Corporate Venture Building - why there's never been a better time than now to build future business

Economic uncertainty has led some companies to reassess their investments into long-term innovation efforts. But, from a strategic perspective, now is the time to double down on innovation activities that create the profit pools of tomorrow.

Why companies need venture building

To stay competitive in the long run, companies need effective innovation in all horizons:

• Near-core innovations (horizon 1; incremental and continuous innovations) are important because they make the company efficient. But even the most efficient company can become irrelevant if the underlying market changes.
• That's why companies need non-core innovations (horizon 2 & 3). These aim at new business models and products of tomorrow by extending the current business into (or create from scratch) entirely new business fields.

There is a temptation to focus budgets mostly on near-core innovation (e.g. incremental innovations, cost saving innovations). The perceived risk is low and results tend to yield quickly. But, while important, near-core innovation is not enough. It leaves companies at the risk of self-optimising today while becoming irrelevant tomorrow, because near-core innovation efforts run under the premise that the underlying market mechanics are generally stable. However, in a VUCA world, every industry will face their Iphone moments, where the new products rewrite the rules of the game.

To stay relevant companies also need to work on innovations that create future revenue streams - entirely new products and services or innovative extensions of the existing business. Moreover, there are huge opportunities. In fact many of today's companies (especially German Mittelstand) were born out of industry-changing ideas, paired with entrepreneurial activity. And as outlined below, the opportunities to create business are vast today - and corporates are in a strong position to build competitive advantages.

Venture clienting is good, but it cannot solve everything

A huge trend has been the venture client model. That is (very simply put), to buy solutions from startups rather than developing those solutions alone or investing in the startup. There are several benefits to the venture client model, above all to quickly and cheaply adopt existing solutions. But venture clienting has limitations. It only works in areas where there are in fact startups (who are also willing to cooperate). Especially for complex B2B solutions with higher entry barriers, this is often not the case. More generally speaking, the sweetspot of venture clienting is improving day-to-day operations of corporates by providing digital solutions from startups or adding digital services to the existing business of companies. But it is unfit to build entirely new business fields and establish the profit pools of tomorrow. That's why companies cannot entirely rely on venture clienting.

In fact, in the spectrum of corporate innovation vehicles, there are few alternatives to venture building when the goal is to create new business. Innovation labs (which provide company-internal growth paths in an agile environment) are one alternative. Their strengths lie in core-business adjacent idea and product development. But when it comes to developing new business models, innovation labs are weak, because they cannot provide the external growth path and entrepreneurial settings needed to quickly build, test and adapt. This is exactly where venture building is strong:

• Providing an external growth path for venture ideas (that would be slowed down or even actively fought within the company)
• Creating a truly entrepreneurial setting that is on par with or at least very close to startups when it comes to speed and agility
• Combining the assets of the corporates with the speed and agility of startups

In markets that face threat of disruptions, venture building is a way to prepare, giving companies an attack strategy and a head start if new entrants enter the market.

Now is the time to double-down on venture building

Three factors make now a perfect time for corporate venture building - opportunity (we now have more than ever), cost (significantly reduced due to no-code/low-code and AI) and role models (availability of best-practices).

1. Opportunity - Never let a good crisis go to waste: First, as with any crisis (I am not sure that we do in fact have an economic crisis, but a perceived one for sure), there is an economic opportunity. For instance, amid the economic uncertainty, many competitors have postponed or scaled back new product/ business development activities. Similarly, the competitive pressure from independent VC-backed ventures has decreased in many fields due to the difficult funding situation with high interest rates. This leaves not only an open field of whitespots for companies to fill, it also creates opportunities for better access to talent. There are also abundant technological opportunities thanks to the advancement of AI. And corporates are actually in a strong position to develop AI-based business models in a way that startups can't. Corporate assets such as data from product usage, technological experience in their respective fields and access to customer channels can be used to build proprietary models in which the corporates own the data streams.
2. Cost - Venture creation has become faster and cheaper: Almost every step in the creation of digital ventures has become cheaper and/or easier and/or faster in the last years. With the rise of no-code/low-code tools, prototypes and mock-ups have become something that everyone can create at low costs. Websites can be put together in drag&drop. Translation is automated with free tools. Visual and written content can be created by GenAI. Even more functional prototyping tasks such as automation have been simplified with tools like zapier. As for real coding, platforms like github make storing and sharing of code easier, while AI assists with tasks like code-creation or finding bugs. Meanwhile, international collaboration has also become easier. Remote work has become widely accepted since Covid-19. And English has more and more become the business language, at least for German firms. Access to international talent has therefore mitigated some of the developer shortages.
3. Role models - Best-practices & blueprints have been established: Corporate venture building has long been a niche phenomenon. Today, we have successful examples from almost every industry - and not only from larger firms, but also from medium-sized businesses. In the DACH region alone, there are around 50 corporate venture building units (in addition to companies that build ventures without an institutionalized venture building unit) and an estimated 100-120 corporate ventures are founded each year. Successful venture building units such as BASF's Chemovator, K?rber Digital, Lufthansa Innovation Hub, Schenker Ventures or Rehau New Ventures (to name a few) are well-connected and exchange regularly on best-practices and ideas. There are now blueprints even for the more complex corporate-specific aspects of venture building such as collaboration with core business, incentivising founders, dealing with IP and taxation issues such as dry income. And there has been a lot of progress within corporates to run their venture development without interference from core business. Check out GoGroup's resources to learn more about best-practices and pitfalls to avoid.

Or, as the old saying goes: Fortune favors the builder.