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For the purpose of this article, we will be considering a venture as a newly created business where a risk is taken in hopes for a return. Companies can interact with ventures in a variety of ways, including accelerator programs, VC funds and Venture Building. Venture Building, the focus of this article, is the process of creating and growing a new venture from scratch. Some advantages to the venture building approach are explored below.
Venture building, a method of creating a venture in a new business area through the collaboration between a corporation and a venture building specialist, can be a more effective way for corporations to leverage their assets to mimic startups and accelerate their innovation strategy. Overall, venture building is another innovation method that corporations can take along with joining accelerators and VC funds. Venture building, however, offers a variety of other elements and advantages that other innovation methods find difficult to supply.
Why is Venture Building important to corporations?
Venture Building for a corporation can provide a variety of opportunities and benefits which a more standard VC arm or accelerator business may not be able to fully fulfill. Key elements for a lot of corporations would be the ownership element of a venture-built company. Most companies when investing in a startup via an accelerator or funding a company via a VC fund wouldn’t be able to retain much control or ownership of the product that is produced from that company. However, Venture-built companies allow corporations these elements, which often creates larger flexibility and impact for the corporation as a whole.
Venture-built companies also hold the benefit of all being managed under one roof, which allows corporations a holistic view of the company and the potential product that is built. Often a company that is innovative and growing in a new field will go through the three key stages of design, acceleration and scale up. When a corporation meets a company through an accelerator or a CV fund, they are often only interacting with the company in either one or, on rare occasions, two of these stages. This can create limited access and views to the company and product. In contrast, venture building a company in a desired or idealistic market can allow a corporation to have full access to the company at all stages of its growth and development. This can also allow corporations to tailor the design of the company should the goal be to fold it in with the main business in the future. An example of this can be found through the new ventures that Softbank has built. Softbank Robotics is a successful venture built by and supported by Softbank, well known for their popular robot, “Pepper”.
In the long run, venture building has also been shown to provide more return on investment for corporations when compared to VC funds. Firstly, with a custom-built team, support from corporates and expertise being prioritised when building a venture, the company is more likely to succeed, as well as become more profitable in the long run. When comparing this to VC funds, which looks into investing more in fast-growing companies, often in the consumer spaces, the venture building model can provide more return on investment to corporations.
Firstly, VC funds tend to focus on specific types of companies which are cheap to build and easy to scale, which means their returns are more satisfying for a lot of corporations, however, they are not creating impact and, in most cases, they are not gaining large amounts of equity in the company they invested in. Through a venture building project, corporations are able to invest their money into building a company with greater impact, more value to their target market and own equity in the company which would overall boost the corporation's profile over time.
What are the different types of venture building?
Currently there are three popular methods that are used for venture building projects, Methodology, Cloning and Instinct.
Venture building focused on methodology tends to be more structured and proven models. Most corporations that do venture building will have the advantage of having done it in the past, and will use the past experiences to shape and create the next venture with more success and fluidity. For corporations who haven’t done venture building before, turning to Venture Building-as-a-service companies are often their best option, as these companies tend to have the experience, expertise and their own mythology to regularly create new ventures. Rainmaking has a proven track record for implementing successful methods for creating new ventures through a de-risked, co-investment model. Engie Group has benefited from this model, as it has allowed them to run tests on potential products and create long term savings for them.
Cloning is a popular strategy, where a popular business or startup has been identified to be working well in another market. This model is then copied and brought into the new market, and more often than not, is sold back to the original startup allowing them to fast track into a new market. This method tends to be more popular as a new business model or concept doesn’t need to be created, and many of the early-stage developments can be fast-tracked. A recent example of this cloning method is the Japan-based clones of Uber Eats. Didi Food and Rakuten Realtime Takeout are all effective and popular copies of the Uber Eats methodology within Japan.
Lastly, ventures that are built by experienced entrepreneurs are often designed on instinct. As they have been successful before, they believe that they can be successful again. This model has both its advantages and disadvantages as an experienced entrepreneur can bring a large amount of knowledge and experience to the table, possibly being able to see opportunities and issues before others can. Their capabilities are fantastic, however, relying on an individual’s instinct can stunt a company in their ability to scale as the company itself will be tied to the individual’s limits.
What are the success factors of venture building?
Corporates have a variety of options and methods when it comes to venture building, of which the key success factors that we have identified for venture building are as follows.
Venture building should be created at arm’s length. Corporations want to utilize the speedy, lean and adaptive models that startups have been using to disrupt industries. The easiest way to achieve this is by building a venture separate from the corporation. This will allow the venture to utilize all the tools that a corporation can supply, but also be flexible enough to adapt and develop rapidly. This method allows corporations to access the best of both worlds.
Wilhelmsen, a Nordics-based utility company has explored this method recently by building a spin-off venture from their main business to address a gap in the boiler water dosing market that they had a solution for, but could not address under their main business model. This venture gave them the opportunity to explore and expand the product, leading to a reduced risk to their corporation and a successful new venture.
Venture building should be a C-level topic. Venture building needs to be led by the top level management in a company. When upper management is leading the project, the project will have more access to resources, less roadblocks and clearer picture of what direction they would like to go in. Also, with top management taking responsibility for the project, the venture is more likely to succeed and meet the long-term goals.
Venture building must be a long-term commitment. It is also very important for the company to establish a clear governance structure and KPIs. These elements are vital for a venture building project to gain support within the company and to achieve success.
Venture building can be an effective way for corporations to expand their business and create new revenue streams. To explore innovation for your corporation, our Rainmaking Innovation Japan team would be happy to help you discover how you can de-risk the process and realise your goals.
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