How many new businesses has your company built up over the last 3-5 years? And if you did, what is their actual impact?
Chances are, your corporation knows how to generate ideas. Most likely even more ideas that can ever be implemented. Yet innovation ultimately is not about ideas – it is about capturing value from new offerings in the form of new products, services or even business models.
Most companies will not have convincing answers to the two questions above. Before Covid-19 the failure rate of corporate startups was 85-90%, according to leading consulting companies. Most of them make it to what is often called “Minimum Viable Product” but then they die.
They never make it to scale, or in other words the never make it successfully through the scaling up phase. This is the phase in which the business concept is validated (in an explorative, agile mindset) and then transferred to a sizable, meaningful business which is run in an “established business” DNA with formal processes, annual planning and budgeting, well-defined KPIs which are supposed to be delivered on a quarterly basis.
During a "crisis event" like COVID-19, picking the corporate startups that are supposed to be scaled and then scaling them up is even more critical. You need the right adjacent business models to support digital shifts, and you may need a portfolio of “disruptive” innovations to stay afloat and competitive during a period in which customer demands habits are undergoing radical shifts.
Does your organization get tripped up during the scaling process? Frank Mattes, CEO at innovation-3 and author of “Scaling-up Corporate Startups” joined our recent Innov8rs Connect Business Design and Venture Building to talk about how to select the right corporate startups.
Frank Mattes’ talk as recorded during Innov8rs Connect – Business Design & Venture Building. Check the summaries from all talks in the event playbook. Free download via https://innov8rs.co/get-playbook-bdvb/
5 Themes To Help Corporations Nail Innovation During a Crisis
The first prime minister of India — Jawaharlal Nehru — said, “Crises and deadlocks, when they occur, have at least this advantage, that they force us to think.”
Things are changing fast. There’s one important lesson for all corporations — crisis doesn’t have to stall progress. So how do you innovate when the world around you is undergoing massive shifts and changes?
Have an unbiased look at general assumptions
According to McKinsey, 80% of business models are in danger. Crisis is a catalyst of change – therefore, innovators in times of a crisis must challenge the assumptions that are the foundation of current business models and strategies – Do they still make sense in the emerging “new normal”? Have changing consumer habits or economic pressures disrupted the orthodoxies, i.e. the commonly accepted thinking about the business?
As we are leaving the first wave of Covid-19, new value chains and value propositions are starting to emerge. New layers will be added to the regulatory stack and new customer journeys emerge - Challenge the blueprint of your innovation machine and see if there are any parts that need to be repaired or replaced.
Capitalize on a crisis
The term “capitalizing on a crisis” has a negative connotation. We aren’t talking about hiking prices and taking advantage of people’s unfortunate situations. We’re talking about creating new, innovative solutions that bring value to customers during periods like this.
With social distancing and a low-touch economy quickly becoming a temporary (or maybe more permanent) part of our everyday lives, finding ways to leverage innovations that play into those situations is the key to rising while the competition sinks.
Prune your portfolio
In most companies, innovation budgets are being scrutinized in times of crisis. That requires Corporate Innovators to have a good answer on which initiatives and corporate startups should be kept and accelerated and which ones shut down. about Crisis is the perfect time to increase your vetting framework. Digital transformation and disruptive scaling are important factors when considering innovations.
This requires a fact-based, cold-eyed look at which concepts and corporate startups are “worth to be scaled” and “ready to be scaled”. Pick and choose the right ideas and prune your zombies.
Gear innovation towards the core
In a group of some 20 companies, all of them European or even global leaders in their industries, a majority said that they shifted the focus. Earlier, it was primarily about building new businesses; now, in times of crisis, it is about benefiting the core first and then building new businesses in the second run. This approach will also buy some time to mature the innovation so that it can become a convincing offer to external markets after the crisis is over
Embrace digital + innovation
In many companies, Digital and Innovation are working in silos. In time of crisis, most companies are demanding these two units to work together more closely so that new, digital products and services can hit the market earlier. Digital units that understand tech and innovation units that understand customer problems is a powerful combination. Done right, speed-to-market is not a problem since both units are working on an agile mindset.
The Historic Problems With Corporate Startups
Here’s the harsh truth. 85 – 90% of corporate startups fail. Somewhere between the post-selection MVP stage and success, the majority of startups die before reaching scale. And this is not a matter of methodology. The large majority of companies are using the Lean Startup.
So if the problem isn't the selection process or the vehicle, why in the world are corporations — who have nearly unlimited advantages over greenfield startups — failing at nearly the same rate? There's obviously something happening at a deeper layer that's interrupting progress. According to Frank, the problem lies in these three arenas:
White space
Frank summarized the various innovation process frameworks that companies are using into four phases: (1) ideation, (2) validation, (3) scaling-up, and (4) growth. Businesses have the tools to deal with stage 1 and 2 (e.g., lean, design sprints, lean canvas, design thinking, etc.) Businesses also have the system and guardrails to deal with stage 4 (e.g., growth hacking, business models, etc.). But for stage 3, there is typically neither an organizational home nor a solid methodology. It is dealt with using ad-hoc practices and scrappy frameworks.
Boundaries for corporate innovation
While corporate innovators have ample benefits over greenfield startups, they are also at a disadvantage: innovation has to deliver a piece of the strategic innovation agenda, i.e. the freedom to pivot while searching for a sustainable business model are limited.
Two vehicles, two DNAs and Areas Of Tension
Organizations have two separate DNAs for their core business model (“Predictability DNA”) and their corporate innovation / startups (“Agility DNA”) which are per se not compatible. One can find at least 10 Areas of Tension in which they clash, e.g. in their relevant ecosystem, the metrices used and the types of people working in there. The trick in making it through the Valley of Death in Scaling-Up is to establish a “gearbox” that connects the two different DNAs.
How to Choose the Right Post-crisis Bounce-back Startup
Together with 20 leading companies, Frank created the Lean Scale-up model that addresses the fundamental problems as mentioned. It is made up from three parts: (a) Methodology to validate “worth to be scaled” and “ready to be scaled” in a corporate context and how to plan for Scaling-Up; (b) Leadership’s role in creating a supportive environment; (c) Collaboration between core and corporate startup.
When your organization looks for the corporate startups for post-crisis bounce-back, it needs to do two things:
1) Right-size your portfolio to the “new normal” emerging
2) In this portfolio identify "worth to be scaled up" and "ready to be scaled up" startups.
"Worth to be scaled": validate desirability and viability. This comprises e.g. well-defined customers and their jobs-to-be-done, pains and gains, willingness-to-pay, a sized and analyzed addressable market, a clear value proposition, a robust and resilient business model, a positive business case, a clear growth strategy, a supportive ecosystem, etc.
"Ready to be scaled": validate feasibility and contextuality. In the Lean Scaleup framework, this means validating the scalability of the business concept and the technology combined with the organizational embedding of the scaling up phase into the corporate context
By doing so, you will not only help the company to survive, but also set up for post-crisis growth.
