In this highly connected world, new ideas are coming from everywhere, with emerging competitors disrupting established companies every day. Large companies must learn to play the disruption game and use it to reinvent themselves continually. This article is focused on helping you structure and manage the incubation process and includes examples from leading companies that are finding creative ways to engage with entrepreneurs and start ups in co-creating new businesses. Collective disruption combines the best of big brands and the start up nation.
Many large companies are experimenting with incubation models that include building their own accelerators, partnering start up accelerators and embedding entrepreneurs into their corporate ventures. I have studied many of these models and interviewed dozens of executives from leading companies – Coca-Cola, Lowe’s, Unilever, Procter & Gamble (P&G) and others. Here are some keys to success distilled from these companies’ experiments.
First, senior-level corporate visibility and support are keys to success. In the case of corporate venturing, you are facing challenges not only from the outside world but also from the corporate antibodies who see this approach as a threat to their own security and jobs. You are looking for strong and visible support from senior leaders who normally measure everything by profit and loss and quarterly returns, and you are asking them to believe in your dream, to withhold judging it by traditional measures, and to place a bet on a high-risk, high-return opportunity.
Second, a degree of autonomy and separation from the mother ship is required for incubation of new ventures. I like the analogy of creating “an island with a bridge to the mainland”. Separation is important in physical, organisational, and management approaches in the incubation phase. While separation is important, some degree of connection remains important, especially ensuring visibility with senior management, who must provide air cover for incubators and venture creation teams. Ultimately, these new businesses will need to be integrated into the organisation if they can scale.
Third, the incentives and reward systems for new business incubation will need to be different from core business units. Leaders and teams engaged in incubating these businesses need to be measured and rewarded both on their ability to derisk big ideas and with the carrot of shared rewards should the venture succeed. And rewards are not only financial – recognition and control over one’s own work and other forms of rewards are important to passionate innovation teams as well.
Three models for business incubation
We will never see a one-size-fits-all solution for structuring corporate ventures or business incubation teams. Here are three ways to look at structuring your incubation efforts.
Inside-out (accelerator models): This approach is focused on incubating big ideas outside corporate walls. One advantage of the inside-out model is that it accomplishes the goal of creating separation and autonomy for venture teams.
Visibility and support: In general, the inside-out model of venture incubation requires strong senior management support even to be launched, but maintaining that support can be difficult with physical separation.
Autonomy: While separation and autonomy are high, the linkages to the corporation are generally weak, and senior management visibility is a key risk for both eventual integration and support.
Incentives: This structure can more easily be customised for properly incentivising venturing teams because it most closely resembles the traditional start up culture and financial rewards.
Coca-Cola has been expanding a very interesting corporate accelerator programme of its own called Start up to Scale-up. Coca-Cola is focusing on co-creating with start ups and making its assets available to proven co-founders and then bringing Coke’s amazing ability to scale.
Recently, General Electric (GE) announced a partnership with Frost Data Capital in launching Frost I3, an incubator for the industrial internet. This is yet another twist on the model of inside-out. In this case, GE is partnering an up-and-coming venture capital firm that specialises in big-data start ups.
Frost brings capital and methodology, while GE brings deepexpertise in areas such as predictive analytics and intelligent machinery.
Inside-out takes many forms, but all are aimed at leveraging the entrepreneurial ecosystem more directly in the incubation process to achieve corporate growth goals.
Outside-in (embedded entrepreneurs): Another model for collaboration is to embed external partners and entrepreneurs into corporate ventures. It is more difficult to pull off, especially if you do not have entrepreneurs who can navigate the corporate landscape and avoid the landmines. However, with the right people, corporate venture teams can engage external Sherpas who can challenge these norms and infuse entrepreneurial thinking within the organisation.
Visibility and support: The outside-in model of venture incubation provides an easier approach to gain and retain senior management visibility and support.
Autonomy: While autonomy is low with this model, it can work if the initiative is managed outside of the core business structure, as it is with Jarden Corporation, a durable product company, where the Jarden Transformational Innovation team reports directly to the senior leadership team.
Incentives: Within a corporate environment, creating big wins for an entrepreneur is difficult, but there are ways to ensure that incentives are supportive of entrepreneurial success. Often, the draw for the entrepreneur is the ability to work with a team and on a platform that can have a big impact. Incentives are not always about money.
AthenaHealth has created an interesting model called the MDP Accelerator (MDP is more disruption please). They offer 8 to 12 months of residence to the start ups and mentoring from the AthenaHealth team as well as from its network of healthcare providers. The first start up, Smart Scheduling, is focused on eliminating the inefficiencies of patient scheduling and no-shows for healthcare providers.
Another recent example of outside-in comes from Jarden Consumer Solutions and the launch of its Crock-Pot Cuisine line of gourmet foods. Jarden recognised that launching this venture required skills the internal team did not have. So it recruited a proven entrepreneur with deep experience in both the food category and direct-to-consumer models to help lead the initiative. Rather than hire him directly, Jarden structured a defined period, put in place incentives beyond contracting fees, and enabled this entrepreneur to guide the initiative from within Jarden Consumer Solutions.
Inside-in (integrated): This model assumes that ventures can be incubated both within the core business structure and via independent external partnerships. It is a model that is even more difficult to manage internally for disruptive opportunities and often comes down to the innovation maturity of the organisation.
Visibility and support: The inside-in model of venture incubation provides a challenging path, so visibility and support are important. Being internal, visibility should be better. It is lower risk for the organisation but can be harder to ensure senior management air cover, due to the distributed nature of the initiatives.
IBM has been managing its Emerging Business Opportunities (EBO) group since 2000 and has delivered $26bn in incremental revenue for IBM since it was created. These emerging businesses have a strong, experienced leader and benefit from senior-level sponsorship, dedicated resources and limited autonomy – to protect it from corporate antibodies – and balance this with direct linkages to the business units to ensure EBOs are addressing strategic needs.
P&G’s Align brand provides another example of an entrepreneurial incubation and launch of this fledgling business within a larger structure of P&G. At first, the product was sold only online and via telephone. In 2008, Align expanded to retail distribution in limited markets and with specific retail partners. Finally, Align was launched nationally.
At each step of the launch, the company was able to prove viability and muster support to move on. The behind-the-scenes story is that the strategy was one of necessity. With an unproven market and a lot of potential risks and barriers to the adoption of Align, an entrepreneurial business team inside P&G took it on themselves to launch this way.
The three models of incubation are situational
The three models I have laid out above provide a useful framework for understanding how many other companies are experimenting with new approaches to business incubation. These models also constitute an instructive framework for considering your own approaches to incubation. These models are not mutually exclusive and are more situational, so adapt them to suit your own needs. Incubation is about experimentation, and that includes the approach we use to structure and manage them.