‘Innovate or die’ has become a cliché.
Disrupt or be disrupted. Be a Netflix, not a Blockbuster.
If you’re a senior executive, you’re likely to have heard all this before. You’re probably wary of the new market entrants that threaten your core business. And perhaps you’ve even embarked on a digital journey yourself, to compete in today’s race for relevance.
Moreover, you’re probably aware that corporate innovation is hard to execute well. It’s notoriously rare for large enterprises to become new market-makers, or to build winning propositions before the competition does, or to even build cultures of sustainable innovation. So where do you turn for inspiration? Venture capital is a valuable place to start.‘Thinking like a VC’ doesn’t just mean standing up a fund – it means rethinking business as usual.
Corporate venturing continues to gain pace. From 2016 to 2018, the number of active corporate venture capital funds doubled from 133 to 264. But ‘thinking like a VC’ doesn’t just mean standing up a fund – it means rethinking business as usual.
We’ve helped executives drive powerful outcomes by applying a VC-like mentality to their core business. Whether building new customer propositions, or driving internal change, there are key structural lessons that any corporate executive can learn from a venture capitalist.
Here are six guiding principles:
1. Take a portfolio approach.
When bringing new products or experiences to market, start with a ‘seed’ mentality. Offer small, incremental sponsorship to a wide range of initiatives, built around a coherent investment thesis. Most will fail – and this failure is to be celebrated as a source of learning, applicable across the portfolio. Over time, refine and focus on the propositions that show the healthiest growth metrics.
2. Measure, measure & measure again.
Customer propositions can only be valuable if they deliver real product-market fit. In an age of digital product, this is measurable – as our friends at Sequoia Capital have set out. They break this into three categories: market metrics, growth metrics, and engagement metrics.
Firstly, your total addressable market (TAM): how big is your universe of customers? How much of that universe could you credibly serve? How much are you reaching today?
Secondly, growth metrics: how is user adoption trending over time? Is it as fast as your competitors?
And finally, engagement: how well do you retain those customers? Do they remain active, or do they churn fast? Does the lifetime value of a customer exceed the cost of acquiring him/her as a customer? If these numbers don’t tell a compelling story, pivot fast.
3. Bet on people.
Within the venture community, it’s understood that investors are betting on special founders just as much as they bet on propositions. Founders who demonstrate a passion and intellectual curiosity around the problem they aim to solve while also showing a history of resourcefulness and perseverance are coveted. These are the individuals that can pivot most effectively when circumstances call for it. Similarly, it’s important for corporate executives to keep in mind who within their organizations are most capable of driving a successful outcome.
4. Release capital incrementally.
Large organizations often run annual company-wide budgeting cycles. Are these stifling a culture of innovation? In our largest clients, we’ve seen exciting products doomed to fail, purely because too little capital was pre-allocated for investment. We’ve also helped clients solve the innovator’s dilemma by getting the governance right: implementing small funding councils that make fast decisions, and are able to release capital fast enough to propel products up the S-curve.
5. Target large, adjacent markets.
Moving into adjacent markets is the quickest way to expand your enterprise’s TAM. This lateral thinking is a recurring theme in legendary VC-funded success stories. Airbnb expanded early from hotels to hotels plus experiences. Uber expanded from ridesharing to ridesharing plus delivery. Square expanded from payments to payments plus personal finance. By rapidly experimenting with net new market segments, these businesses achieved a holy trinity of outcomes. They expanded their headroom for growth, de-risked their core business, and revolutionized customers’ experience across disparate services.
6. Make long-term bets.
A misconception about VC is that it’s the art of picking needles in haystacks. The reality is that picking an investment is just the first step on a long road. The real impact comes from what an investor does over many years on the board, shaping and scaling the company from seed through IPO. It’s often hard for a corporate executive to take a five- or ten-year mindset, given the inevitable pressures of the next quarterly earnings call. But long-term investments are vital to truly transform their industries.
That’s why we partner with the world’s great innovation factories, helping corporates and VCs create mutual value. VCs like our friends at Sequoia Capital, where Chandar Lal is currently on secondment.
Curious to learn more? Get in touch. We’d love to help you think like a VC to accelerate your innovation programs.