This is the fourth article in our series on corporate venturing.
The ‘Lean Startup’ book was published more than a decade ago. By now, many people know how to get through the first stages of exploring new corporate venture ideas. The “MVP” terminology has been used and abused and many corporates have added ventures to their innovation portfolio – and if they haven’t, they can rely on the support of the many venture builders and growth hackers out there to help them do so. Great – you now have your MVP with some first customers, and your idea shows initial commercial traction. What then? How do you turn your tiny venture into a multi-million lean and mean profit machine? How do you accelerate and scale?
The four phases of building a venture – Accelerate & scale is the final stage (and most overlooked)
Successfully scaling your corporate venture takes time, grit, synergies, and data. Where the previous phases take weeks or months, the scale-up phase is theoretically infinite. Additionally, you will (again) need to leverage all the corporate synergies you possibly can while avoiding the venture getting smothered. And in this phase, more than ever, you will need to rigorously optimize all parts of the business model by staying right on top of your data. New (digital) businesses have to be 10x better than existing alternatives to stand a chance. Deploying feedback loops based on all the data available to you will help you get there.
Again, those corporate synergies
Keep the corporate close…
Corporate ventures should always have a different value lever than regular startups. At any point in time, five other innovators are developing the same idea as you. So you need to build a sustainable competitive advantage, and your corporate assets are one of the most logical sources for that. Corporate ventures get this advantage through (synergistic) value to the mothership. To effectively bank on this lever, you need to develop a perspective on how your venture will add direct and indirect value to the corporate. This way, there will be sufficient willingness from corporate to support the venture with funds, experience, connections, bargaining power, et cetera along the way. At the same time, you want to use the corporate’s assets to create unique advantages. How can the company’s industry network, buying power, expertise, or simply deep pockets help accelerate the venture and beat competition?
For one of our corporate clients, we arrived at the stage where the MVP was validated, with positive unit economics and the first customers generating actual business value. To scale the venture further, we needed to expand, either by going into new countries or adding categories. Any other start-up would have to painstakingly acquire all the contacts to do so. Not us – the corporate had a massive international partner network that we could right away leverage to expand and scale. We made a few phone calls and mobilized the corporate’s industry network of partners to create a PR, endorsement, and affiliation scheme. Within months, the international business had taken off. That’s the power of corporate synergies.
… but not too close
Having said all that – it’s important to not let the corporate get too close. Ventures get killed because they get managed like corporates. That is, the core business exploits existing business models instead of exploring new ones, trying to squeeze out profits while the vulnerable young venture is not yet even viable.
To avoid getting smothered, you need to give the venture sufficient freedom from the corporate to first create a self-sustaining business before pushing to monetize it. You need to manage the corporate-venture interaction, keeping the corporate at a distance, but using its power whenever possible. This means setting up the right governance framework, KPIs, and external board members considering this dynamic. Creating synergies does not mean integration.
Most corporate managers are inclined to try to monetize a new venture right away. When we validated our MVP with one of our clients, the first thing they said was “Great! Now we can start making money,” looking at us eagerly. “Not quite yet,” was our reply, as their plan to start bombarding the customer with product offers from the corporate was quite premature and would certainly drive said customer into the arms of our competitor. Instead, we kept the focus on bringing value to the customer, optimizing the business model, and building scale. In tandem, we communicated to all stakeholders in the corporate the timelines of when to expect returns – making them comfortable staying in it for the long run.
Polish the diamond based on data
This is the time to make a somewhat clunky MVP into a fully-fledged, effective business model. To do so, you need to build high-speed test-and-learn cycles to keep learning. The organization that is built should support that goal, together with a solid tech foundation that is ready for scale.
Keep focusing on learning quickly. Define what knowledge advantages you can deploy over your competition to better serve and adapt to your customers. Ensure speed to make decisions faster and more often than others. This is what eventually drives up your KPIs such as your retention rate, profitability, and user growth, while optimizing costs for, e.g., acquisition. You can only do this by staying agile and not falling for the temptation of now using your time to build that beautiful app, product, or website. While perfection is a virtue, you should always remain focused on learning, and should only perfect those elements of your proposition that your data shows need to be perfected.
Optimize, expand, and diversify commercially
Besides optimizing the existing marketing and sales channels, you want to build a whole array of growth strategies. As the innovators and early adopters become saturated with your original and smaller scale, you need to spread out and create that ‘buzz’. This goes beyond your original (narrow) focus on one growth engine (paid, sticky, or viral), and requires you to develop multiple growth strategies on top of each other. It’s not just digital marketing that is effective at this stage: now is the time to start building the brand – which has the added benefit of also giving a boost to your venture’s culture. And to reach the majority of customers, you will want to somewhat broaden your proposition, e.g. by adding features, expanding the assortment, and inserting a different price tier.
Build that team!
One of the largest misconceptions is that digital companies scale without people. Start building a professional organization. You want to scale your organization in tandem with your growth. As your revenues increase, more people can be hired. A balanced team of 10-15 FTE’s, with functional experts across departments (commercial, digital, operations) and support functions, is typical after 1-2 years. As you scale, ensure you have a good mix of industry expertise (perhaps from the corporate) and young ‘digital/start-up’ blood. Invest in serious HR, Finance, and Legal experts to support the growth. Insource wherever possible to keep the pace, save costs, and maintain continuity. And hire top-down, i.e., start with leadership that paves the way by first building the processes and ways of working, and then transferring the roles and responsibilities to new hires.
Example venture team set-up after 1-2 years
Avoid too much technical debt: set up a scale-able tech foundation
While you build your organization, along with growth, also ensure your tech stack is ready to enable the future growth you’re pursuing. Don’t be shy about re-platforming if that’s necessary. Now is the time to think ahead and invest in a solid foundation for the years to come, e.g. for data and analytics. Of course, you should remain modular and agile, so probably don’t invest in giant best-of-suite solutions just yet. Instead, build modules step-by-step as the needs arise and connect them to a scalable modern backbone of your growing scale-up. Needless to say, a strong architect is key to setting this up.
Need help scaling your venture? Why not get in touch with our dedicated ventures team! Or check out our other articles on corporate venturing below.
The Venture Article Series
We have learned a lot through helping our clients over the years, and we’ll be sharing our key insights with you in a number of publications. The topics we cover are:
- Introduction to corporate venturing: This article is the first in our new series of articles on ventures and scale-ups in a corporate setting.
- When to build (and when not to): Exploring further that ventures aren’t for everyone, as strategy dictates approach
- How to build a venture: Drawing the journey of venture building with activities, deliverables, and team set-up for each phase
- How to scale: Taking the right steps from start-up to a successfully scaled organization
- Common pitfalls: What can go wrong and how to make sure to avoid it
- Governance – set-up: How to govern ventures correctly with the right targets, reporting lines, financing, etc.
- Governance – freedom balance: Finding the right balance between giving a venture freedom versus ensuring a strategic match
- Manage (KPIs): Looking at the right KPIs based on the de-risking funnel, performance analytics, and reporting to corporate
- Team: Solving key questions on venture teams and the importance of a great venture lead
- Venture tooling: How to make the key choices and available options for MVP landscape tools, growth hacking tools, and collaboration tools
- Customer validation best reads: Sharing our top picks in the literature on customer validation
We hope you’re as excited as we are and please let us know if you have specific topics or questions you would like us to share with you.