C-suite needs to take a systemic approach to venturing accepting not all bets will land and an appetite for risk in exchange for transforming the industry says Line Eriksen and Truc Mai Dupont Vohong at Bain & Company.
Corporate venturing is an umbrella term for the ways companies can explore innovation opportunities. It encompasses building new ventures, deploying venture capital through various investment models, and forging strategic partnerships. In our experience working with companies using these approaches, there is no single formula for finding the right balance. Multiple bets must be laid.
That is partly because it is not easy to launch a new business. The great majority of corporate start-ups die at the minimum viable product stage when key features of a new product or service are ready to test with customers.
While global corporate venture capital activity slowed throughout 2022, with CVC-backed funding ultimately falling 43% from 2021’s record high, according to CB Insights, this has not stopped an increasing number of regional companies from tapping into venturing for growth and as a way to address the constant risk of disruption they face from business, societal, political uncertainty, and technical innovation.
Through work at Bain’s Venture Ecosystem with corporate innovation leaders, venture capitalists, and start-ups, we have identified insights to consider when approaching corporate venturing in the Middle East this year.
Ambidextrous CEOs
To nurture new growth engines, venture leaders advocate creating a completely new culture, lateral to the parent company’s, that breaks down silos and pushes decision making as close to the front line as possible in order to avoid senior leadership bottlenecks.
Creating such a culture calls for developing an ambidextrous organisational paradigm that finds chemistry between the evolution of the original business and the revolution of new ones, between scale and speed, between productivity and creativity.
Innovation vehicles
C-suites need to move their operational model away from a focus on building a linear, structured, and well-oiled machine. Instead, they should move toward a flexible model enabled by systems thinking, meaning a holistic analysis of the broader impact that one innovation decision can have internally and externally.
This helps ensure that various innovation activities, both internal efforts, such as building digital infrastructure, and external ones focused, for example, on customers or exploring VC trends, are interconnected.
The new operating model should dictate how innovation vehicles are chosen, and that choice should not be made without considering the venture ecosystem or consumer insights. The precursor to this is aligning on specific investable themes to ensure that teams diligently and succinctly explore business-model or technology innovations that unlock the right opportunities for the company.
Democratisation of ideation
Employees, clients, and other stakeholders all can be valuable sources of innovation ideas. Such democratised innovation can help ensure that new growth engines are relevant for employees; it also fosters their involvement, while capitalising on in-house experts’ understanding of specific markets and technologies. Company leaders can identify specific challenges for which they would like to hear employee feedback.
Corporate venturing teams also can learn from the data revolution when investing in a venture. However, in light of pervasive, imperfect information and algorithmic biases, they will still need to lean on empathetic relationship building and qualitative consumer insights.
Hire unbiasedly
Unpacking and understanding what a venture’s business, societal, environmental, and political outcomes may be is now an ethical responsibility, and a non-negotiable element of the business-design skill set.
Hiring the right mix of internal and external talent for venturing work is paramount to capitalise on what the parent company’s internal candidates bring and on the external venturing experience that those outside the company can add.
Triple bottom line
In addition to investing in or building impact businesses, corporate venturing can embed environmental, social, and governance, ESG considerations in its decision making. Whatever innovation vehicle is chosen, the environmental and social outcome should always be considered to ensure the maximum balanced, positive ESG impact.
ESG in corporate venturing helps the parent company increase its competitiveness, transfer ESG knowledge and lessons learned, and achieve long-term sustainability goals.
Long-term value
There is no one-size-fits-all model for corporate venturing. Companies need to concurrently steer various innovation vehicles and lay multiple bets. When choosing specific investable themes, companies should consider where they want to be on the innovation continuum.
C-suite executives need to take a systemic and intentional approach to venturing, but they also must accept that not all bets will land. An appetite for risk, potentially in exchange for transforming your industry, is necessary in the world of venture.
Venturing can be messy, uncertain, and a corporate character-building process. It balances science and art, drawing inspiration from both consumer insights and our impact on the planet.
With the right talent, mindset, and nuanced understanding of both the core and new business opportunities, companies can pivot toward their best model, in which they pursue venturing with intent and impact.
Key takeaways
- While venture capital activity slowed throughout 2022, this has not stopped regional companies from tapping into venturing for growth.
- Venture leaders advocate a completely new culture that breaks down silos and pushes decision making as close to the front line as possible.
- Creating such a culture calls for developing an ambidextrous organisational between evolution of the original business and the revolution of new ones.
- Corporate venturing teams can learn from the data revolution when investing in a venture.
- In light of imperfect information and algorithmic biases, teams will still need to lean on empathetic relationship building.
- The teams should explore business-model or technology innovations that unlock the right opportunities for the company.
- There is no one-size-fits-all model for corporate venturing.
- Companies need to concurrently steer innovation vehicles and lay multiple bets.
- When choosing investable themes, companies should consider where they want to be on the innovation continuum.
- C-suite executives need to take a systemic and intentional approach to venturing, they also must accept not all bets will land.
- An appetite for risk, in exchange for transforming your industry, is necessary in the world of venture.
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