In the ever-evolving world of business, corporate leaders are turning to venture building to diversify revenue streams and stay ahead of industry disruptions. However, not all companies fully capitalize on the potential of this strategic tool. This article delves into the benefits of repeated corporate venture building, revealing how repetition can drive increased returns on investment and foster an ambidextrous innovation culture.
Corporate leaders have increasingly embraced venture building as a strategic tool to diversify revenue streams, increase organic growth, and respond quickly to industry disruptions. While Venture Building has higher rates of return than Corporate Venture Capital (CVC), a 2020 McKinsey study revealed that only a few companies seem to capture their full potential. In fact, 66% of successful ventures were built by just 20% of incumbent companies.
One of the main challenges that companies face is the lack of partners to engage in a multi-venture partnership, leading to one-shot bets that achieve typical odds of success but, on average, do not dramatically outperform the innovation market. Instead, companies that have launched at least four new businesses were more than twice as likely to generate returns of five or more times their investment than less frequent business builders, according to McKinsey.
This doesn't mean that the basics of solid venture building are meaningless. Companies still need a concise innovation strategy, clearly formulated goals, and a structured venture-building process. But to dramatically outcompete the innovation field, companies should leverage the 3 key impacts of repeating that building process, learning, and developing what some call an ambidextrous innovation culture that can make use of both corporate and venture strengths.
The first benefit of portfolio diversification is the increased ROI that comes from having a portfolio of 4 to 5 scaled ventures. To achieve this, a corporation should "start" about 8 to 12 ventures. Half of these should be abandoned within a couple of weeks to gain clarity about the potential of the product hypothesis through a series of data-driven in-market validations. So, there is often no need to incubate and hire a team. According to a 2023 study by Bain, spreading a portfolio across multiple pathways like labs, incubators, CVC and venture building is still capturing the benefits of minimizing risk and pursuing a broader range of opportunities.
Successfully leveraging corporate assets is crucial for the prosperity of corporate ventures. By utilizing existing resources, capabilities, and market positions, companies can forge synergies between their core businesses and new ventures, leading to substantial competitive advantages. However, this process often requires the establishment of new processes and relationships, as well as the cultivation of trust to ensure that the new business uses internal resources respectfully. This trust can be built by consistently meeting expectations over time.
Choosing the right goals for a new business is essential. For corporate ventures, this involves tracking success in the market and mapping how they fulfill their strategic purpose. Sometimes, companies are unsure which KPIs to choose, which can overburden the new business. Additionally, they rarely anticipate how quickly these metrics can change in importance as the new business matures. Testing multiple business concepts quickly and inexpensively can help determine which numbers are essential to track and what needs to change as the new business grows. Repetition can help corporate innovators make informed decisions about where to invest resources while still allowing the new business to remain flexible and respond to market signals.
In order to fully leverage the potential of venture building, companies should consider the benefits of repeated venture building. One way to achieve this is by launching multiple ventures around the same hypothesis, which allows companies to test different variations of the same idea and iterate quickly based on feedback. By diversifying their portfolio, companies can also reduce risk and increase their chances of success. Furthermore, companies can leverage existing assets, such as their network of partners, to gain a competitive advantage and accelerate the growth of their ventures. All of these strategies can contribute to dramatic improvements in ROI and long-term success.
These factors suggest a clear path to achieving the desired outcome, as corporations should ensure that the effects of repetition are taken into account.
Don’t throw all resources into one venture for a home run
Don’t change internal teams for each venture
Do build learning relationships with venture builders your trust
Embracing the abovementioned key impacts will enable organizations to harness the power of both corporate and venture strengths, as well as foster an ambidextrous innovation culture, serving as a strong foundation for sustainable success in an ever-evolving market.
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