Corporations commonly prioritize enhancing their core business through incremental innovation. Yet, they must develop new capabilities when aiming to explore adjacent or transformative fields. Corporate venture building becomes an invaluable tool for bridging these gaps by constructing the necessary components within the company.

In this article, Julie Dvorakova and Davide Piacentini, our corporate innovation experts, shed light on what venture building entails and how corporations can explore new, adjacent areas, unveiling the potential transformative possibilities.

Understanding the purpose of corporate venturing and the impact of a corporate venture builder

Corporateventure building is a business strategy and business model adopted by an organization called a "venture builder.”

A venture builder is an organization that establishes independent companies using a professionalized, repetitive founding process. Companies primarily develop such companies by utilizing internal capabilities and assets.

Corporate venture building serves two main purposes:

• Incremental innovation involves making minor changes to reach nearby markets or enhance current offerings to attract new customers.
• Radical innovation occurs when companies create new businesses or initiatives to target untapped markets or consumers. This is achieved by utilizing new technologies or unique solutions to address unmet needs.

Corporate venture building yields numerous benefits, including fostering innovation and diversification while driving growth by exploring new markets. Diversifying risks and tapping into outside innovation boosts a company's advantage. It also draws in skilled individuals.

These individuals are looking for entrepreneurial chances. They are looking for these chances in a larger corporate setting. This approach speeds up revenue and stays flexible to industry changes, keeping a dynamic and forward-looking position in the market.

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Management Guru Peter Drucker once said: "If you want something new, you have to stop doing something old." Corporate venture building urges corporations to abandon outdated practices embracing a more agile, adaptable, and forward-looking approach to innovation.

Venture building models

There are different ways to build and grow startups or ventures, each with its own approach. Here are some of the key venture builder models:

• Vertical venture builder: Specializes in a specific industry or vertical, focusing on startups within a particular niche. This model allows for in-depth expertise and targeted support.
• Horizontal venture builder: Works across different industries, providing a broader range of services and support to startups with diverse business models and market focuses.
• Corporate venture builder: Operates within established corporations, leveraging the parent company's resources, expertise, and market presence to build and grow new ventures.
• Independent venture builder: Functions as standalone entities, not necessarily tied to a specific corporate partner. They often invest in and build startups from scratch, taking a more independent and flexible approach.
• Hybrid venture builder: Combines elements of both corporate and independent models, partnering with corporations while maintaining a degree of independence. This allows for a mix of resources and agility.
• Corporate accelerator model: Similar to a venture builder, a corporate accelerator is an initiative within larger corporations that supports and nurtures startups, typically through mentorship, funding, and access to resources.
• Investment and advisory venture builder: Combines investment activities with advisory services, offering both financial support and strategic guidance to startups in their portfolio.
• Ecosystem-based venture builder: Works within a broader innovation ecosystem, collaborating with other incubators, accelerators, and industry stakeholders to create a supportive startup environment.

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These models can be mixed and adapted based on the specific goals, strategy, focus areas, and governance of the venture builder. The choice of model often depends on the organization's strategic objectives and the dynamic landscape of the startup ecosystem in which it operates.

How a venture builder differs from an incubator or accelerator

• A venture builder focuses on identifying market gaps and creating sustainable companies to fill those gaps. An incubator assists with market testing and product adjustments, while an accelerator speeds up early-stage company growth for funding rounds.

• An incubator offers hands-off mentoring for business and market validation. An accelerator follows a structured program with mentoring and events. A venture builder is hands-on throughout, from market research to idea testing and market entry.

• A venture builder typically takes significant equity stakes and deeply engages in building and scaling a business. An incubator usually involves no or minimal equity, while an accelerator takes a small equity share in exchange for funding and support services.

Strategic approaches in corporate venture building

Approaches to corporate venturing encompass various methods and frameworks that organizations adopt to effectively create, nurture, and capitalize on ventures within their ecosystem.

At Plug and Play, we recommend starting with exploring potential business opportunities and market needs. Then, proceed to testing and validating these opportunities with your prospective customers. Following this validation, move on to the product development phase, scaling it effectively for the market. This strategic journey takes a diverse set of expertise to assess the value, understand market needs, and connect with potential customers. Product experts also play a crucial role in constructing the minimum viable product (MVP) and incorporating essential features into the solution.

Furthermore, marketers and growth hackers are instrumental in generating initial revenues and expanding the solution's reach as it is deployed in the market. This collaborative effort ensures a comprehensive and successful venture development process.

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In summary, the optimal approach for crafting a corporate venture building strategy unfolds in three phases:

• Exploration: Companies delve into activities that unearth new business opportunities and market needs. They validate these opportunities, design value propositions and mock-ups, and rigorously test them.
• Venture building setup: This phase shapes the business model and financial scenarios and finalizes product features and mock-ups. Following this phase, a pivotal decision must be made: moving forward, pivoting the approach, or abandoning the project altogether.
• Venture building development: This phase further progresses through two stages: ramp-up and scale-up. During the ramp-up stage, an MVP, brand identity, and landing page are crafted to gain initial traction and attract early customers for product or solution testing. Positive feedback leads to refining product features before moving into full-scale deployment.

Corporations must blend financial resources and key competencies to launch a successful venture. Resources play a crucial role, particularly in the initial stages of venture building, when revenues are absent and all costs must be covered.

In terms of capabilities, three primary ones stand out:

• Business and service design: This is especially vital in the initial phases, where market needs must be identified and validated. Crafting the potential venture's business model and financial scenarios is also essential.
• Product management: Building the product and identifying necessary features to fulfill the identified value proposition demand strong product management capabilities.
• Marketing and growth: Growth hackers and marketers become essential for deploying the solution across the market and meeting customers' diverse needs and requirements.

Seizing new opportunities with corporate venture building

The need for venture building starts with finding a business chance or a market problem. Research helps spot new opportunities to solve issues in the market or within your company. To address the found opportunity, choose a strategy — make, buy, or co-create.

• Make: Corporations opting to "make" have two routes. First, they can initiate an internal R&D project within their business units to develop the product. Secondly, they can create a separate team to innovate and test the product continuously in the market.
• Buy: This strategy presents options such as entering into commercial agreements or pursuing merger and acquisition (M&A) opportunities to acquire the necessary capabilities or products.
• Co-create: This strategy involves various collaborative options, including research contracts, joint design efforts, co-development initiatives, and joint ventures with external entities to build and innovate jointly.

Corporate venture building is paramount for companies to foster innovation, diversify their portfolios, and propel growth. In fact, a staggering 70% of companies that have embraced this strategy have outperformed the industry average in terms of growth rates, as reported by McKinsey. It empowers organizations to venture into uncharted markets, surpass industry growth rates, and thrive in today's fiercely competitive landscape.

Elevate your innovation and drive exponential growth with Plug and Play. Seek guidance from our seasoned experts to craft a robust corporate innovation strategy tailored to your unique needs.Take the first step today, and let's turn your vision into reality.