How to start your own corporate start-up

This blog is written from my experience of starting, building and running a corporate start-up as CEO over the last 3 years.

In my last blog I addressed the importance of the corporate start-up – now I would like to offer my view on how to get your own Corporate Start-up (in this blog it will be referred to as CS) off the ground. The focus of this blog goes into the planning of how to start. This phase should not be underestimated – it takes a lot of work and there are a lot of angles to cover. It is worth it though. It gives you what you need to bring your CS to life – all the stuff you need before ever worrying about execution and scaling (which you will never get to if you start badly). To keep the blog-theme going (albeit a bit long) and not converting into a full-blown DIY book (yet) I will need to keep a light touch on the themes.

Before we start – why a Corporate Start-up (CS) and not a standard Corporate Project?

As I see it there are five main reasons for using a CS structure vs a corporate project:

1. Your idea needs new, unbiased and unrestricted thinking
2. Your idea needs another culture than the one currently present in the corporate
3. Your idea needs key strengths from the corporate (unfair competitive advantage), but not a lot more than that.
4. Your idea needs capabilities and talent not currently present in your corporate (likely your corporate cannot attract these)
5. Your idea needs very high level of energy, dedication & ownership – similar to someone owning her own company  

With these five items being true – go ahead and read my view on what it  takes to actually start.

What to start?

The first inevitable step is ‘getting the idea’. This can be done extremely detailed and wide-ranging by a structured (and repetitive) ideation process where 100s of ideas are generated and filtered until you have a few to test. Or it can be done more ad hoc where you already ‘know what to do’. If it is not the latter, then I suggest you gravitate towards the former. You can do this on your own (e.g. hackathon for ideation and then an idea-filter and/or idea pitching for a small group of execs) or you can include an external partner to support. In my experience, if this is your first time doing it – it would make sense to include a partner in some form or shape. No matter what you choose, the key to assessing your idea is understanding why your corporate gives you an edge in winning with this idea (see later in blog). Next to this, you also need to assess all the standard stuff such as the market, the needs, the customers and general feasibility (e.g. technical) of your idea. 

Now you have your idea(s) – the next thing is testing your key hypotheses in the market – basically to test ‘this needs to be true for the idea to be great’. The way to do that is to build a Minimum Viable Product (MVP) that will allow you to collect the information you need. The concept of the MVP is crucial and something you need to study in detail before starting. The word ‘Minimum’ can not be stressed enough. As a simple (fictive) example: Your corporate is in farming and you have a great idea to create a CS with a new and revolutionary digital solution for farmers to optimise their crop-yield. However, you are unsure if farmers are interested and ready. Instead of asking your customers (it rarely works), or spending millions actually building the new solution (99,9% sure it will be a waste of money) – you build the absolute minimum to learn the attitude of the farmers. You place a button on your corporate’s website that says – ‘see our new digital solution for optimising your crop-yield’ and design a simple landing-page with valid content for people who click on the button. You measure how many click the button (and who clicks), then you analyse and build next MVP. There you have it – your MVP and it took less than 4hours to do it. 

A rule of thumb for your MVP: When you have it all planned out – half it. That allows you to keep your focus on the M of the MVP.

Then to something I promised to include in this blog from comments to my previous blog: Executive Sponsorship. It is key to starting your CS, but you should aim to quickly reduce your dependency on Executive Sponsorship via a strong governance structure (see later in blog). For now, you need to find/dedicate a person with the right clout, natural interest in your CS, interest in the CS-Lead and the team as well as the time to be involved in your CS. Also, I suggest you treat reporting lines and formal responsibilities as guidance only and look more broadly for the right fit. Looking back on Twill (twill.net) we were lucky to get this from day1, however as a result of a major organisational re-shuffle in Maersk, we lost it and had to rebuild it (because the governance part was not strong enough at this time). The best way to get the right patronage is to have the CS team pitch to the corporate like pitching to VCs. This ensures that the CS team have their act together, that they are clear on what they aim to do, why they can win, what they can win and why your particular corporate is the right investor. Also, if done well, the ‘investor’ (aka the executive sponsor) will be emotionally and professionally invested and hence take greater ownership (we are only humans after all).  

One more thing for getting started – and something that needs to become your (and the CS team’s) mantra from now on. FOCUS! My experience is that this is as important as it is hard. You need to decide what is the ONE thing is the CS needs to do GREAT. Better customer experience? Lower cost of production? Open new markets? Access a new customer segment? Generate new revenue streams? Etc etc. When you are in a corporate I bet the answer is YES to all I just mentioned (as well as a few more) – and that will kill your CS! (pause, read that last bit again please). You need to pick ONE and only ONE – and keep the CS 110% focused on delivering on this ONE. This laser-focused behavior will allow for speed, clarity for the team and world class results – and don’t worry – if successful it will have positive spill-over effects on most other things you wanted to include.

Lastly for this section, I have a great experience in starting with a partner who has expertise within starting and building corporate start-ups. Having such partner brings speed, process, structure and relevant experience. There are different models for bringing in partners – you can choose to go all-in and have full incubation team or you can choose a lighter model with one person or a small team supporting you (if the latter is your preference, I would be happy to help). Whether you choose to have a partner or not – before starting your CS, this is a relevant discussion to have.

Clarify your unfair advantage (crazy important)

The only reason it makes sense to start a CS is if the corporate gives the start-up an unfair advantage in the market. Period. If this unfair advantage is not clear it makes things very simple: Don’t start!

Before you start your CS you need to clearly spell out exactly what that unfair advantage is and make sure that this definition is circulated and agreed to at the top level of the corporate. The unfair advantage is not just the competitive advantage of your CS (which on its own justifies significant attention) it also doubles as a strong WHY that explains to the entire corporate the need/opportunity for starting a CS. A dangerous and known pitfall is the creation of a large and unbridgeable gap between the CS and the Corporate. The CS finds the corporate slow, committee-heavy and on a path to extinction. Whilst the corporate finds the CS threatening, a bunch of naive newbies, is jealous of unfair resource allocation and sees the CS as a normal corporate project that will end or inevitably fail. This is a huge and fatal pitfall to fall into – as this will not only kill the actual unfair advantage it will also create internal resistance to CS success as well as making it virtually impossible to imbed the CS into the corporate, when/if that time comes. Clarifying the unfair advantage and heavily communicating this internally will mitigate some of this – it offers an explanation to why a CS is a great idea and what can be gained by having the corporate support. Let me be clear – doing this to perfection will only mitigate the inherent friction between CS and corporate. Completely removing the friction and creating fruitful cooperation is something that takes strong leadership in execution (a topic for a later blog).

Governance & Funding – yes, this is also very important

A key reason for setting up a CS and not just a project is to allow the CS to compete freely in the market on the same conditions as any start-up. The CS needs to move extremely fast, experiment, make mistakes, think out of the box and not be restricted by existing thinking, processes and systems. This can only be achieved if the corporate allows the CS this freedom. The CS cannot be subject to all corporate processes within procurement, IT, Comp&Ben, Organisation, Hiring/firing, design, branding etc. Also, all interaction between CS and corporate needs to have the rhythm of a start-up (i.e. no waiting 4 days for an email response from corporate HR). In the end the CS will have to adhere to some key processes in order not to do harm to the corporate as well as utilising the unfair competitive advantage – and that is ok – even great – however each one of these processes needs to be selected instead of asking the CS to list all processes to be deselected (two very different approaches, two very different results). Each time a corporate process is enforced on the CS – a little bit of speed, innovation, talent-attraction and experimentation is lost, hence making this a topic that needs to be discussed and detailed out before the CS sees the light of day. 

My advice is to allow as much freedom to the CS as possible. Set the CS up as a separate legal entity from day1, allow the CS to set up in a separate office space, allow the CS full budget autonomy as well as autonomy to bring in partners (with shares) if deemed beneficial. Allow the CS to build a new culture that is fit for the purpose of the CS and allow the CS to bring in the people that is needed to do the job. Perhaps even change the word ‘allow’ to ‘demand’.

This freedom to act with speed may bring a few nervous ticks across the leadership of the corporate. However, it is not complete anarchy and free-play for the CS – fit-for-purpose governance is needed. To balance the CS freedom and the corporate ‘risk’ I recommend setting up a Board for the CS with documented and extensive decision autonomy (as – you know – a normal Board would have). This Board should consist of 2-3 key individuals from the corporate as well as 1-2 external Board Members with strong and relevant start-up/scale-up experience. The corporate should chair the Board. The documented autonomy of the Board needs to be approved by the corporate upfront – allowing impactful decision-making Board meetings and no ‘let’s ask the corporate’ contingent decisions. This mix of freedom for the CS, adherence to selected corporate processes to a strong governing Board is for me the mixture of success.

Above-mentioned mixture plays well into the funding model as the Board will monitor the results of the CS and govern the overall available funds similar to Seed, Series A, B and C rounds, as well as be final approver for bringing in external capital. A good way to do this is to stage-gate the investment process with an upfront Seed funding that is expected to yield a certain outcome (likely a proven MVP). If that outcome is realised then the next round of capital becomes available to the CS. Each round of capital can be impacted by the actual results of the CS, hence allowing to raise more capital (perhaps externally) with better results, as a normal start-up. This process is crucial for a couple of reasons:

1. It keeps the CS focused on creating results – with speed (yes – early and tangible results are needed)
2. It creates strong risk management for corporate investment
3. It enables the CS to have full autonomy over the allocated investment – again allowing speed in decision making as well as attracting the right people

Allow for a winning culture – it is sadly ALWAYS under-prioritised

You have probably all heard the famous Peter Drucker quote that “culture eats strategy for breakfast”. This is true – but sounds better with a positive spin: the right culture amplifies the value of a strong strategy in the factor 100s. Rene West (former President/ C.O.O. at Luxor and Excalibur Hotel and Casino) said: “You can have the best strategy and the best building in the world, but if you don’t have the hearts and minds of the people who work with you, none of it comes to life.”. The simple point I am trying to make is that culture is super-duper important, it deserves senior management attention and devotion and it must be prioritised when setting up a new CS. For reasons that escape me, I often see this topic under- or even completely de-prioritised. Here are three important factors why culture needs significant attention, even when you are just starting:

1. Your CS needs another culture than your corporate – if not, no reason to set up a CS – you should run a corporate project (mind you, we are not talking about values – values can and should be shared)
2. It is relatively easy to build and impact the culture of a CS as it is small and young – so this is a great oppertunity to build a culture from scratch
3. An unattended and unmanaged culture will build randomly by itself. It will either gravitate towards the corporate culture (likely) or we can cross our fingers and hope something new and great pops out. With the words of Drucker and West – that is not a chance you should take. 

A passion of mine is the term ‘purpose-driven culture’. I want to build companies where, if people only say one thing about them, they will say that the company has a clear and meaningful purpose and that sets the culture. It means that you can feel it, you can smell it, you can see it, you can hear it – everybody knows WHY we are working our behinds off to succeed. It cannot be something trivial like increasing customer satisfaction or lowering cost – that does not appeal to the hearts and minds of the people you work with – it has to be something more fundamental and authentic.  

As an example from my own experience, in Twill (twill.net) we aim to digitise the Freight Forwarding business. Do you feel this touches you heart and mind? Nope – and to be honest not even mine when I was CEO. What made the difference for me, and the global team of Twillers, was that we translated this into something that meant something to us. We aimed to level the playing field and give the small businesses access to global trade and hence allowing them to grow, innovate and challenge the incumbents creating a global environment with more innovation, more opportunities, more economic growth (in particular for developing countries). Basically we wanted to help the small guys create a better world for all of us. This touched my heart and mind greatly – and that was WHY I was CEO of Twill and that is how we pitched Twill to new hires. 

Further, the key is to take this dreamy, visionary stuff and bring it to life in your daily activities. Simple example: To achieve this dream we needed to think differently, encourage risk-taking, be failure-accepting and even failure-promoting. Everybody says this, but saying it won’t create it. That is why we hosted an all-company 1hour ‘Failure of the Week’ session every Thursday afternoon in a relaxed and fun setting. This session became culture-determining for us. We didn’t do it to be cool, different and fun even though we also achieved some of these – we did it because that was the culture we needed to promote in order to have a shot at our WHY. 

The right people

Lastly, no matter how well your CS is prepped for starting – it will be the first 5-10 people defining its chance for success. Therefore, you need to be diligent and patient in the pre-start phase to find and onboard the right people. This really takes time. It will feel like you are delaying your CS that you are so eager to get off the ground – but it is needed and worth it. Firstly (1), you need to make sure that the value proposition of your CS is strong enough to attract world class people – secondly (2), you need to make sure that your offer is strong enough to attract world class people. Mind you, if you are creating a CS to change the world/your industry/ your corporate/ your customers – nothing but world class people will do the trick. To get world class people, you are competing with world class companies. 

The right value proposition (1) comes from your hard work in the right foundation for starting your CS. Basically getting the stuff mentioned in this blog right. Right idea, clearly defined unfair competitive advantage, clear process selection (not de-selection), strong and documented CS autonomy, right governance and funding structure, strong culture focus and a clear WHY. If you have done all of this, you should be able to articulate a clear and strong value proposition.

“It is ‘easy’ and tempting not to focus on a new compensation structure“

For the right offer (2) you need to compare yourself to all the well-funded start-ups who are also targeting (your) world class people and hence need to be able to match their offers. To hire the best (proven) entrepreneurs a high base pay as well as a strong and market-relevant long-term incentive is pivotal. Market-relevant in the way that it should compare to e.g. a successful IPO or an owner selling her company, otherwise how can you attract that kind of key talent to a CS? It is ‘easy’ and tempting not to focus on a new compensation structure – as you will still be able to hire people (albeit likely mediocre), you will avoid the work of building an internal ESOP (Employee Stock Option Plan) and you will avoid a very uncomfortable internal discussion on pay-structure in CS vs pay-structure in your corporate. However, you need the courage to take this on. Failing to do so will likely lead to slow failure – a kind of failure you will see late, hence already in waist-deep. This is a very expensive form of failure in terms of lost investment, lost time, lost opportunities and lost appetite for future CS’s. Hence, my clear recommendation to attract world class entrepreneurs – pay well (per market for this type of talent) and have strong long-term incentives (ESOP).

Closing remarks – this was just the foundation of getting started

Thank you for enduring a long blog-post. I hope you found it worth your (time) investment. Now you should have an idea of the work needed for starting a CS – and yes – it is a lot of angles to cover and a lot of work. Don’t be discouraged by this – if you build a program around this ensuring that each step is covered you can build multiple world class CS’s that can be determining for the future of your company, your industry or perhaps even the world we all live in – making it well worth the hard upfront work.

Please share your view on what you have just read – ask questions, agree, disagree, spark discussions. This really helps bringing the content to life as well as impacting my writing for my future blogs. In my next blog I will turn my focus to how you go from starting a CS to actually running it. 
If you and your company would like to engage in further discussions on how to start you own CS – please feel free to reach out to me on troels@troels.stovring.com