Large enterprises struggle at launching fast-growing ventures because they fall victim to hidden venture-killers. Many of these obstacles are the same corporate attributes you’re most proud of. That’s right, your biggest strengths are often your Achilles’ heel when it comes to creating new growth. Here are the ones I’m talking about.
- Think Big-ism
- Brand Clout
- Rich IP
- Deep Subject Matter Expertise
- Broad Capabilities
- Deep Pockets
- Scaling Power
Sounds like the things we brag about on our investor calls, right? So why are these attributes venture-killers? And what can large enterprises do to counteract them?
1. Think Big-ism
Large enterprises know what scale is, and they see everything through that lens. But small, unproven ventures need to think big, act small, move fast. That act small thing is anathema to a large enterprise. So is move fast. Think Big-ism kills your ventures early because people keep asking, How big is the market? How does this scale for us? In a startup venture, people exchange high-fives over customer #1, then customer #101, and so on. In a large enterprise, your peers only yawn at such numbers. That’s a venture-killer.
Solution: Put a venture lead in charge who has startup experience. Set formal success milestones pegged to customer #1, customer #101, etc. Then celebrate those milestones when you reach them. Isolate the venture from the Core Business while they get their early customers on board, so they can keep 100% focus on the dashboard metrics that matter to an emerging business.
Case Example: When The Hartford launched their White Stag corporate innovation unit, they put Jacqueline LeSage Krause, an experienced Silicon Valley entrepreneur, in charge. One of her early wins was a fleet telematics IoT venture executed with PX Venture Studio. When the first in-market validation was done with 3 small fleets, Jacqueline knew the Core Business would say, “Who Cares?” That was fine with her. Instead of claiming how big the market would be, she extolled how small the investment was: “Guys, it’s only $100,000.” She told us, “They’ll care when we’re done, and it’s scaling.” And she was right. Fleet Ahead went on to exceed $100M in revenues within its first two years.
2. Brand Clout
Your brand commands respect, both from the market and from your internal employees. Heck, it should; that brand took years and years of hard work to build. But now it’s difficult to put it in play for some newfangled concept that isn’t proven. Your instinct is to perfect the new offering first — which is too slow and expensive. Brand Clout is a venture-killer because it inhibits getting an early, accurate demand signal for the venture.
Solution: There are two alternative solutions: (1) Create a “beta-Brand” that creates the right expectations for early adopters, or (2) Create an off-brand testing capability that shrouds the corporate brand entirely.
Case Example: When Nike wanted to explore a shoes-by-subscription service focused on Young Athletes, they took it to PX Venture Studio and built it off-platform and off-brand. The stealth venture known as Easykicks found its early adopter, acquired 10,000 users, quickly grew to multi-million-dollar annual revenues. It was recently spun-in as its own line of business, the Nike Aventure Club.
3. Rich IP
“We have amazing IP,” we hear large organizations say. “We lead our market in new patents issued every year.” Unfortunately, there is zero correlation between issued patents and business success. Startup ventures think about IP a little bit, but they know the truth: the best customer experience plus an unfair advantage wins. Patents don’t. Cool technology doesn’t. Obsessing about your Rich IP and building on your patent portfolio are venture-killers.
Solution: It’s fine to check the IP box, but don’t linger. Do the basics right, then get your solution into customers’ hands and start iterating. Know what will make your venture win, and only focus on that.
Case Example: When Kimberly-Clark healthcare wanted to help hospitals reduce preventable readmissions, they had a treasure trove of life science IP to draw upon. They ignored it and instead looked at the problem from a frontline healthcare worker standpoint. The solution used one of their products, but was based primarily on new IP involving sensors and worker feedback. They filed a provisional patent in one week and kept their focus on getting an instant MVP into the market, not on writing detailed claims. This approach helped them validate the customer experience and iterate the solution quickly.
4. Deep Subject Matter Expertise
Having deep experts available seems like it should be an asset, but it actually slows a venture down. An expert’s mind knows what won’t work, but to a beginner’s mind, new things are possible. SMEs rarely push the boundaries of what’s possible. Instead, they narrow a venture’s focus, inhibiting it from casting a wide net when it comes to technology, partners and customers. Especially if they are part-time, senior, and deeply respected. Deep Subject Matter Expertise is a venture-killer.
Solution: The best venture teams have a tiny core of Full-time people (e.g., 4) and they use moral suasion to beg-borrow the expert functional inputs they need just-in-time. More often, they are resourceful in getting outside resources, including small partners, to accelerate their path to market.
Case Example: When PMI set out to develop two new career skills products for its members, they considered involving their internal experts on (a) customer segmentation and (b) their IT data model. Instead, they chose to let our team of five full-time people keep their focus on getting early demand signals. We worked with an external behavioral science firm to tweak the experience and drive user engagement and adoption. Within weeks, their in-market prototypes captured new users and earned revenues. The data architecture was adapted later, as they built the commercial version of the products. And the autonomy from customer segmentation helped PMI uncover new customer behaviors and requirements, which will help them introduce future offerings.
5. Broad Capabilities
“There’s no company with more capabilities under one roof than us.” That may be true, but those capabilities were built to serve the core business, and mostly they are 110% allocated. When a fast-moving venture needs to wait three weeks in a queue for the General Counsel’s office, or six weeks for IT, their burn rate doesn’t stop. They lose investment value and momentum. Trying to take advantage of your full-suite of corporate capabilities is a venture-killer.
Solution: Get permission up front to use your limited resources in the most time-efficient way. Don’t argue over whether you go in-house or outside, just agree that the calendar is king.
Case Example: When HP created its PhotoSmart software, they built it in-house, involving each of their software specialties. The result was like a 50-pound toolbox: It had a tool for everything, but it was kind of heavy. In fact, took over an hour for consumers to download it, and when they did, they only used 5% of the features. PhotoSmart got so few downloads (and so many complaints) that HP turned to an outside firm to develop PhotoSmart Lite. The result was like a Swiss Army knife: lightweight, highly usable, and it got over a million downloads within months.
6. Deep Pockets
It sounds great to have plenty of cash. However, large enterprises commit the overwhelming majority of that cash as operating budget for the core business, not capital to fund investments. Ventures are an investment, pure and simple. The process for a new venture to get investment capital is straightforward in the private equity markets, and very, very difficult in large corporations. Sometimes you can pass the hat and get seed capital, but there is no set-aside to fund the venture if it is successful. That seed investment just became a road to nowhere. That’s how Deep Pockets can be a venture-killer.
Solution: Going from zero-to-one isn’t easy, nor does it equate to success. Ventures need to scale up and exit to the core business to be accretive to a large enterprise. Know your investors. Know their ability to come along with the venture if/when it is successful. Ask for as little as possible at the Seed stage. Be brutally efficient with investment resources. Know your burn rate. And paint the picture for what funding levels the venture might require going forward.
Case Example: In 2008, we helped a large CPG company execute a 100-day sprint for a new venture. The team hit all its success milestones and exit criteria. When it came time for a live Alpha test of the solution, the President said, “I don’t have either the people or the investment budget for the next phase.” We looked at each other awkwardly, then both wished we could have those 100-day sprint resources back. We had succeeded and failed because the pockets we assumed were deep were instead empty.
Your people don’t give up easily. They are pit bulls. That’s great for the Core Business, but ventures need to be stubborn-yet-flexible. Iteration and pivots are the coin of the realm. And your people are not wired for that. Their Tenacity is often a venture-killer.
Solution: Set clear market success milestones for the venture, tied to the funding phases. Try like heck to hit the milestone. If the venture falls short, be cold-hearted. It’s time to pivot, not persevere. VCs don’t keep zombie portfolio companies on life support, neither should a large enterprise.
Case Example: A senior innovation leader at a large healthcare provider recently shared that he had spent the past several months shutting down “more than 20 pilot projects” that were each over 2 years in duration. These were well-intended projects that were yielding interesting results but were still pre-revenue. In other words, zombies. The tenacity of these teams, while admirable, did not include setting and monitoring appropriate traction indicators, and having Go/No-go funding decisions the way a venture should. Those people and dollars needed to be redirected to serve more promising concepts.
8. Scaling Power
Large enterprises believe, “If you give us something that works, we’ll scale it to the ends of the earth.” That is certainly true about operating a solution at scale, but getting it from small-to-scale is another story. Several years ago, the head of the Motorola Early Stage Accelerator told me, “We don’t have an early stage acceleration problem. What we have trouble with is late stage acceleration. Getting it from success as a 20-person business to something that’s Motorola-sized is very difficult.” This challenge is complicated by the fact that most large enterprises believe in only one landing zone: the core business. That’s a venture-killer.
Solution: Landing a post-revenue venture is a transition process, not a hand-off. It takes time and skill to get it up to scale. And it requires a diverse approach to creating landing zones. Some ventures can spin-in, joining an existing core business unit. Others need to remain independent, spinning-up as a small, standalone P&L. And some need to incubate with a partner in a small JV model, or even spin-out as a complementary business.
Case Example: When DTE Energy introduced its IoT home energy management solution, they nailed the use case and got consumer traction. To truly meet requirements for the connected home, DTE’s Energy Bridge required open APIs, hardware interoperability, and service support that exceeded the scope of a regional power utility. So, they identified a third party partner, Powerley, and spun the solution out, where it could adapt to evolving homeowner needs while still meeting DTE’s goals for proactive energy management and planning.