Is your company designed for start-ups?
The focus on and the rate of innovation has increased exponentially. Relatively new companies set the rules of the game in many industries; we see disruptions driven by start-ups and scale-ups, fintech, proptech, foodtech, everythingtech.
And you, as the CEO or Chief Innovation of a longstanding company, which perhaps still is an industry leader, has to catch up with all the innovations happening. Before the disruption kicks in hard and you need to explain the shareholders why you had a kodak moment.
But is your organisation actually designed for integrating start-ups?
Fortunately, there are various ways to get involved with start-ups and gain access to disrupting innovations. In general it comes down to three options:
- You start a corporate accelerator program: similar to seed accelerators such a program supports early-stage start-up companies through mentorship and often capital and office space. In contrast to regular programs, though, corporate accelerators derive their objectives from the sponsoring organization.
- You acquire start-ups (or scale-ups) and integrate them into your organisation.
- You start a Venture Client program, being the early adopting venture client of startups and provide your network, resources and client acquisition (you).
To make it work, the organizational design of your company needs to suit the integration of start-ups; regardless of the option you choose.
More about this later, let’s first have a closer look at the 3 options.
Option 1: The Corporate Venture Capital & Accelerators (CVC&A) model
Many large companies have built a corporate accelerator program with the objective to boost their own innovation efforts and successes. Typically, three ingredients are put into the mix: money, mentoring and the company network. Great for startups in need of business and product development support, or any other helping hand to bring their idea to the market.
However, unlike traditional accelerators, these CVC&A programs have to meet the needs of corporate objectives, and therefore have the potential to influence what innovations succeed — and which ones do not. In many cases, it turned out that startups could not accomplish the requirements to meet strategic innovation goals, although startups have a lot of value to offer to large companies. Also, corporate accelerators do not have enough experience in starting new companies – something that traditional accelerators do have. The CVC&A programs are very costly to run and complex to operate within large companies.
These may be the reasons that corporate accelerators fail in the sense that it is very difficult to transfer innovation from the startup to the corporate, and subsequently integrating the startups and innovations into the organizational structure and culture.
Option 2: Acquire a start-up
Many companies are familiar with the decision: make or buy. Acquiring a start-up is exactly that – you take the decision to buy an innovation, rather than to innovate yourself.
Depending on the stage that the startup is in, its financial performance, competitiveness, and so on, but also the business fit with the acquiring company, the price can be very high. A typical business case for the corporate strategists.
However, as for option 1, the same challenges apply for option 2: integration of the company may be complex in terms of company culture clashes. When the integration and (mutual) transformation is not managed well, the acquisition may fail.
Option 3, the Venture Client model is presented as a better alternative to Corporate Venture Capital and Accelerators model. It is relatively new and was pioneered by BMW in 2015. Let’s have a look at BMW’s Startup Garage.
Yahoo paid $1.1B in 2013 and wrote off $712m in 2016
On the eve of Yahoo’s acquisition of social networking platform Tumblr, then Yahoo CEO Marissa Mayer wrote a Tumblr post promising “not to screw it up.” She also estimated that the rapidly growing social networking site could help grow Yahoo’s audience by 50%, allowing it to compete with companies like Google and Facebook. By 2015, however, Tumblr was still failing to turn a profit. Marissa Mayer merged Tumblr’s ad sales team with the team at Yahoo while giving the team an unrealistic $100M sales target for the year, sparking an employee exodus. After Tumblr still failed to hit sales targets, Yahoo rolled back the integration and ultimately wrote off losses of $712M from its failed Tumblr acquisition.
Option 3: The Venture Client Model, BMW’s Startup Garage
In March 2015, BMW kicked of Startup Garage; a startup’s gateway into the multi-trillion dollar automotive industry. We are looking to partner and become the early adopting venture client of top startups that can make a difference to innovation at the BMW Group. BMW’s proposition to startups offers:
- Acquire a premium client (BMW)
- Retain your IP
- Use cutting-edge tools and cars
- Learn from the world’s best
- Build your automotive network
- Become a global player
Why would BMW do this? Bloomium.com: Startup founders are able to innovate faster in terms of software technologies, machine learning, cloud computing, big data or analytics. In addition, the availability of resources that can have an internal I +D department is very small compared to those that are used in the entrepreneurial ecosystem.
The founders of BMW Startup Garage are Gregor Gimme and Mathias Meyer. On how they started, they said to Marketing & Growth Hacking: “Basically we asked, ‘What can we offer to the best startup on earth with the best technology, lots of cash, and the most talent to get them to come to us and not to someone else?’ The best thing we could offer is to be their first — hence, venture — client. No VC or accelerator out there would say they can achieve that value proposition because they are not clients, they are investors. Ultimately, what makes a startup successful is a good client. That was really what kicked off the thought of being a Venture Client and working with startups at a much earlier stage than we normally do and getting them to succeed faster.”
How much transformation is required to become start-up ready?
Start-ups are passionate about disruption and operate with innovative and creative freedom, while corporate politics are non-existent. Energy is abundant, the customer is an obsession. The start-up team is fully aligned under strong leadership, while having fun: work hard, play hard. Stock options are the incentive for performance and boot-strapping is key.
This means that a start-up culture almost certainly differs from the traditional corporate culture, which is characterised by long-term planning, budgeting, hierarchies, fixed processes and politics. The managerial philosophy of a traditional company is strongly influenced by its environment, which is typically stable and certain; the start-up environment is turbulent and unpredictable.
Are you leading an organization that can integrate a start-up and its innovations? Do you have the structure and culture to grow a start-up to even higher levels?
In Images of Organization, Gareth Morgan structures organizational profiles according to how companies set up their subsystems to perform best in a stable and certain environment, and a turbulent and predictable environment.
Let’s compare the 3 profiles and see how they are in line with their business environments.
Profile A represents an organization in a stable environment adopting a defensive strategy to protect its niche. Perhaps its an organization commanding a secure market on the basis of a good-quality product produced in a cost-efficient way. The company employs a mass-production technology and is structure and managed mechanistically. The people employed are content with narrowly defined roles, and the organization operates in an efficient and trouble-free manner.
Profile B represents an organization encountering a moderate degree of change in its environment. Technological developments are occurring at a regular pace, and markets are in a constant state of transition. The organizations has to keep abreast of these developments, analyzing emergent trends, updating production methods, and creating a flow of product modifications. It is not the cutting edge of innovation. The organization adopts and effective project-driven matrix organization and commands the required flexibility and commitment from its staff.
Profile C represents the case of a firm in a highly turbulent environment where products and technologies are constantly changing and often have a very short life span. This means it has to search for new ideas and opportunities on a continuous basis. This firm is a kind of a ‘prospector’, always looking for new places where it can strike gold. It relies on getting there first, recognizing that Profile B companies will soon move in with a competitive product. Innovation is the lifeblood of this organization. It employs people who are prepared to make massive commitments to their work and who are motivated and managed in an organic way.
The 5 key questions you need to ask yourself
It’s not all rocket science; it is pretty obvious that start-ups are very different from Profile A companies, while Profile C organizations are much more alike.
When your company has decided to innovate through the integration of start-ups, ask yourself the following questions, before you choose option 1, 2, or 3:
- Are we a Profile A, B or C organization?
- How big of a transformation do we need to go through to have at least a Profile C structure and culture?
- Do we want to transform and leave our stable environment behind?
- Can we transform or do we lack the resources and expertise?
- How do we successfully transform and remain competitive?
BMW has acknowledged that the traditional BMW organizational structure was not suitable and built a garage for startups. And a garage has proven itself as a successful starting point for quite a few of today’s technology giants…