. And innovators at LEO Innovation Lab know this well.

Investing in two competing companies on a technological level has given LEO Innovation Lab the needed knowledge to design and build a successful venture, Omhu. Thanks to those investments, the venture team learned how to develop an algorithm that acquires and combines data to promptly respond to patients' pressing needs.

LEO Innovation Lab initially invested in SkinVision. Empowered by a highly accurate AI-based algorithm, SkinVision is an app that combines advanced technology with best-in-class dermatologists' expertise to detect signs of most common skin cancers with 95% sensitivity. They then invested in Triage, a unique clinical platform that empowers dermatologists, physicians, and nurses to get an instant second opinion of a patient's skin condition by comparing photos and conditions.

LEO's innovators have learned from these two investments that having an algorithm and structuring it to acquire a lot of data shortly is crucial. Right after, they developed Imagine in-house, an effective tool to track skin issues through photos. They now have a database of 400,000+ photos used to build LEO Innovation Lab's algorithm Omhu relies on. Omhu is now an independent healthcare company specialized in dermatology. This app allows users to upload a photo and get a response within 48 hours. In the meantime, the algorithm proposes possible diagnoses to doctors.

Of course, the jury is still out whether corporate venture building will actually be a more effective approach to innovation.

Yet what we’ve learned from Antonio, Marika, Chris, Younes, Deborah, Sören, Christopher, Anne and others during our recent Innov8rs Connect on Venture Building & Scaling does point in that direction.

Far enough from the core to focus on “exploring” and not be drawn back in the “exploit mode”, yet not too far away from the mothership to lose the connection: a separate venture building unit might indeed be the best breeding ground for innovation.

We'll deep dive on this topic again during Innov8rs Connect on Venture Building & Scaling in fall 2022 again. In the meantime, of course, we’d welcome your feedback and experiences. If you'd like to check the full recordings from the sessions as summarized in this article, apply to join Innov8rs Community.