Rethinking Corporate Labs & New Venture Programs
Most large corporations are aware that the people and processes needed to optimize today’s revenue are different from those required to build tomorrow’s. One of the ways they choose to act on this realization is by creating a labs or new ventures program. Having worked closely with several of these efforts it is clear to me why so many devolve into innovation “theater” and launch a portfolio of products and partnerships which sound intriguing but seldom result in anything meaningful being built.
All these programs start off with the right intention of embracing new opportunities and finding new areas of growth, but as time goes on they seldom produce anything that truly scales the firm’s bottom line. This is usually because these programs themselves are structured incorrectly, prioritizing ideas and experiments rather than growth.
My assertion is that these programs instead of being built like a portfolio of ideas, should in fact themselves be structured as an early stage startup.
A New Blueprint
An ideal early stage startup has a founder that seeks an insight about a market that they believe can be turned into a large business. They validate this assumption and only then do they raise the resources to fuel its growth — growth which occurs only after compounding execution over a long period of time. This formula of a clear goal, conviction in a vision, resource consumption after validation and a focus on long term execution is what is lacking in most innovation programs.
Structuring your labs or new ventures program around these principles is how you give it a shot at succeeding.
To do so, begin at the top. Just like the success of a startup is directly tied to its founders, similarly, the success of this program starts with the right leadership. As part of this leadership you need someone who is a builder, someone who will not out-source the core function of creating to others because he or she knows what it takes to get a new idea off the ground. This is someone with the ability to articulate what success looks like at each stage of an early venture and the ruthlessness to execute without fluff. This person should be a clear communicator and be able to evangelize their product both internally and externally. Like the best startup founders, this person believes in owning the problem, not the solution, which allows them to rapidly adapt to changing circumstances.
This leader is supported by a small validation team, consisting of technical builders and perhaps a BD or legal expert depending on the industry in which the company operates. The leader and this team together do the same type of work as the founding team at a pre-funded startup, which is to look for insights that they are convinced can be turned into products or businesses and are therefore worth committing to.
Finding and Validating Ideas
The other ingredient of a sound leadership team for this program is a ‘board’, ideally comprised of the firm’s CEO, head of growth and other appropriate internal and external members. The role of this board is to:
- Point the labs/new ventures team to areas of high conviction that they feel the company should capitalize on.
This is important because the purpose of your labs team shouldn’t be to find new ideas and sell to this board but rather use this board to decide what themes to go deeper into. You want to begin with alignment on areas of opportunity so that once an idea is validated it already has conviction from the top.
2. Next, during the validation phase, this board serve as a forcing mechanism, pressuring the leader to choose only the top few big bets worthy of full conviction
This low number of bets is extremely vital. A labs/incubation program should never turn into a portfolio. Portfolios are built to manage risk and that is not the purpose of this program, which is to go all-in on a couple of bets that can produce outsized returns.
3. Lastly the board should provide resources when the team brings them an opportunity that:
Has massive earnings potential
Leverages the firm’s capability and turns it into unfair advantages over competitors
Cannot be capitalized on by any other part of the organization
If these three criteria are met, then the board should greenlight the venture and give additional funding and internal resources to it. As the venture grows the board may bring in new appropriate members to make sure the venture is staying on track to hit it’s goal of a massive revenue increasing outcome.
Build & Scale
Now this is when the real work of execution begins and that is why it is important to keep the original leader in charge of running the venture. This leader is now aided with a slightly larger team that builds the product and helps turn it into a functioning business. This team continues to report to the board and communicates with them in the same way a startup would. Further resources are contingent on more validation and growth. The more the product hits its stride, the more the original leader focuses on recruitment. Eventually, the product is ready for new leadership that takes it out of the program as a separate business unit within the larger business. All of this is a multi-year process that requires continuous execution and leadership that can protect the venture from the worst tendencies of the parent firm but also leverage its advantages to hit exponential growth.
Structuring an incubation or labs program as a startup removes all ambiguity around goals and metrics for success and ensures significant funding and resources come after the team has shown validation, not before. It puts pressure on everyone in an organization to have conviction in their bets. All of these factors prevent the program turning into a portfolio of experiments that go nowhere but give the illusion of progress through innovation theater. This structure isn’t some magic bullet, and there will still be other bureaucratic challenges, but it is the best way to build for the future.
