The awkward relationship between a corporation and its home-grown startup. What to do about it?

For a long time corporations have been trying to mimic entrepreneurial behavior to grow disruptive opportunities into new business. They have often harbored the entrepreneurs and disruptive growth opportunities in internal ventures (a special unit within the corporation), or, as external equity-owned startups (through company builders). Regardless of the vehicle being used, the relationship between the venture (or home-grown startup) and the mothership (corporation) has been a complicated one to say the least.

The corporation is often labeled as bureaucratic and the venture a bunch of cowboys.

To be successful as venture and corporation, that relationship needs to be right from the start. Since the venture is the new kid in town, it is up to the venture to make it happen. But as in every relationship both parties need to chip in. Here is what is needed.

Accept this is about radically different value propositions. For a starter ventures look at disruptive growth opportunities. They look at dramatically different value propositions than the corporate ones: a different business model, a different market, a service instead of a product, etc. Don’t assume that a high-level GO! for a venture launch meant a thorough understanding of value proposition and business model – it is up to the venture to educate the mothership. And every case is different. And as we know, the value prop is likely to change early on.

Light-weight processes, but don’t overdo it. The venture is incubating in a dedicated structure because flexibility, quick decision and real-time action defines startup behavior. This requires dedicated light-weight policies and processes, at least for some functions. This allows e.g. recruiting and procurement to be faster, whilst legal support can remain mothership driven. However, separate policies should not be a waiver to use cowboy actions that might be perceived as inappropriate by the mothership. Provide context of why the venture needs different policies. E.g. if we can’t recruit fast enough, talent is gone.

Separate is fine, but stealth is not. Because the dedicated venture structure is so different from the mothership, it often hides itself not to create too much attention. Sometimes in a separate building on a different location. Fine. As long as strong ties to the mothership are kept and entertained. Frequent reporting on venture progress and discussing challenges with the mothership is a must. In fact, the venture portfolio should be part of the corporate innovation portfolio discussion. The venture organization’s capabilities should be cross-fertilizing the mothership’s innovation organization (e.g. doing due diligence efforts for M&A, offering design thinking workshops).

Long-term investment and commitment, it is. The mothership invests in the dedicated venture structure for the long term. This is not a one-year trial but a multi-year commitment. Building relationships with the entrepreneurial community to recruit top talent takes time. Incubating, accelerating and scaling ventures takes time. Startup launch and success statistics apply. Venture outcomes only become visible after a few years.

Access mothership resources, but use caution. The mothership provides resources to guarantee successful venture growth. It could be the first pilot and possibly a steady source of future revenues. Converting pilots into scalable solutions will be much easier if you build rapport with the stakeholders in the mothership - the persons facing the biggest pain. Access to sales channels, partners and other functions are to be used – however, it requires persuasion from the entrepreneur to convince sales teams to help them secure initial (micro) sales. Attracting talent from the mothership might help securing buy-in during scaling up. An employee joining a venture should not be seen a threat to their career, rather a plus on their resume.

Different success metrics, different reward system. Executives in the mothership need to appraise progress of ventures (and venture organization) with different metrics and mindset than regular business. And the reward system for the entrepreneur needs to be different too. Customer outreaches, number of pilots and type of customer feedback during incubation are more relevant metrics than revenue. A discussion on the quality of customer interactions is what the venture needs to focus on. During acceleration and scaling up revenue gets more important.

Speak C-suite language, and startup lingo. In the same way as entrepreneurs need to speak investors’ language, ventures need to be fluent in corporate executive language. They are the investors after all. However, this is walking a fine line between educating executives of what is important as a startup, and, the entrepreneur understanding executives’ concerns. The executives on the other hand will also need to operate in an exploratory mindset rather than the more exploitation one for regular business.

Bring entrepreneurial DNA into the mothership. A well-functioning venture organization displays entrepreneurial DNA in all what it does: not only the ventures, but also the venture organization runs as a startup. Tasting that fast pace and quick decision making, broader and dynamic roles can be proposed to the mothership employees: not only can they be future entrepreneurs or founders of ventures, but their behavior will also start percolating through the corporate organization.

How to get started?

Make assumptions explicit. I recommend making assumptions and expectations of both parties explicit. You don’t want to operate under implicit assumptions everybody takes for granted, and, then face the unthinkable because one of those obvious assumptions was wrong after all. So, discuss and agree on an action plan to get alignment on assumptions – this is where the venture organization has an important role to play, keeping the burden from the entrepreneurs’ shoulders. As in all relationships, communicate!