Corporate Venture Building explained – Securing the future for companies
Staying one step ahead of the competition.
The world is changing at breakneck speed, and to keep up with the pace, companies need to start thinking about the business models of the future today. Often, however, a lack of resources and entrenched structures within companies severely slow down the ability to innovate. An overview of why corporate venture building can be the perfect solution.
Innovation is crucial for a company’s success in today’s globalized economy and to ensure long-lasting business success across generations. After all, new technologies and digital start-ups have increasingly challenged established companies in all industries. To secure sustainable competitive advantages, companies must constantly reinvent themselves and innovate. One way to drive corporate innovation and promote innovation activities is through corporate venturing.
What is Corporate Venture Building?
Corporate venture building involves using existing resources of an existing company to build a new business unit within or outside the existing organization. Classically, the ventures are built from scratch as a completely separate company. This can be a concept that is close to the existing business model, but it can also be a completely new business opportunity. Large companies have the advantage that they can use their existing resources, e.g. customer relationships, infrastructures, databases, to realize new business models and bring forth innovations. In their corporate ventures, large companies try to establish the characteristics of young start-ups that are important for innovations by establishing an operational separation from the parent company and eliminating bureaucratic structures. Combined with the parent company’s strengths such as financial resources and know-how, the new company can grow quickly and become of great benefit to the parent company. In this way, corporate venturing supports the parent company’s corporate growth and thus ensures the long-term security of the company.
What is a corporate venture builder?
Corporate venture builders accelerate internal innovation processes by identifying relevant business ideas with the aim of developing new business models, which are then spun off into spin-offs. The strategic objectives of the parent companies are always taken into account. Initially, the idea generation process is started to collect suitable proposals for the existing company. These are then analyzed and prioritized, and the most promising ideas are further developed. Later validation then crystallizes the most promising business ideas, which are then further developed and implemented to the first market-ready version. The first market feedback then helps to improve the product, generate new customers and sales and thus lead the newly founded company to success.
“Incubator, Accelerator, Company Builder – What is it and what does corporate venturing involve?”
Start-ups need a lot of support to implement their ideas and lead them to market success. There are various possible partners who can support a start-up in its various phases of life. Incubators are contact points for very early projects that have not yet passed the conception phase. The purpose of the incubator is to build and support the business development of companies at a very early stage so that promising business ideas and product concepts can be developed. The type of support that incubators provide can be of a very diverse nature. It ranges from financing to operational support, where founders are provided with a team of experts, for example. Accelerators, on the other hand, seek to accelerate the growth of an existing business model and are aimed at young startups that have already developed a marketable version of their product and tested customer demand. They provide support for further development of the product and try to accelerate market entry. They provide the companies with tools as well as financial support and actively assist in building the start-up’s processes and infrastructure. Company builders do not just provide support in one phase of the project, but actively help shape the company over several phases. They either join the company at a very early stage or act as co-founders themselves. Company builders pursue different approaches. While some primarily contribute their expertise in order to lead the start-up to success more quickly, other company builders provide additional financial resources. Corporate venturing can also be classified as a company builder. Corporate venture builders also devote themselves entirely to the development and growth of the companies in which they invest and of which they become co-founders. However, in this form of company building, independent or stand-alone entities are realized with the backing and resources of a corporate group.
How exactly does a corporate venture builder go about it?
The process generally consists of 3 phases.
In the “Ideation Phase”, a deep understanding of the initial situation is first gained. Insights about the market, competition, start-ups, trends, customer needs and competitive advantages are gained and market and asset analyses are carried out to structure and identify business ideas. These are then evaluated to filter out the most suitable business ideas for the company. These then move into the “validation phase.” The business ideas are elaborated and the business model is tested for customer interest and technical feasibility, among other things. If the business model is successfully validated, operational implementation follows. A first, market-ready version of the product is developed and an operational organizational unit is set up so that the company is ready to enter the market. With the help of initial market feedback, the product is improved until scaling and continuous expansion of the product is ensured.
Why is corporate venturing important for companies?
Young companies are particularly strong when it comes to identifying and exploiting innovation potential, which is why startups in particular are often superior to large companies in this area. This advantage is due, among other things, to the fact that companies are said to have a certain inertia for innovation as they grow in size, since the corporate structures have already solidified. In addition, future development paths are limited because corporate resources are concentrated on existing activities. As a result, companies lose their ability to transform and innovate and run the risk of losing their competitive advantage due to changes in the business environment. Corporate venturing offers a promising way to counteract this, drive innovation and retain market share over time. Companies can pursue new innovative ideas in isolation from day-to-day business without being held back by existing corporate structures. At the same time, you can use your existing resources as a competitive advantage and achieve results faster than start-ups that have to start from scratch.
What to do when resources and know-how are lacking?
Many companies do not have a corporate venture builder or experience in starting new ventures and need assistance in implementing such an endeavor. From the initial idea development to the spin-off of a venture, the right approach is crucial. Without expert knowledge, time and money are quickly wasted here unnecessarily. This is where digital venture and business builders help companies. By providing resources as well as industry and methodological knowledge from years of project experience, companies can thus gain valuable time in the innovation process and achieve better results. Whether developing digital products and services or building a new organizational unit within an organization, many venture and business builders have the relevant experience that is critical to success when building new digital business models.
How does corporate venturing work in practice?
To understand how exactly corporate venturing works in practice, let’s look at a case study from Bitrock Digital Partners, a Munich-based venture builder:
A market-leading transmission manufacturer does not want to lose touch with the digital future and avoid being overtaken by other large competitors or emerging start-ups. It is getting more and more competition from abroad and its existing market advantage is becoming less important and smaller. In order to be a pioneer in its industry, the company wants to take full advantage of its technological capabilities. However, the company knows only too well that it is limited within its own structures. So in order to be able to implement a project of this kind, it is trying to map product innovation through corporate venture building. For this purpose, Bitrock Digital Partners was brought in as a partner to identify and implement business ideas.
In the first phase of the joint project, Bitrock Digital Partners was able to gain a deeper understanding of the initial situation through various methods such as expert and customer interviews and design thinking workshops and, based on this, identify 12 possible business ideas. These ideas were then reviewed and evaluated in detail internally. For validation, the business ideas were elaborated and market needs were captured through customer and expert interviews. This enabled another relevant business idea to be identified and also prepared for implementation. After intensive evaluation of various ideas from on-premise, to Saas, to EaaS solutions, 5 business ideas passed the deep validation. Based on the financial plans developed for the remaining ideas, it was decided to implement an EaaS solution. In several solution workshops involving lead customers, these corresponding business ideas were further developed and visualized in close cooperation and consultation with the company. The finalized IoT platform with edge device connectivity and cloud functionality was then handed over for implementation.
Author: Clara Thümecke