We have all seen the problem – a successful company has a market-dominating product that for years has provided it with fat margins and the ability to dictate terms to industry players and customers. Then, seemingly overnight, it wakes up to find the rules of engagement have been altered by a startup that has disrupted its industry. Suddenly, put on the defensive and with no new products in the pipeline, growth declines and once-healthy margins dwindle. What happened to this company? Was management asleep at the switch?
Many times, it can take years for a company to lose its market position and see its growth and profitability progressively slide. But the market dynamic seems to change instantly. In a conversation I had with an executive from a highly successful mobile handset provider, I was told that his company saw the iPhone coming years before it launched. Despite this foreknowledge, his company still lost its entire market.
Numerous similar examples exist from the past 20 years. In his 1997 book The Innovator’s Dilemma, Clay Christensen highlights the phenomenon. “Precisely because these firms listened to their customers, invested aggressively in new technologies that would provide their customers more and better products of the sort they wanted, and because they carefully studied market trends and systematically allocated investment capital to innovations that promised the best returns, they lost their positions of leadership.” What, then, is a company to do to stay on its game?
Corporate venture and development groups have been working closely with startups for many years to invest in and acquire them. This practice, by which large companies grow and startups exit, is a critical aspect of the ecosystem. These types of programmes are necessary, but not sufficient. Valuations for successful startups are sky high and, even when they are acquired, integrating them successfully into an existing company is, at best, a 50:50 proposition.
Over the past five years, we have seen a burst of activity around corporate innovation programmes. There are many approaches, but all such programmes have the objective of keeping corporations growing. An emphasis is placed on organically grown internal products or innovation funds for earlystage startup investments. This can be viewed as a third leg of the corporate growth strategy, hedging a company’s bet against being blind-sided by a new startup. These programmes are well-intentioned but solid results are hard to come by.
In parallel, more than 300 accelerator programmes are currently operating in the US alone and we are now seeing these two forces converge – corporate innovation plus accelerator means and methods. A common question I am asked is: what are the results and how do we measure success in the short term, as it can take many years to see final outcomes?
Accelerator programmes, unlike corporate incubators of old, bring with them mentors, access to key technologies, customers and funding. The success of independent accelerators such as Y Combinator, Techstars and 500 Startups has shown that the cohort and mentor model can help startups find market traction more efficiently. Can that also work in a corporate context and with internal startups – intrapreneurs?
As the managing director of the Citrix Startup Accelerator for the past four years, I often field these questions, along with operational inquiries. As one of the early corporate-run startup accelerator programmes, we have experimented with different approaches to mentors, technical support, design feedback, customer development and access to later-stage capital. We currently run a seed-fund programme and a three-month Innovators Programme, with global partners to extend our open innovation platform. We have both entrepreneur and intrapreneur teams in the same cohorts, so we are breaking some new ground in corporate innovation approaches.
Now, as part of the Kauffman Fellows, a training programme for venture investors, I too want to ask these same questions across multiple companies and industries to understand what is working and what is not.
The Kauffman Fellows has partnered Global Corporate Venturing and Prof Yael Hochberg to conduct a survey, which will begin to track and answer questions around the effectiveness of accelerator-style programmes and corporate innovation.
In the coming months we will take this survey information and go deeper with interviews of corporate programmes to get a better sense of what milestones are being set up and what results are expected.
Over the next several years, the Kauffman Fellows special interest group on accelerators and corporate innovation will continue to track these programmes and report on actual outcomes to determine what works and what does not.