As Commercial Director of YES!Delft I speak to a lot of big national and international corporations about their ambitions to innovate. Almost all corporates claim to have set up corporate startups, but none of them seem to grow out to be truly disruptive and successful – doing things radically different from their mother company.
Written by Nils Beers, Commercial Director of incubator YES!Delft
By corporate startup, I mean an internal startup that is set up by a corporate, which is different from a spin-out because a spin-out becomes a separate entity. A corporate startup remains within the walls of the mother company.
Give me one example of a corporate startup that does things radically different, and is successful in the process? I have asked dozens of innovation managers and directors this same question. None of them can mention examples however.
Pretty weird when knowing 15 out of 20 corporations I spoke to have set up those time- and money-consuming startups. But also logical when knowing that doing things radically different is practically impossible within the boundaries of a corporate environment.
I’ll tell you why. Corporations all make the same basic mistakes when setting up corporate startups. First, they take the wrong examples. Which innovative companies are exemplary for your own innovation models? – I ask those corporates next.
Airbnb, Uber, Google, Nest, Facebook, Tesla…corporations either feel threatened by these kind of companies or want to do something similarly disruptive. Which is both noble and understandable, but also the wrong way to go.
Practically all of the examples mentioned weren’t even close to being profitable in the first five years of their existence. Uber alone reported losses of more than $3bn over 2016. And no corporate innovation manager is allowed to lose that much money, year after year.
I haven’t found an innovation manager yet that is able to get enough support internally, as well as the financial means to set up the next Uber or Tesla. And I don’t think I will. It simply takes too much time and money to get it done and it yields too little profit in the short term.
There is another problem, preventing corporate startups from having a totally different business model from their parent and being successful. Large corporate environments usually lack the right startup-DNA, involving a 100 percent focus and the willingness to fail over and over again.
This DNA requires dedicated founders with the need to be successful, because a pay check isn’t guaranteed at the end of the month. Employees with a monthly paycheck and mortgage to pay for might have the willingness to succeed. The urgency for success is missing, because there are different powers at play in a corporate environment.
Now what? Should corporates choose not to look at disruptive companies in order to be successful? Yes they can, but they should also make fundamental choices when setting up corporate startups. Most important: ask yourself why you are doing this.
Do you want to start the next Uber, or do you have different reasons, such as researching a new technique? Both require a totally different plan of action. If you’re going for a business model that is truly different from the existing company – the only right option is to set up a spin-out.
This might be a scary option for some, because it feels like you’re giving up ownership over a great idea or plan, as you can only be a shareholder in the concept. But it also allows you to create the right fundamentals for success.
Spin-out companies require an own management that becomes dependant on the success of the company, allowing them to do everything necessary to actually be successful – like getting funded and reaching the market ASAP. This makes the chance for the new technology to grow into a leading company a lot bigger, as compared to when it’s developed internally.
Stopping is a very last resort when spinning out, whilst innovation that is carried out internally is halted all the time – resulting in only a small report that is never read again – and a large loss of knowledge and money. A spin-out therefore is a much better insurance against failure.
I know this because I see it happening at YES!Delft every day, where hard-working entrepreneurs track down every little option of the market in order to be successful, pivoting more than once if necessary. Turning every stone and taking all the advice and help offered within the incubator to reach their goals. Even if this means they are eating bread and peanut butter only for months!
There is more money spend on corporate innovation, invested in corporate startups, than ever before whilst the returns decline. To all innovation managers I therefore say: have the guts to spin-out! You’re awarded with a much bigger chance of success, and a smaller chance of losing corporate innovation money.
Image credit (header): Flickr, Thinkpublic
Nils Beers is Commercial Director of incubator YES!Delft