Should large, established companies innovate internally or just acquire successful startups?
This post is part of our continued series on Corporate Innovation, in preparation for a research report, on this topic. Last week, we published The Ten Types of Corporate Innovation Programs which looks at broad swath of options, and in this post, we’ll dive into two major choices that companies are often weighing out: building their own, or acquiring startups.
Build: Corporations invest in building innovation internally, but with risks to their success. The upside of companies building their own startups from within is that they can tailor them to their specific business strategy. I’ve spent time with Nestle, which successfully built out its home coffee line, Nespresso, to fit nicely into the company’s brand, operations, supply chain, and — most importantly — culture. The downside is that there’s incredible risk for large companies to build these, and executive support is required at all phases of the venture. Among the chief risks of internally led product programs is that they require immense resources and still can have a high rate of failure, as told to me by a CPG executive who thinks a success rate of internal led innovation programs will be about 10%. This compounds the risks to corporations when competing with agile startups that aren’t as mindful about regulations and don’t suffer from a culture resistant to change.
Buy: Corporations acquire startups at a hefty price tag and with potential for integration woes. Corporations often rely on acquiring successful startups. A case in point made the news two weeks ago when Unilever purchased proven subscription company Dollar Shave Club for a reported $1 billion price tag. While Unilever stands to gain in many ways by upselling its goods to existing loyal Dollar Shave Club customers, there are drawbacks: The cultures may never neatly fit together, and operations and supply chains are radically different. Fortunately for Unilever, it has a track record of successful acquisitions; for example, Ben & Jerry’s was bought in 2000 and still lives on as a power brand 16 years later, despite experts indicate that mergers and acquisitions fail up to 90% of the time. That’s a very expensive investment with a low rate of success. Often, corporations are considered the elephant graveyard of startups — the acquired founders often leave the company, after their contract is up –taking with them an entrepreneurial vibe.
In between: Corporations partner with startups. Of course, there’s also a middle ground where corporations partner with many different startups and place small bets on each in terms of direct investment, or they establish limited partnerships in venture funds. They also conduct direct partnerships through relationships with startups for the purpose of cross-selling or other forms of engagement. Often, this courtship is used to glean market intelligence, get in position to double down for future investment, block competitors from getting too close, or take the startup off the market for acquisition at a later date. The downside of these partnership models is that the corporation is never fully in the driver’s seat. It’s always vulnerable to the whims of the startup’s leaders, who can often change direction as they see fit.
Corporate Innovation: When to Build, Buy, or Partner
Ignorance is bliss, and it’s cheap — at least for now.
Risk being passed up by competitors or disrupted by startups.
Build in house innovation.
Tailor it to the company and culture.
Requires executive support, risks failure.
Acquire successful startup.
A proven model that can expand market capability.
Extremely expensive and difficult to integrate into the culture.
Acquire failed startup.
Cheap assets: IP, customers, or resources.
Failed model, with resuscitation very challenging.
Partner with startups: invest or collaborate.
Lower-risk model with access to market intel and strategic positioning.
Far less control than build or buy.
Which to choose? Companies are deploying these three strategies, and more. We’ve yet to see any single right way to do to it. But would love to hear your thoughts: What’s the best strategy for corporations? Should they act like startups and build technology? Or purchase it by acquiring startups?
Large, established companies are trying on various programs to foster new innovations in an attempt to find the best way to change course for their big ships.
These established companies are struggling to keep up with fast-paced, venture-backed startups that are changing customer expectations — and often causing business model disruption for traditional businesses. To combat this ever-growing threat, corporations are stepping up their investments in innovation and deploying a variety of strategies, as outlined in the following table.
As founder of Crowd Companies, an Innovation Council, we work directly with these innovation teams and have been able to observe and document these types of programs. Often, companies are combining strategies and deploying multiple efforts at any given time. In our upcoming research report on the topic of corporate innovation, we will document how the top companies are leading the charge.
To provide some context for this new corporate innovation, note that we discovered companies are not just investing in incremental product features or enhancements; they are investing in new business models or altering the customer experience beyond the core product.
The Ten Types of Corporate Innovation Programs:
1: Dedicated Innovation Team
Corporations often start with staffing an innovation team within the company of full time employees dedicated to developing the strategy, managing, and activating innovation programs. These leaders are experts at internal communications, and are change agents.
MasterCard, Hallmark, and BMW have innovation teams dedicated to new business ideas.
2: Innovation Center of Excellence
Innovation can’t happen in a single group; without broader institutional digestion, new ideas will falter and fall. Some corporations are setting up cross-functional, multi-disciplinary groups to share knowledge throughout the company.
Various retailers and consumer packaged goods companies enable this.
3: Intrapreneur Program
Rather than rely solely on external programs, internal employees — dubbed “intrapreneurs” — are given a platform and resources to innovate. These programs invest in employees’ ideas and passions to unlock everything from customer experience improvements to product enhancements and full-blown internal startups that are then launched from within the company.
4: Open Innovation: Hosted Accelerator or Corporate Incubator
Hosted inside a corporate office, large corporations invite startups to embed at their physical locations and provide them funding, corporate support, and other perks. This brings innovative startups inside a large company for everything from overnight hackathons to long-term programs. Other variations include online open-innovation programs that request — and often reward — ideas from the crowd.
Frequently inspiration comes from outside, not within. Corporate leaders tour innovative organizations, companies, and regions to discover trends in various industries, learn from speakers, meet partners, and be inspired as they immerse themselves in innovation culture.
European-based WDHB and Nexxworks tour executives in Silicon Valley and beyond –I’m a frequent speaker at their events.
6: Innovation Outpost
A dedicated physical office, such as in Silicon Valley or wherever innovation happens in their market, staffed with corporate innovation professionals whose job is to sense what’s occurring in a market, connect with local startups, and integrate programs back into the corporate HQ. Some of them host partners, events, and startups, thereby spreading the function to Internal Accelerator programs. An Innovation Outpost is typically managed by employees — unlike an External Accelerator, which is run by a third party.
Corporations partner with third-party accelerators to provide sponsorship and/or funding in exchange for relationships with startups and integration opportunities. Corporate innovation professionals often embed themselves in Accelerator offices, fostering relationships with local startups. These External Accelerators are run by third parties — unlike Innovation Outposts, which are managed by employees.
Plug and Play, Singularity University, Rocketspace, Runway, 500 Startups, Betaworks, and more.
8: Technology Education, University Partnership
Corporations can tap into new graduates, early-stage projects and companies, and the network of an established educational institution. In addition to traditional universities, there are new private versions opening up that are dedicated solely to technology training, like Galvanize and General Assembly.
General Assembly, Galvanize, and most tech- or business-focused universities.
Many corporations place bets among the startup ecosystem, with both small amounts for early-stage startups and larger amounts of corporate funding that yields market data, creates opportunities for follow-on investments, and blocks competitors.
Intel Capital is a leader in direct corporate investments.
Rather than build innovation from the inside, many corporations acquire successful startups and then integrate. While often expensive, the startup is often already successful, and the acquisition can help the startup scale further.
As one example, Dollar Shave Club was purchased by Unilever for a reported $1B.
Above, we published a full report on this topic in March, 2017, embedded above.
In summary, corporations don’t have a one-size-fits-all approach to helping their company activate new ways of doing business. They will deploy multiple forms, at different times, with varying degrees of success.
What’s very interesting is that a majority of these examples are “outside-in” innovation, where companies are drawing knowledge, resources, or expertise from groups outside their own company.
Because most of these programs rely on external innovations, organizational alignment is key to helping companies digest market changes.
Stay tuned for further insights as we prepare to publish our report on corporate innovation this fall, and please leave a comment if we’ve left out a strategy — or need to modify an existing one.
That’s the question BMW posed to its expert speakers at BMW Welcomes, held at BMW Welt in Munich, Germany, on June 23. where I served as emcee of event. BMW Welcomes gathers transportation futurists from around the globe to examine topics from Hyperloop to space travel.
In this video you’ll learn:
What is the future of mobility?
How is the space industry going to enable change?
How will Hyperloop going to change transportation?
What ensued was riveting conversation about the future of mobility and how major automotive players and international technology innovators are rethinking car ownership in favor of new transportation innovation and sharing behaviors. The Collaborative Economy will play a role, though it’s only a starting point for change. The future goes beyond self-driving cars, holding promise for a complete transformation of all aspects of society and transportation.
Event speakers included:
Frank Salzgeber, Head of Technology Transfer Program Office, European Space Agency
Daniel Wiegand, Startup presentation: Lilium aviation
Oliver Heilmer, Head of Interior Design BMW, BMW Group
BMW defines “Future Mobility” as the way we will transport ourselves in the future by significantly increasing range, speed, and acceleration of our journeys, while simultaneously reducing cost and environmental damage. Watch the entire event below for more insight into the projects that will shape our lives forever.
Can you let your employees take charge of innovation – with little managerial oversight? When employees are empowered to make a difference on their own – to lead rather than follow a managerial directive – the innovation process takes on a life of its own.
Adobe Kickbox, a physical box of practical tools and resources for employees to innovate rapidly and independently, fosters innovation in every pocket of the company. It helps capture grassroots innovation happening at the edges of the internal network.
At more than 11,000 employees, Adobe is a large software company in the heart of Silicon Valley. Such companies can struggle to keep talent when the best and brightest are often lured away by promises of lucrative start-ups and entrepreneurship. By focusing on fostering intrapreneurship in its employee base, Adobe offers the empowerment needed to keep staff engaged and challenged while directly contributing to product R&D and company growth.
Although today Adobe Kickbox can be used by any company, it originally began as the sole innovation process used at Adobe since 2012.
Since its inception, more than a thousand new ideas have been prototyped using the Kickbox process. Once Adobe realised the potential for Kickbox to support innovation in all companies, it began offering its resources free for download at Kickbox.Adobe.com. Thousands of companies and organizations have already downloaded the kit in multiple languages.
What, exactly, makes Kickbox so different and so successful? Adobe Kickbox pulls employee innovation out of people’s brains and into action, using the following tools in a training session:
Prepaid credit card with $1,000 for project research and proof-of-concept (empowerment)
Starbucks gift card (caffeine)
Chocolate bar (sugar)
Complete directions for Adobe’s innovation process (some structure)
Once an Adobe employees completes the final phase of the innovation process directions, they’re then awarded a “Blue Box” (with its secret contents undisclosed) and assigned an executive sponsor to bring their ideas to fruition. Your guess is good as mine, as what’s in there – but that desire to get to the next level will drive motivation.
How to ensure quality ideas while still “failing fast”
The goal of the Adobe Kickbox innovation process is to increase the rate of failure by making small bets on ideas in a really fast, decentralized way. It intentionally “breaks” all of a company’s processes and requires leaders to completely rethink their innovation funnel. But, in the end, it will result in diverse ideas and products that customers actually want. To fail fast, employees follow the Kickbox’s six steps to innovation.
Inception. Motivating Innovation of new ideas.
Ideate. Brainstorming to come up with new ways to help customers and employees.
Improve. Polishing Ideas to refine before taking to market.
Investigate. Talk to customers and test directly. (This is often where the $1,000 prepaid card comes in, as employees create a proof of concept to show that customers would want and adopt their idea. This may include advertising, A/B testing, or hiring the crowd to build a prototype.)
Iterate. Evolve hypothesis based on findings from the investigation.
Infiltrate. Pitch to management. (The final pitch in step six must end with a request for money – budget/resources – in order to secure c-suite commitment. Those with hard numbers from the tests stand to gain more traction)
Using this process, Kickbox teaches people to innovate when there is no innovation programme within the company. It requires no infrastructure, no leadership review and deliberation, and comes with complete directions. To ensure quality of ideas, Adobe also requires employees utilizing Kickbox to first attend an instructional class, a foundational course many other companies have since replicated.
Kickbox innovation requires complete commitment, even to points of contention
In order for Kickbox to be successful within an organisation, companies must adopt the six-step process fully, without exception. In a Crowd Companies innovation council call, Mark Randall, VP of Creativity at Adobe, shared three big points of contention that companies most struggle with in Kickbox adoption:
It must be open to all employees. Kickbox won’t be successful if it doesn’t embrace the fact that a good idea can come from anywhere, in any department, not just marketing or product development.
Employees are empowered to pursue any idea. The empowerment for all employees to explore democratises innovation and puts trust into action.
Intrapreneurs must receive “no-look funding” in the amount of $1,000. This is a critical part of the “special sauce” that makes Kickbox successful. It’s a significant risk to invest in ideas blindly, but Adobe found that people spent their money much more carefully than they did using normal budgetary allocation.
Kickbox inspires profound changes in employee behavior and their relationship to the company. You can download Adobe Kickbox here to begin the full innovation process today.
I’ve worked with Adobe for many years, and they’re currently a customer of my company, Crowd Companies, an innovation council.
A CEO of a new startup in Silicon Valley confided in me over beers that he said it’s easy for startups to disrupt big companies as they’re so busy internally fighting themselves. He’s right, I mostly see companies in internal battles and struggles over resources and power, leaving them exposed to outside startups. Coincidently, may of the startups I see disrupting large companies are composed of ex-employees who recombine as they know the weaknesses to exploit these larger companies, damning! To stay Future Proof, I’m seeing at least ten trends larger corporations are applying in the last year to stay lean and agile.
Ten Ways Big Companies are Staying Agile: While there are limitless methods on how companies can innovate and stay agile, I wanted to share from my perspective what I’m seeing as I visit large corporations and spend time with startups. I included some color on what I see working –and what’s not working– and I encourage your comments below to share your perspective, so we can collectively grow.
Hire and Acquire:The most obvious way companies are injecting innovation and agile culture is hiring innovators. I’ve friends that are recruiters in a variety of large companies, and they’re often going for top performing college grads, but I hear of them now sourcing highly educated talent in China and India with interesting results. Over the last year in the market I closely watch, companies like Adobe, Oracle, Salesforce, and Google have acquired startups: Context Optional, Vitrue/Involver, Buddy, and Wildfire, respectively.
Shifting Market Categories, Applying Agile Development Principals. Over the last decade the Agile Development method hit the tech scene by storm, forcing big box software players to be overrun by rapidly iterated products launched on a daily basis. We’re seeing companies evolve outside of their core offering and beverage companies like Coke, Amex, RedBull are now becoming media and lifestyle companies, and they continue to quickly release content, new products, and services at a rapid pace.
Removing Excessive Middle Management. Successful companies often become bloated. In an effort to allow the executive team the ability to stay strategic, they grant a middle layer of management to emerge to look after the working teams. Over time, internal kingdoms emerge and battles over turf occur, segmenting the company, and causing duplication of resources. Many large companies are under going restructuring, including this large software company in Silicon Valley.
Sourcing Ideas from Employees Outside of R&D Dept. Innovative companies are providing programs that inspire employees –even those not in R&D– to submit ideas and allow them to be funded. Using internal web-based submission tools, some companies enable other employees to vote on top ideas, resulting in a governing team to fund the internal initiatives, such as at Dreamworks, and discussions on modern management websites.
Conducting tours in Silicon Valley and Innovation Centers: On a periodic basis, I hear of executive teams from East Coast, Europe, Mid West taking tours in Silicon Valley, stopping by the usual suspects like Facebook, Google, Twitter, Stanford to understand innovation cultures. These tours are great at injecting fresh perspective into traditional mindsets, but can often leave executives feeling like they’ve seen a movie of children’s play. The upcoming movie on the Google “Internship” will caricature old business vs new.
Enabling Employees to Conduct Passion Projects: Large companies like Google (50k employees) have structured time for engineering team to have dedicated time to conduct experiments in areas of interest. They grant these teams dedicated time to innovate; 20% of their time for innovating Google experiences, and 10% on “Passion” time to focus on anything related to their personal lives. In my campus visits, I’ve slowly seen gardens emerge, which are now becoming digitally monitored and solar enabled.
Fostering Outside-In Innovation. One method we’ve seen over the last few years is companies offering up collaborative areas for customers, partners, faculty at universities and beyond to get involved in innovation. In particular, P&G has hosted an innovation lab, and has launched several initiatives to allow for innovation of their products to emerge, and their agnostic to where the ideas surface from. Many companies have launched innovation platforms, such as Intuit, Dell, Starbucks, enabled by tools like Salesforce Ideas, Get Satisfaction, Pligg, and UserVoice
Enabling a Fail-Forward Culture. On a recent visit to Facebook, who now boasts over 4k employees, there are propaganda style posters all around campus that encourage employees to fail fast, and fail forward (pics of the newly minted campus). The encourage projects and experiments to quickly iterate, and launch several times a week in an agile manner. I’ve seen larger companies on my internal visits have executives who tout their culture is ready to experiment and be on the brink of digital disruption.
Sanctioning Innovation “Tiger” Teams. At the largest companies I’ve been inside of, I’ve seen small “Tiger” teams assembled that are granted permission to build new products and services outside the walls of the regular company. While I don’t think this addresses the root problem of a large corporation becoming stagnant, these CIO and CEO teams are given full reign to create something new, in hopes of developing a new product. As long as there’s a process for these smaller teams to assimilate their findings and products back to corporate, this process can work.
Investing in Physical Innovation Labs. The absolute common trend I’m seeing is non-tech companies developing innovation labs. These dedicated areas are inspired to allow employees, executives, and customers collaborate on building next generation services. Several non-tech companies have setup innovation labs in Silicon Valley, including AMEX, Walmart, although most companies have them scattered among the world. I’m managing a running list of Tech and Media Innovation Labs, in which you can review or add to. These dedicated labs show promise, as long as they’re integrated with the rest of company, and demonstrate business results.
Those are the common trends I’m seeing at large corporations, stemming from internal management changes, to developing new relationships with outside market. I’d love to hear from you in the comments how you’re seeing companies maintain agility. Update, there’s an interesting discussion thriving on my FB post.
For many years, forward moving companies have been investing in innovation centers that are being used for companies to tap into new technologies, media,and devices. I’m seeing a growing trend of companies outside of the tech space that are investing in these types of labs, and wanted to start a list that I will maintain for a period of time. To keep things managable, here’s what I’m seeking:
List Requirements The companies that will make this list must be within the following parameters. Feel free to leave comments of others.
Corporations with over 1000 employees.
Ideally, a lab with a dedicated physical location, resources and staff.
A focus on technology and or media.
Name, URL, and location if available.
List of Corporate Innovation Labs Leave a comment below, and credit the contributor, see parameters listed above:
I’ll continue to keep this list updated for a few weeks, and will make additions as they emerge in comments. Later, we will use this data for future research, you can access my prior reports on the research page on this blog (upper tab).