The Brave New World of Corporate Venturing. Part III: Tugboat Venturing

In Part I of this blog, I discussed the traditional corporate venturing models. These are several variants of corporate venturing activities than can be roughly categorized as Internal Ventures, Startup Partnering and Corporate Venture Capital. In Part II of this blog, I discussed the emerging corporate venturing models, namely Collaborative Venturing and Sponsored Acceleration (aka Corporate Acceleration).

The emerging models break some of the compromises ingrained in the traditional models, e.g., Collaborative Venturing breaks the compromise of trying to launch an internal startup, with no better prospects of success than an external startup, or worse, beating a swarm of external startups—why not join them in designing new business models? Sponsored Acceleration breaks the compromise of partnering with startups while not being able to fuel their development directly—why not add operational value and capital together instead of either or?

The purpose of corporate venturing is to usher the corporation into bold new areas of business model innovation, beyond obvious paths pursued by linear R&D (aka industrial innovation) or product line extensions (aka brand innovation). As I mentioned in the previous blogs, the existing models are insufficient to continuous business model innovation if operated as stand-alone units, not part of a holistic approach. Each model (traditional or emerging), self-interestedly managed by its independent-minded corporate warlord, runs the risk of the proverbial local-maximum problem, conquering the hill in front (which is within its means), but not necessarily the bigger mountain of bold business model innovation the corporation needs.

Tugboat Venturing (aka Fractal Venturing): A new model for corporate venturing
The ideal corporate venturing unit must be small, yet powerful and agile enough to pull the much larger corporation towards a desired destination, which it can’t reach on its own (due its inherent large size, momentum and lack of maneuverability). It is a ‘fractal’ agent to the larger organization (autonomous yet cooperative). To use a maritime analogy, the corporate venturing unit must be the diminutive tugboat to the giant corporate ship, otherwise adrift in the sea of complacency.

When you break it down, there are four fundamental and complementary functions, or modules, necessary for a corporate venturing unit capable of moving the large corporation towards enlightened business models: Strategic Intelligence, Entrepreneurialism, Collaboration (Internal & External), and Venture Capitalism.

A ‘tugboat’ or ‘fractal venturing’ unit maintains a strong tie to the large corporation (otherwise it can’t pull it), but possesses its separate, adaptive subsystems to see, act, collaborate and invest towards safe harbors.

Let’s take a look behind each interdependent function:

Strategic Intelligence (In a way, the captain of the tugboat)
This person or team has to be able to do five things:

  • Understand the corporate strategy, desired vs. real (where is the large ship say its going, and where is it really going)
  • Think on its own about value-shifts that can change the desired strategy, have an independent view of what’s really happening (be a visionary, to put it simplistically)
  • Persuade the corporate leaders that they may need to go in different directions, or at least invest in a call option for a new direction
  • Ensure the unit’s projects are right for venturing (not too future (that’s R&D), not too past (that’s M&A)—venturing is for business model innovation, and that’s near future or the adjacent possible, as Steve Johnson would put it
  • Resist the temptation to act like a spoiled brat, break the tie with the mother ship and go in a different direction independently (a recipe that spells disaster for both)

Entrepreneurialism (In a way, the swashbuckler of the tugboat)
This person or team has to be able to do five things:

  • Dream up and design new business model concepts (don’t just copy)
  • Start with a good theoretical foundation for opportunity (talk to the Value Shift intelligence leads), but for peace’s sake: Take action, sell something to somebody and learn (through success, or better yet, fast failure!)
  • Fight for ideas, fight for people that fight for ideas
  • Be effectuous (a new word I just made up): Don’t care how the end is achieved, or about any particular end for that matter (use any means available to a large corporation (build, partner or buy!)
  • Be fast, be frugal, but most of all, be lean (cut out waste of working on things without a market)

Collaboration (In a way, the chief mate of the tugboat)
This person or team has to be able to do five things:

  • Ensure everything the venturing unit does falls within the same agenda as that of the broader corporation (no separatist agenda’s allowed (the tugboat must persuade not secede))
  • Ensure the various sub-teams of the venturing unit work in close unison (no separatist agenda’s allowed on the tiny tugboat for sure)
  • Ensure collaboration with the other two main levers of corporate innovation, R&D and M&A (& translate between them)
  • Design and build an ‘advantaged network’ of partners within the relevant ecosystem of venturing activity
  • Specifically look to partner with startups for both new venture creation and ecosystem build-out (partnerships with research centers, larger corporations, universities, experts, etc. are all good – but it’s startups that can help you determine the risk/reward profile of new business models)

Venture Capitalism (In a way, the purser of the tugboat)
This person or team has to be able to do five things:

  • Ensure the unit’s projects receive the ‘goldilocks’ treatment: Not too little funding, not too much funding—just the right amount, congruent with the risk level
  • Ensure the venturing unit spreads its bets (and resources) between various value shifts
  • Ensure he venturing unit spreads its bets (and resources) between different types of projects, internally started platforms, partnerships and corporate venture capital investments
  • Design the proper incentive system for the venturing unit employees and startup partners
  • Manage the units Corporate Venture Capital investments (money and additional value-added by the venturing unit and parent corporation)

Two Ships, One Direction
It is with this comprehensive set of functions that the Tugboat Venturing unit will be able to steer the larger corporation (not simply itself!) towards the new $1 billion dollar opportunities it desperately seeks. The important point is that it isn’t sufficient for the venturing unit to be adaptive (capable of sensing and responding to external stimuli). It must enable the larger corporation to be adaptive.

That does require the venturing unit to navigate ahead of the larger corporation, seeing what is hard to see from the deck of the legacy business model, responding first to prove the viability of new routes to charter. But first and foremost, it must selfishly pull, not break out on its own, on a quest for petty success.

Typical Projects of a ‘Tugboat’ or ‘Fractal’ Venturing Unit
Tomorrow’s venturing unit still works in the gap between R&D and M&A, reading value-shifts, using internal assets and external connections at hand and seizing opportunities that are ripe for venturing. Depending on the proximity of the value shift, it will take on projects along the continuum of Internal Ventures, Startup Partnering and Corporate Venture Capital, favoring the hybrid models of Collaborative Venturing and Sponsored Acceleration, which provide greater control over learning and greater resilience to unexpected change (See part I & part II of the blog series). Projects will be characterized by an inspiring ‘Intent’ to innovate (a better end state for humanity). The ‘end’ is a scalable, sizable new business for the corporation or significant change in its current business model (not simply positive P&L for the venturing unit). The Tugboat or fractal unit has enough autonomy and corporate venturing tools at its disposal to concoct the needed recipe in the middle—not stick to the confines of today’s boxed structures.

Important to note that projects happen at the venture unit level, not at the sub-system level (otherwise, we’re back to self-serving sub-units). So if a project intent is something like ‘prevent humans from ever falling again’, that will require the intelligence, entrepreneurial, collaboration and CVC modules to work together on a strategy and actions to navigate towards a ‘real business’ for the corporation based on the intent (which could change, of course). A hybrid model where the modules become fractals themselves is also possible, with the right leadership in place, but I’d be cautious as one can end back where things started—politics.

Stop the Digital Soliloquies
So often is the case with new ‘digital’ innovation centers, going digital all right, while the larger corporation is still going physical, physical—one body not really talking to the other. This is also the case for innovation ‘outposts’ in Silicon Valley (or some other perceived mecca of success for large corporations). While no one can question intentions, this approach gets those employees well networked in a given cluster, while the rest back at home feel like chopped liver, left to do the boring old business model—or worse, jealously gets the best of them and they fight silly turf battles over who owns the sexy new spaces for innovation like the internet of things, wearables, big data and artificial intelligence—newsflash! The corporation should own those spaces, not an individual.

So what can be done, with all the legacy corporate venturing stuff in place?
A good friend of mine in Manila, Philippines once told me the story of how a famous German traffic expert visited the world’s most populated city per square mile and was asked how he would solve the horrendous gridlock that’s beyond belief of even the most gladiatorial of jeepney drivers. His response, “Tear it all down and start again!”

That would be my response as well to the above question. You can’t get to an integrated Corporate Venturing model (the Tugboat Model) by gluing together the existing pieces, as surely the factious warlords would never co-exist in peace. You have to start over. You pick a magnanimous leader that understands federated governing, and then together pick leaders of each crucial function that can work together—then you get on one agenda (the corporate innovation agenda and the role the venturing unit plays to achieve it, in synchrony with what the business units will do and not do). You decide on what physical offices are needed for the unit, ensuring one is at least in the company’s HQ, and ok to put offices in innovation clusters like Silicon Valley, as long as they are spokes to a hub, not belligerent islands of vanity.

Takeaways

  • Corporate venturing is broken.   Most companies still relying on traditional models, incapable of dealing with fast moving value shifts
  • Emerging models are an improvement, but still leaving value on the table as they are not holistic and still largely self-serving
  • A new model of corporate venturing is needed that ‘groks’ these basic principles
    • It’s not about the corporate venture unit having success, it’s about the corporation, its customers, employees and society having success
    • Venturing is a comprehensive discipline that intertwines strategy, entrepreneurialism, collaboration and risk capital
    • An fractal venturing unit isn’t simply a unit that houses internal incubation projects and CVC investments in the same organization – It fosters collaborative venturing with startups and sponsored acceleration of startup ecosystems
    • A new model cannot be built using the pieces of the old models. It must be designed (iteratively and incrementally) from scratch
    • Innovation isn’t simply corporate venturing. It should include research (future anticipation) and acquisitions (fast reactions)
    • Corporate venturing is a translation of human needs and technology possibilities into business model requirements to achieve profitable and sustainable commercial activity (make money ethically)

Sail on until you reach the highest ground.

Credits:  Amazing flying tugboat image by Ian McQue.

Ricardo dos Santos

Director

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