Just because something is plausible does not mean it is right.
The easy answer for a high-volume, low-margin retailer or fast-moving consumer goods maker, or even a low-volume, high-margin one, is to argue it is too expensive to invest in innovation.
The worry, which is applicable to other businesses with similar business models, is the investments might take too long to pay off, if at all, and that is even if the free cashflow can be found in the short term to fund the innovation policy.
This can mean that where a business executive can push through a corporate venturing strategy, often as part of a wider innovation toolkit, it can remain hostage to the broader business’s fortunes and often tied closely to delivering on current strategy. This focus can come at the expense of a wider eyes-and-ears scouting role for ideas that might be good opportunities to expand into, or identifying the risks to longer-term health.
But the development of a more consumer society in emerging markets as people become richer, technology developments in the internet and mobile devices, and the desire for information to be free while people are willing to pay for convenience or the insights of analysing the data flows means consumer goods are increasingly looking to corporate venturing as a necessary business expense, similar to a marketing or sales budget.
In the past two years there have been a number of wellresourced and thoughtful approaches to corporate venturing set up or expanded in the consumer sector – this month’s featured industry.
Groups such as Unilever, Procter & Gamble and Nestlé have all had well-established and very influential, if differing, models that are regarded as best-in-breed by their peers, while China-based Alibaba is rapidly expanding in line with its corporate ambitions.
But this month’s profile on Amazon indicates both the learning curve corporate venturing has been on for the past few decades, as well as its potential for groups that bring an edge to the dealmaking in the way investment banks try to do with their proprietary trading.
Amazon’s first period of corporate venturing and mergers and acquisitions, often alongside or from its venture capital shareholders, during the 1990s internet bubble had a mixed record. Amazon successfully expanded its product range from books and made some crucial acqui-hires – the process of acquiring a company principally to secure its talent base – especially Junglee, but effectively had to write off many of its deals.
A hiatus after 2001 while Amazon righted its cashflows and focused on profitability resulted in the retailer developing its software-as-a-service suite to complement its physical product sales. This Amazon Web Services (AWS) programme and corresponding Start-Up Challenge has helped the group re-engage with dealmaking.
This time, however, Amazon is both a larger retailer with more insights into consumer purchasing trends and with greater power as a distributor perhaps equalled only by Wal-Mart, which unsurprisingly has been building up its Labs unit.
Amazon also has unprecedented insights into entrepreneurial trends as start-ups turn to AWS for realtime management of the information technology needs of a fast-growing business.
For Jeff Bezos, founder of Amazon, this big data set is an unprecedented opportunity to help achieve his goals of selling everything to everyone. Given he previously rose to one of four senior vice-presidents of hedge fund manager DE Shaw, which used black box algorithms from its computer scientists to help find edges in trading, Bezos has the experience to appreciate the opportunity well.
Most successful corporate venturing units, from International Data Group to Intel Capital, spend as much time thinking about what unique advantages their parent can bring to their dealmaking as what the investments can bring back to the parent.
When dealing with other venture syndicate members, it is better to be a leader than a follower, as their suggestions can sound only too plausible.
Next month’s issue of Global Corporate Venturing will be a special one as it marks the end of two years in operation. We will be making a few design and content alterations to the magazine and also our weekly e-zine to mark the occasion – let me know if there are any suggestions as we are working on integrating the data section online in a searchable format – and also creating a special supplement for the Global Corporate Venturing Awards on May 14. This means the May issue will effectively be in two parts – a main magazine and feature section separately. For more details on the awards and our symposium on May 15 in London, click here.