By Stefan Jacob, Ziv Ragowsky
This first of three articles by Wright Partners (in partnership with MING Labs), an appointed venture studio of EDB’s Corporate Venture Launchpad programme, examines how companies can turn their defensible unfair advantage into a springboard for transformative innovation.
By Stefan Jacob, Ziv Ragowsky
“Corporates need to innovate to survive.” It’s a phrase that’s been repeated so often as to become a cliché and before 2020 you might have been forgiven for rolling your eyes. Corporates refer to the key decision makers at parent companies that have embarked on corporate venturing. However, with the onset of the pandemic, war in Ukraine, and persistent supply chain issues, businesses are under more pressure than ever to innovate and adapt.
The sustained rise of Volatility, Uncertainty, Complexity and Ambiguity, sometimes abbreviated as VUCA, has pushed corporates to radically reconsider their strategies. Yet large companies still struggle to implement effective approaches to innovation. Much of what is done could be classified as “innovation theatre,” often started with the right intentions but with very limited impact or traction. In fact, a study by Capgemini shows that up to 90 per cent of innovation labs fail to deliver on their promise. So where is the disconnect?
The failure to deliver is most apparent when corporates set out to create “transformative” or “disruptive” innovation — basically anything that would move them beyond their core strategy or potentially directly challenge that strategy. In these cases, corporates fail to answer at least one of three questions:
Answering these three questions is critical to the success of any innovation initiative. However, identifying the Right to Win is the most critical as it will ensure that the right innovation ideas are pursued in the first place, reducing waste of resources, and saving time. A Desire to Win can be developed and a Path to Win can be navigated over time, but a corporate needs to have a clear understanding of its unfair advantage in a new market or strategic direction if it is going to be successful.
Historically, corporates derived huge advantages from their money, size and regulatory sway.
If new entrants threatened their established position, they could:
But in today’s world start-ups are receiving funding at Series B and C, that dwarf the budgets of many established business units. The digital and viral nature of marketing and customer engagement, mean that start-ups can reach out to millions of customers within months rather than years. Plus, the more aggressive start-ups are often willing to make end-runs around regulators to disrupt markets before lawmakers can catch up (think Uber and AirBnB). As a result, when thinking about unfair advantages, corporates have to focus on the assets that take time and expertise to develop.
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Unfair advantages are different for different industries and sectors, but there are some common areas that corporates can build from:
Existing companies have two things, with regards to customers, that start-ups do not:
The ease with which companies can reach consumers has created a perverse affect where potential customers don’t feel empowered by choice but are, instead, overwhelmed — 64 per cent say they “always or occasionally feel overwhelmed by choice.” In this saturated environment, companies can leverage their existing relationships to reduce the complexity of choice and build on brand trust. In fact, 59 per cent of consumers prefer to buy new products from brands they already know. The impact of familiarity is even more pronounced with B2B businesses where on-boarding new suppliers can be complex and time consuming. In this case, an existing business relationship can dramatically accelerate adoption.
Lippo Group’s launch of OVO, a digital wallet, is a good example of old versus new corporate advantage. Although they did try to out-spend their competitors, this wasn’t sustainable in a competitive well-financed space. However, they were able to tap into a different corporate advantage — their shoppers. As the owner of malls, hotels, offices and other real estate throughout Indonesia, Lippo was able to place OVO as the exclusive payment channel for parking and other services, helping drive massive user adoption that led to its eventual acquisition by Grab.
Beyond brand relationships, a customer history may be an even more important asset. The oft reported “Death of 3rd Party Data” has been driven by the rise of privacy concerns and the restriction of personal data collection by Apple, Firefox, and now Google. Companies with deep “First Party Data” may soon have a huge advantage in understanding consumer preferences and tailoring product offerings. Information collected from customers about their demographics, locations, interests, purchase history, payment history, and app behaviour will become increasing valuable in this new environment.
Wright Spotlight
We have helped a Telco launch two ventures leveraging customer assets. One built on existing enterprise relationships and customer data to launch a sales enablement platform that connects retailers to shoppers both in-person and online. Another used customer payment history to create a digital wallet and offer credit in a simple, transparent platform.
Established distribution networks both physically and digitally can be an unfair advantage when leveraged well. For physical goods, having access to an existing distribution network can help reduce costs and improve performance for customers. A physical distribution network can also be incredibly powerful in driving supply chain-focused solutions that benefit from access to wholesalers and retails.
Alternatively, a digital company that has built a strong, interconnected community can leverage those “network effects” to offer new services while ensuring loyalty. Customers who value the community connections and relationships they have will be more willing to try new services without the risk of them leaving the network.
Wright Partners has built several corporate ventures that focused on leveraging these distribution advantages. In one case, we helped a corporate use their existing network of relationship managers to test, refine and sell products from their new insurance venture. In another, we were able to add new analytics products into a Telco’s existing data streams to support the launch of a retail analytics venture.
Similar to a company’s distribution networks, its supply chain and procurement process can provide a boost to a new venture that most start-ups would struggle to access. However, the supply chain can also be a target for innovation that not only leverages the corporate parent but also returns substantial performance improvements.
Traditional start-ups often focus on tailoring their product to the customer long before thinking about suppliers and pricing. Yet, according to research, 80 per cent of product lifecycle costs are determined during the early design stages. Given at least 15 per cent of venture failures are driven by pricing and cost issues, getting the supply chain and procurement right, early-on, is critical. This is where a corporate with strong relationships to qualified, reliable suppliers can be a real asset to its new venture.
A potentially more powerful asset is the mutual benefit a corporate and its venture get when partnering to innovate within the supply chain. An effective procurement team will know the more innovative suppliers and the challenges that have the most systemic impact. By leveraging these relationships, a corporate can provide its venture with a concrete advantage while improving results for the business. In fact, companies that collaborate closely with their suppliers and drive innovation in their supply chain outperform their peers with nearly 2x growth.
Wright Spotlight
Two of our ventures highlight the advantage focusing on supply chain can provide:
An agricultural processing and trading company wanted to support the small-holder farmers that were its suppliers. It was able to connect the venture with key players and provide insights that helped the venture build a digital marketplace and raise $35MM in their Series A.
A coalition of poultry related family offices wanted to drive innovation along the entire supply starting with empowering the farmers that were their suppliers. By providing insights and key relationships, the coalition helped the venture introduce new technology to the farmers and score $14MM in Series A funding.
This can be the most difficult but most effective of unfair advantages to tap into. Companies that have expertise, technology and legal capabilities that they are willing to leverage and share with their ventures can give them a huge advantage. A strong start-up generally has at least a few founding members steeped in the business they are trying to disrupt. However, corporates often have access to a breadth and depth of experience that start-ups cannot rival. Take, for instance, Coca-Cola’s work with Project Last Mile, a vaccine distribution initiative. Although Coke’s distribution network isn’t suitable for vaccines, their deep knowledge of cold-chain allowed them to co-create an incredibly effective vaccine distribution initiative in developing countries that has been used for fighting the Covid-19 pandemic.
Wright Partners had a similar experience with one of our Telco partners that had an interest in education. Although they already had education-focused CSR programs, they wanted to create a venture that could drive more impact in a way that would augment their existing work. By leveraging their data and technology capabilities, we were able to build an EdTech start-up that provides students with low-cost, digital access to high-quality teachers who are supported by robust data analytics.
There are other advantages beyond expertise that corporates can leverage from an IP, technology and even legal perspective. Corporates own substantial portfolios of Intellectual Property that are barely leveraged. They also often build in-house technology solutions that can be repurposed for other uses (Start-ups, like Slack, frequently pivot to success in this way). Thinking creatively about how these assets can be applied to new markets and strategies can give new businesses a significant market advantage. And, despite the challenge of start-ups that are anti-regulatory, having a good relationship with regulators and deep legal knowledge of an industry is still critical for most new innovations.
Although the old school types of corporate power have been eroded, there are still ways that companies can use their size to support their ventures. One area that corporates often overlook is whether they can be the first anchor client for a new innovation. Securing a major contract with the core business can help to stabilise revenue forecasts, create trust in the industry, and build a sense of stability and momentum with investors. It also has the added benefit of immediately adding value back to the corporate.
Corporates can also leverage their size to create partnerships that small ventures cannot. Having a corporate backer opens doors to conversations that would be difficult for an unknown start-up. Wright Partners has seen this effect with several of our ventures. In one case, a business platform for micro-entrepreneurs was able to secure credit and capital partners because it was backed by a global bank. In another, a HealthTech platform looking to incorporate IoT capabilities was able to engage device manufacturers in partnership conversations early on by leveraging their investor company.
The experiences mentioned above are a few of many we have had over the last two years, where a company is able to use Corporate Venture Building to embed its unfair advantage into its innovation. We have developed our process specifically to help corporates identify their most powerful corporate assets, align on goals, and test these ideas in market to get real-world proof.
As Wright Partners, we help our clients answer the three key questions of corporate innovation in a structured approach that leads to an Investible Venture, aligned with their goals, where all stakeholders have skin in the game:
Ultimately, the Wright Partners model helps corporates answer the critical questions required to be successful in innovation, helping to reduce risks and costs while still moving and learning quickly.
Corporates still struggle with effective innovation, largely because they don’t ask the right questions before starting their journey and don’t leverage the right corporate assets along the way.
This article was written by Stefan Jacob, Venture Partner; and Ziv Ragowsky, Founding Partner at Wright Partners.
Wright Partners (in partnership with MING Labs) is an appointed venture studio of EDB’s Corporate Venture Launchpad programme enabling companies to incubate and launch a new venture from Singapore.
Through the programme, participating companies can look forward to partnering with EDB New Ventures, the corporate venturing arm of EDB, and an appointed venture studio with corporate venture building expertise and experience, to nurture their venture concepts and scale for success.
