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It’s easy to see why so many companies are turning to corporate venturing as a way to accelerate growth, future-proof their business, and gain a competitive edge. It’s one of the quickest and most cost-effective ways to access new technologies, experiment with new business models and increase market share. It is the unfair advantage of Google, Amazon, Tesla and why they remain at the forefront of their industries.
The practice enables corporations and startups to pool their complementary assets and address strategic needs that neither could fill on their own:
- Corporations need to monetise the use of new technologies.
- Startups need funding and resources.
It’s a match made in heaven, with the potential to change entire industries and yield a stellar return on investment (ROI) – but it does have its challenges. When it comes to corporate venturing or any strategy for that matter, it’s imperative to anticipate the bottlenecks and have ways to efficiently overcome them.
Keep reading to find out what common challenges we’ve run into during our 12 years building and scaling corporate ventures and how to deal with them.
Challenge 1. Choosing the right venture
Many corporations have trouble identifying the right criteria to choose ventures to invest in. This will inevitably lead to difficulties down the road, like not getting the expected returns or not using the right tools to develop the venture.
The solution:
A good rule of thumb to avoid running into this challenge is to make sure your venturing arm is laser-focused on the company’s long-term growth goals, targets and resources. Build your decision criteria off the corporate assets you can leverage as an unfair advantage.
Corporate startups like Peacock and Tankey are great examples of ventures that helped their parent companies experiment with new offerings and business models, effectively leveraging internal resources.
Challenge 2. Balancing venture speed and corporate governance
Corporate assets like partnerships, expertise, funding and other resources are a vital part of any successful corporate venture because they give you an advantage over competitors.
The problem is that it’s not always easy to leverage the necessary assets at the speed required by the startup. Corporate governance delays can cause the new venture to lose momentum and not reach its growth targets on time.
The solution:
The best way to address this challenge is to get ahead of it, with proper planning and communication. A venture board can also be of great help, operating as an added layer around the team to ensure their success.
Venture boards consist of corporate board sponsors that meet with the venture team quarterly, and can step in to provide strategic advice or guidance. They act as a vision-execution link between the startup and corporation, keeping everyone aligned and leveraging corporate assets efficiently.
Corporate startups like Grasshopper and Visible are great examples of ventures that leveraged their corporate assets with speed and efficiency.
Challenge 3. Using the right incentives
Successful ventures require a leadership team that is resourceful, driven, motivated and above all entrepreneurially minded. They need to have the proper incentives to go the extra mile, and genuinely feel invested in their projects.
Venture leaders aren’t your typical profiles, and many corporations struggle to find the right way to incentivize them. This can be detrimental to the long-term success of the venture.
The solution:
Avoid this challenge by daring to incentivise your leadership team with the right legal entity setup and personal incentives. Use KPI-driven bonus models or offer equity shares.
Startups like RewardsPay, Peloton and Yotpo offer their employees (including their leadership teams) equity along with other great incentives to help keep them focused and motivated.
Challenge 4. Managing customer data
Customer data has become an extremely precious resource. When efficiently leveraged, it can help you customise your offerings, improve your customer experience, increase sales, connect with your target audience and add useful features to existing products. The possibilities are endless.
The problem is that even with all the available technology, we’re still having trouble collecting, analysing and securing it. Even established enterprises like Capital One, Quest Diagnostics and Twitter have experienced data breaches within the last two years.
New ventures are especially at risk, because in most cases the team is primarily focused on growth, and things like privacy laws and GDPR end up not getting the attention they require.
The solution:
Here are a few useful tips to help you manage your corporate venture’s customer data:
1. Know what you want to achieve with your data.
There are endless options for collecting customer data (e.g. heatmaps, lead generation forms, embedded web page buttons, etc.). With so much data coming in, it can sometimes be hard to know what to do with it. In fact, according to Frontier Enterprise, about two-thirds of company data goes unused for analytics.
Make the most of your data by linking it directly to your strategy. Remember, each objective you set at any phase must be measurable.
2. Make security a priority.
According to IBM Security, the average cost of a company data breach globally is $3.86m (and that not counting the loss in customer trust). Take these steps to secure your data:
- Use a Customer Relationship Management (CRM), Customer Data Platform (CDP) or Data Management Platform (DMP).
- Invest in a data backup system. Losing that data could have dire consequences.
- Making sure your employees are trained, and certified if necessary, to handle confidential data.
3. Make sure your data is updated and accurate.
Customer databases can quickly become cluttered, outdated and incomplete, leading to inaccurate conclusions during analysis. According to Zoominfo:
Challenge 5. Ecosystem positioning
A business ecosystem is a set of companies that complement each other by:
- Supplying products for those in the ecosystem.
- Combining their offerings to create new value for the customer.
- Providing different ways to reach customers.
The strategy has enabled many companies to grow their core businesses and expand their product portfolio with significant returns. Here are two standout examples:
- Amazon, which expanded past eCommerce to include cloud computing, logistics, pharmacy services, and more.
- Apple, which expanded beyond computers to smartphones, banking and entertainment.
The challenge here is that it can be hard for new ventures to position themselves in an ecosystem and collaborate/partner/plugin to these complementary networks.
The solution:
The first step on the road to finding (or building) the right ecosystem is to figure out what goals best fit your company’s capabilities. For example, is your goal to accelerate growth? Create new offerings? Build end-to-end solutions? A combination?
Once you know that you can start working towards that goal by establishing the right strategic partnerships and bringing in the entrepreneurial talent needed to take your agenda forward.
Final thoughts.
The rewards of corporate venturing can be quite vast in terms of growth, innovation and profitability, but it’s not a risk-free process. It requires careful planning, preparation and an entrepreneurial mindset to execute successfully.
Working with the right tools, technology and talent can also go a long way in helping you overcome the risk and get the returns you’re looking for.
If you’re about to embark on your own venture, be sure to follow the tips above so you can anticipate and overcome challenges before they become a speed hump. If you’re in the corporate venturing process we can help you create investible venture concepts that do just that.
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