Corporate Venturing
If you really want to encourage new business ideas you need to be brutal about killing off the bad ones as early as possible and concentrating only on the most promising ideas. A lack of this type of ruthlessness causes business development, start-up incubation and corporate venturing initiatives fail to live up to their potential. A willingness to commit idea-infanticide will not unfortunately be sufficient for success, but it is necessary. This tutorial describes how a Dragon’s Den style investment programme is the most promising way to spin-out new business ventures from your existing business.
Tease Campaign
This technique is designed to speak directly to staff but you will need the buy-in of the whole senior executive team. Success brings so many organisational problems later on that you’ll need the CEO’s backing to push things through. For now, however, you need to drum up interest among your troops because the whole programme relies on new business ideas coming up from below. A good way to start is through a tease campaign. Borrowed from advertising, the idea is to put out a striking message, in a poster or electronic equivalent, without giving any further information at all. What does it mean? What is it all about? Gradually over time, a little more information is revealed – just enough to prick their interest. What you are ultimately trying to do is to get as full an attendance at your launch event as possible. Don’t try to rush this part. It pays dividends to spread this out over weeks.
Launch
This is where you and the chief executive of the organisation (no one lower) reveal all. You want to generate new business ideas. The most promising ones will go into a kind of ‘skunk works’, semi-detached from the organisation, and be hot-housed through business planning, market assessment, and prototyping. The idea will be to launch as a new venture within your existing organisation, or spin it out as a new company, or sell the idea on. At a research lab where I launched this programme the CEO had a nice opening message that resonated with his science staff. He invited them to remember the first time they had a research paper published. Then he asked them to remember their first patent award. The punchline was ‘Now I’m going to tell you how you’re going to make your first million!’
At the launch event you need to wow the attendees. Make sure you bring your ‘A game’ in terms of communicaton skills; make sure it is slick. Get good speakers. Make maximum use of available media. My approach has been to find a key opinion former, someone – probably of middle-ranking seniority – but with a big personality and super-enthusiastic about the initiative, and give them top-billing. Another approach is to make films that convey your message. It can be highly produced or more like a ‘skit’; whatever makes an impact.
Outline the Dragon’s Den style process and explain the near-horizon milestones. You want people to send you business ideas, so give out e-mail or website addresses, a pro-forma form with a few questions to help people shape their ideas, and a deadline. This is why you need to wow them, because otherwise what you’re describing is just a glorified suggestion box. They need to believe this is something more.
Raw Material
Then you sit back and wait for the ideas to flow. Give it at least three weeks, maybe four (I know this is starting to sound like a recipe!). During this time, there will be questions. You need to meet with people; help them, encourage them, listen to them. There will be a broad mix of people, not all of them the sort that necessarily fit easily within large organisations. This is where your personality adds an ingredient that either acts as a catalyst or drains energy from the project. If you’ve read this far, I’m guessing you’re in the former category, but if you are a bit process-oriented, you might be wiser getting someone else to be the front-line contact. Do not try to answer everyone’s questions. Your job is to say, ‘We’ll cross those bridges when we come to them. For now, just get your idea in the best shape possible.’ Aim to get the raw idea described in no more than two pages. Ask questions about market size, competition, what prototype or intellectual asset is available, but don’t be too prescriptive. Let people express their idea as best they can.
Assembling Your Team
At this point you mobilise the team that you’ve assembled at the start of this programme to hot-house ideas through the programme. I’d recommend external consultants. They will be expensive, but the danger with in-house people is that they put too much weight on values and ideas that are current in your organisation. You need people who can tell you the emperor has no clothes, and that’s easier if they are external. I call this a ‘hunter-gatherer’ approach. It is in complete contrast to permanently employing staff in business development or even corporate venturing roles. I’d suggest three people with experience of strategy consulting.
Initial Pitch
Everyone with an idea gets the chance of a 20 minute pitch to the hot-housing team. This is a lot of fun. It will give you a back-catalogue of stories you’ll still be telling years from now. The aim is simply to understand the idea that has been outlined in paper but also to assess the character of the person making the pitch. Depending on the volume of ideas and size of your organisation, this might go on over two or more days. At the end, you make the first cull discarding all poorest ideas. Make sure you give feedback quickly, ideally the evening you make the decision, saying either ‘yes’ or ‘no’ to every participant. People will tolerate you being brutal about discarding their ideas if you are quick, clean and honest about it. Do not soft-soap the feedback. Be prepared for someone sending you a snotty e-mail back. You’ve just called their baby ugly, so cut them some slack.
Hot-Housing
Now you’re team get to work. Initially this means meeting with each person who made the first cut and going through their idea in detail. At this early stage, you are really trying to assess the attractiveness of their idea in terms of market size and competitive environment. Kicking the tyres of what they have of value in this market comes a little later. The reason? There will be many ideas that sounded interesting at the initial pitch but after only a superficial bit of desktop research turn out to be unpromising for some reason, often because there are formidable competitors already in the market. The whole hot-housing process might take three weeks. At the end of each week you review the portfolio with the team, discarding the weakest ideas each time. The purpose of the hot-housing process is to shape the idea from its raw form into a one-page analysis of the opportunity, describing the market, the business model and, crucially, describing – in the form of an investment decision-tree – the steps to market and the likely investment needed to reach each milestone. Given the number of ideas, this will largely depend on desktop analysis but you should aim as far as possible to get external validation. This may mean purchasing a piece of market research, but more likely drawing on networks to seek opinions of people with some knowledge of the relevant market. This is where consultants come into their own. They will have a wider network than your own people. Not all of the validation will be external. It would be wise towards the end of the process to have some internal review of your portfolio by senior executives in your business. This can catch avoidable errors before they occur, such as believing you might own the intellectual property rights where in fact you don’t, or repeating product launches that failed in your company’s past history. It also might reveal some market insight that is not available to the entrepreneur who, typically, won’t be particularly senior (senior people have no incentive to participate in your scheme: they are already in a position to advance their own ideas, and do not need to take career risks). At the end of this process you will have a portfolio of new business opportunities that you can summarise in a number of ways. Here’s one I made earlier.
Don’t worry about the ideas you discard. If they are any good, they’ll get there in the end without your help.
For instance, this portfolio is from 2005, but I just heard the ‘phage’ idea being described by a person in the radio this evening in 2013. A different person, it has to be said, but the same idea. The truth about product development outside electronic and computer industries is that often it takes is a very long time to get to market.
Investment Panel
While all this has been going on you will have been assembling a panel of ‘Dragons’. Just like the TV programme, you are looking for people with experience of investing, ideally in early stage investors. You are specifically looking for investors, not people drawn from the eco system of professional advisors that surround early stage investors but people who actually have money to invest. The brief to investors is we’re not asking for money. Typically, your portfolio will be too early stage even for these investors. Instead you’re asking for their opinion: which of these sounds promising enough to take to the next stage, ie a business plan (at which point you will be seeking to raise investment)? Even in 2000 when I first ran such a panel, there was sufficient interest from local venture capital investors. All you’re asking is a day of their time and in return they have the opportunity of an early look at opportunities that might turn out to be interesting. Nowadays, when Dragon’s Den is so popular, you’ll hardly have to explain what you’re doing.
On the day, you invite the entrepreneur to pitch their idea to the investment panel. This time, they will have had the support of your hot-housing team in preparing their presentation but it is still, in essence, their idea and they, as the entrepreneur, that is on show; as it should be.
After all the pitches, you are essentially asking the investment panel to make the very last decision on which ideas should make the final cut. At this point, if any ideas make it through, congratulations, you have some potentially attractive new business opportunities. This is the end of the first phase. However a whole new set of issues immediately present themselves. The most urgent is how to get these ideas to a point when they can attract some genuine investment.
Business Planning
I’m going to speed through the second phase. Because so much depends on the specific circumstances of your investment portfolio, it is difficult to describe this stage in generic terms. There are however a few things that can be highlighted.
The first, and most practical is that this second phase is much more time-consuming, and therefore expensive. Depending on the volume of ideas left standing it may involve a three person consulting team for three months. After this time, you might easily have burned through £0.4-£0.5m. Secondly, the aim is to give the team a hard target, eg raise external investment funds in three months, and kill the idea if it fails. The thinking here is that if you can’t persuade anyone that the idea is good enough to invest in such a timescale, you probably never will. This is where the ruthlessness mentioned at the top of the tutorial really applies. I’ve run several such programmes and it always struck me as interesting how many times ideas that we’ve discarded keep getting resurrected by the host company. Sometimes, to be fair, they do make it to market, but more often it’s just flogging a dead horse. Anyway, it’s not the ones that get away that need worry you. The fundamental philosophy of the hunter-gather approach is to focus all your attention as quickly as possible only on the most promising ideas and let the others, no matter how worthy, fend for themselves.
The aim of the second stage is to raise funds, so you need to do all the normal activities that you would expect to do in preparing a business plan that will attract investment (see tutorial on business plans). Of course, the physical business plan is the least important of these. Of primary importance is finding a customer prepared to give you an order. For this you need to wear out some shoe leather.
Words of Warning
While chasing down the business opportunity is the most important task for the hot-housing team and the entrepreneur, it is probably not where you will be spending most of your attention. You will most likely have to focus on dealing with all the internal ramifications of a process such as the one I’ve described, and these can be considerable. It takes quite a bit of organisational awareness and influencing skill to facilitate this second stage. As things become more serious and tangible, you will come to those bridges mentioned when the entrepreneurs first submitted their raw idea, and you will need to get across them.
I’ve presented this Dragon’s Den – style programme as the best way to get ideas off the ground, and it is, but it cuts across normal ways of doing things creating organisational turbulence in its wake which, if you don’t address directly, can bring the process down. Examples include, the entrepreneurs spending all their time on their new project rather than their day job; legal issues such as intellectual property and company formation; HR issues concerning financial rewards and the fall-out with other employees who are working just as hard on company projects but not getting any special rewards. Then there is the broader business/marketing concerns if this new venture is in a market close to any of your traditional markets.
The best of all outcomes, from the business perspective, is that a new business opportunity, hitherto overlooked, by the main business gets picked up, and integrated into your mainstream business where you have the skills and experience to execute the idea professionally and quickly. This however can turn out to be a double-edged sword. I was once days away from signing an investment proposal that would have allowed two young entrepreneurs to produce prototypes that they were planning to put in a car and head off to sell in pubs and restaurants around Leicester Square. The host business picked up the idea and I stood down the third party investor (who took it quite well). The entrepreneurs went instead to New York where they spent what must have been an exciting few months helping design consumer testing and developing the product. After two years (!) of testing, the company decided to drop the idea completely, by which time the two guys had gone off to other jobs. To this day I wonder what would have happened if I had progressed that legal agreement just a little quicker!
Conclusion
This approach to corporate venturing is not to be undertaken lightly. It makes a splash, both in terms of the potential it has for unlocking value hidden away in your organisation, but also in terms of the amount of time and effort involved in running and facilitating it. It requires a combination of entrepreneurial energy with organisational know-how: two skills that don’t always sit easily with each other. In short, it’s an adventure. And because of this, it’s not something you’d do every year, or even every other year. It is however something that can be very valuable to do on a 3 year cycle. Over that time period, the costs are not so significant. Indeed, they are probably lower than the business development team you permanently employ today.