Venturing Beyond the Hype - How to Build Viable Ventures in a Down Market

Look to Founders, Not Consultants or VCs

As corporates take a more critical look at their venture building activity, they’re starting to identify a few common themes:

• For the amount of excitement, money and activity they’ve poured into ventures over the last few years, success stories of ventures that have managed to scale up are few and far between.
• Most of the ventures haven’t been structured in an investable way, and struggle to raise funding when the corporate money taps turn off.
• Many ventures were started with the motivation of trying out or applying a new technology to a problem the corporate is already invested in. This rarely turns into a viable business.
• Corporate ventures often feed on their own hype without being exposed to critique from external parties like investors. This can lead them down a dangerous and delusionary path.

Sebastian Müller believes that the root of many of these problems lies in the fact that corporates have learned their venture building approaches from consultants and VCs.

“Consultants earn money for telling people what to do, but not actually doing it. They’ll tell people what venture to build based on some research and benchmarks, and design complex program structures and teams, but this sets up a big problem when the consultant is long gone, and the people who are supposed to implement realize the venture actually faces massive issues,” he says.

Emulating VCs hasn’t worked for venture builders either.

“VCs are very happy to bet a lot of money on their investments, and if they bet enough and at least one makes it big, then they make some money. But corporate ventures are playing a completely different game.”

For Sebastian, corporate ventures should actually look to founders - not consultants or investors - to find the right mindset for success. Why? Because founders need money in order to grow their business, they build companies that do something customers are willing to pay for. As a result, they overwhelmingly focus on customer pains and finding a solution to those pain points that is as simple as possible, has a good customer lifetime value, and a reasonable cost of acquisition.

In short, founders build viable businesses that are able to scale.

Focus on Customer Problems Instead of Trends

Another common corporate venture pitfall has been getting caught up in the hype of new technologies, like blockchain, NFTs, AI and VR. But while they might like the sound of the next big thing, being driven by tech is a recipe for failure when building a venture.

“If you want to play around with cool tech, go to the innovation lab. If you want to bet on trends, go to Corporate Venture Capital," Sebastian says.

In venture building, we need to focus on properly resolving customer pain points, which has nothing to do with what tech you actually use. Most corporates don't actually do this, even though they say they do - they never really put it into practice."

Putting the customer pain point at the heart of a business means understanding their problem, and things like its context, its frequency, and the current workarounds they’re using to overcome it. This can then be used to come up with ideas on how to solve the problem, which can be validated with customers during discovery.

According to Sebastian, the only ventures that should be built are ‘painkillers” - companies that provide a solution to a crucial customer pain. This means there will always be demand for the business, even in a down market. Get this right, and venture building actually becomes far less risky than people think.

“Venture building is always described as super risky,” Sebastian says. “But in this business we actually have some of the most risk averse people. We need these people to point out all the things that could go wrong, and then very practically, do things to figure them out. This level of risk aversion ends up saving us many millions of dollars down the line and leads us to actual startups that are able to successfully raise money in the market.”

Getting Skin In the Game From Customers to Build a Viable Venture

So how should venture builders prove they’ve identified a customer pain point that can lead to a viable business?

A tried and tested method is of course conducting customer interviews and tests, but Sebastian cautions against relying too much on these. Although they’re useful in the early stages of a venture, they don’t provide sufficient levels of proof that a product or solution will actually be profitable. Even if the customer says they like something, this offers no guarantee of translating into monetary value.

“I regularly see big companies throwing millions at pitch decks that have no more validation than showing a customer picture and asking them if they like it. This leads them to put in millions that are basically guaranteed to fail, just because the storytelling was good,” he says.

“In the venture building game, we always need to come back to fundamentals. The only thing that matters is that there's a revenue, that we’re selling something to a customer. This ensures there’s real skin in the game on the customer side and that they want to use the solution. It’s the only way to actually build scalable businesses.”

Sebastian recommends reframing customer interviews around sales, running pilots as early and as frequently as possible to start generating revenue, and ensuring the team is always made up of a combination of commercial and product people, to make sure they build something the customer both wants and will pay for.

Don’t Believe the Hype(tech)

A focus on selling to customers distinguishes real ventures from pet projects, which are often based around hyped technologies that will make headlines with the board, rather than solving real customer needs. This ‘hypetech’ causes a range of challenges:

• Hammer-and-Nail syndrome: When technologies like AI or Blockchain become the driving force behind a venture, every problem looks like an opportunity to use them. This blinds teams to better solutions for the job.
• Talent availability: Talent in hype areas is likely to be scarce and overpaid (when hiring both employees and freelancers). This increases the overall cost base for the venture before the team even knows if it’s viable to begin with.
• Technology maturity: The technology might still be fairly young, with use cases and structures that haven’t yet been explored. This leaves the venture dependent on a more vulnerable system than if the business invested in tried and tested tools.
• Venture readiness: In the beginning, ventures often don’t have enough supporting infrastructure to actually build systems with a level of utility that makes sense for users. For example, when creating an AI product, it might lack enough supporting data to build a relevant tool for customers.

Venturing Beyond the Hype and Building Successful Businesses

As we’ve seen, new technology is often an enticing prospect for executives to invest in. But building a venture on the back of technology alone isn’t enough.

To be successful, corporate ventures need to solve a real problem, releasing solutions to the market and getting paying customers on board. As Sebastian notes, this can be a humbling experience.

“Instead of betting on the big disruptions, and spending a year or two building something for a few million which then completely falls flat - get those first few dollars coming in. For some of our pilots we just say, “let's collect $2 from this person, or $5 from that person”, to work out if the customer thinks it’s worth it. Do they actually care enough about the product to spend their money? If you get rejected for a $5 monthly subscription then you better go back and check what's wrong with your idea,” he says.

By focusing on the customer pain point, not getting distracted by the promise of new technology, and looking to founders with practical experience of running successful businesses, venture builders can create companies that are actually able to raise external funding, scale up, and take on a life of their own. This is a win-win for corporates investing in venture building, as the end result is a fully independent and viable business.

“If the corporate wants to buy back the venture after it has scaled, then great. But if not, obviously it will still go on and do well. At the end of the day for me as a venture builder, this is the most important thing - that all ventures are able to do good things in the world and actually help to improve things,” Sebastian says.