Why we need more – and better – corporate start-ups

This blog is intended as a kick-off on the topic “corporate start-ups”. More blogs with further investigation and more insights on my view are to come

What has happened in the last few decades for top10 most valuable companies in the world is extraordinary. New companies have reinvented entire industries and outgrown industry behemoths that has held a leading position for decades – and sometimes more than a century. And all this in a pace never seen before. This development has lead investors souring for the next big thing and billions upon billions of dollars are being invested into start-ups with great ambitions and great pitch-decks. This fuels the start-up scene and now all university students with a little bit of spark in them have at least 2-3 new business ideas that will change the world. The power of the ‘light houses’ (proving that it can be done), the trigger-happy investors, a horde of start-ups staffed with purpose-driven Gen Z’s and a tech scene that keeps producing small miracles makes most traditional corporates think twice about the future. 

I hear it from my network, my friends and I have seen it myself: The paradox. The large corporates are often well driven, have a long history of successful business ventures, some of the strongest leaders in the industries and a very talented workforce – and they know that if they don’t change (all those great things) – they won’t keep succeeding – some may even risk to perish. What makes it very hard to change is that the risk is not real and not clear enough. The risk is too intangible and even though most can articulate the risk and spell out the scenario where their succesful industry leading organisation will be overtaken by the ‘new kid on the block’ – most organisations find it hard to build enough collective confidence in that scenario to truly act on it. As said, it is not tangible enough. It is not a hostile take-over in the process, it is not new industry changing legislation, it is not the well-known key competitor making an aggressive move. It is a company (or more) that doesn’t exist yet – coming with a value proposition that hasn’t been created yet – and a revenue model that we potentially have not seen before. That is what is going to lose the corporate its pole position – and how do you really (re)act – with enough power – to a situation like this? Do you want to be the corporate leader who invest everything into changing a succesful company to avoid a hypothetical risk? And when that risk never materialises (potentially caused by truly acting) – will you – as a the bold leader –  then inevitably be labelled as a failure?  

As a result, large organisations are likely to run low-risk internal projects aiming at providing incremental improvements rather than make monumental changes to the core business model. Within a large organisation it is often difficult to think and act new, to experiment – and to not be impacted and biased by the deeply rooted processes, culture and the organisational structure. This is true partly because some of the inherent strengths is likely needed to build the new winning business model – but more so because of the corporate is such a powerful force that despite best intentions it cannot be avoided. Also, a corporate has a billion dollar business to run, which makes it even harder – perhaps even impossible –  to focus on nurturing and growing the right (perhaps controversial and perhaps even challenging to current revenue model) ideas, whilst killing off (stop funding) the incremental improvement projects that will not be the winning proposition for the future. 

The start-ups on the other hand, they come plentiful, with an insatiable hunger to change the world and with a cash-rich capitalists behind them trying to make sure they are not the ones who miss the next Facebook. The vast majority will die, some will survive – but a few will thrive (if nothing else, then as a result of the law of big numbers). And it only takes one new company to change an industry – hence one will inevitably do so. 

So – corporates with long history, deeply rooted processes and a strongly imbedded and perhaps somewhat old-fashioned culture are doomed to perish? Some will yes – however the answer is in general ‘no’ – but it takes a new mindset – and with above mentioned corporate ‘drawbacks’ – that is not easy. For me, the solution is the marriage of the internal project and the start-up: The corporate startup. As a good example, this is what Maersk did – and is still doing – with Twill – and something I believe should be done in much more companies – and something we should get better and better at doing.

A corporate start-up?

The concept in itself is an oxymoron – they cannot co-exist, hence emphasising how hard this is to do right. I have myself run one for almost three years and I have also had the pleasure of learning from several others running other versions of corporate start-ups. From these experiences I can conclude that there is huge potential but no well-imbedded formula of how to plan, structure and execute a corporate start-up . The corporate start-up is based on risk-appetite, the people you get to run it and what degree of  support and autonomy the corporate puts behind the start-up. The fact there is no universal formula is further emphasised by the limited literature on the topic, the few great ‘light-house examples’ that shows how it is done and that there is still little (but growing strongly) high quality consultancy services that can take the corporate by the hand in the process. In general, even though being such an important topic, the topic of ‘how to get corporate startups right’ is still vastly under-represented in today’s world. 

From a macro-economic view, we should always aim to optimise the outcome of the resources we have available. Even more so thinking about the current and very real climate crisis and the forecasted population growth with a global population estimated to reach 10billion by 2050 (scary note: there were 3,7billion in 1970). We are in desperate need of innovation to solve existential problems – something we have grown used to and now have started to gamble on. That is why we need corporate start-ups. Some of the best minds of this world are to be found in corporates – and by sheer number of employees in corporates – I am sure there are plenty of them. So, we should expect that the best ideas, the most impactful innovation to come from corporates – but that is not the case. Corporates find themselves taken oven by new start-ups or pushed to buy all start-ups that shows potential (risk) within their field of work (as a defensive move). So, is it that the corporate structures, their risk profile, the culture and the corporate processes dull the mind, entrepreneurship and flamboyance of their best thinkers? As an extra punch to an already stumbling boxer – we have now also created a world where it is ‘corporate vs start-up’ and where the young smart, brave, out-of-the-box thinkers are staying way clear of corporates and betting their future on the start-up and changing the world. Therefore, with limited current break-thru innovation and a shrinking talent pool – it is time for corporates to act – time to make that intangible risk tangible – time to act with power – time to create new successful corporate start-ups.  

I have learned a lot about do’s and don’ts in a corporate start-up and I feel I have enough content to produce a ‘how to’ guide. However, that is only the beginning – next comes reality – executing with process, stamina and people – and this needs to be tailored to fit the DNA of the corporate. This blog is not intended to offer the recipe to this – I aim to give my view in later blogs. This blog is rather aimed at raising the awareness and discussion of two key topics: 1) We are in dire need of strong and succesful corporate start-ups – we need to activate the huge sleepy resource to make a better world and 2) It is really hard to get it right – so dont underestimate the task, think it thoroughly thru before kicking it off, learn from others and make sure you have a diligent executional model.

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A great and well-known book that address some of these topics:
“The Innovator’s Dilemma” (see it here)