Top-line growth is an imperative for many executives at global corporations. An intriguing source of growth is investing in or partnering with entrepreneurs who are commercializing new technologies aligned with the corporations’ priorities.
An entrepreneur’s initial insights about the unmet needs of customers he can serve are often personal, informal and not fully formed. As he meets with customers and resource providers to validate his assumptions, the entrepreneur’s company will develop through serendipitous connections in unpredictable ways.
Harvard Business School Professor Clayton Christensen describes the corporate executive’s dilemma. “Creating disruptive businesses often offers the biggest source of growth… and is the only way in the long term to continue creating shareholder value.” But Christensen and “Crossing the Chasm” author Geoffrey Moore understand how executives feel when faced with a high-potential, high-risk, low-data decision – “paralyzed.”
The Iterative Startup
Steve Blank is a serial entrepreneur and professor at Stanford, Berkeley and Columbia, who defines a startup as a temporary organization to discover an unmet customer need and then to develop a highly scalable business model around it. An entrepreneur validates his informed intuition by networking through peers he knows to attract the customers and resources he needs. The entrepreneur must share enough of his idea publicly to connect with those interested in privately exploring ways to work together. He carefully observes what people are trying to do for themselves but are finding difficult, expensive or inconvenient. The entrepreneur’s goal is not validating the business model he originally conceived, because it is likely inaccurate in important ways, but to iterate around validated learning to a business model that is highly scalable.
The Portfolio Solution
The key to the corporate executive’s success is discovering innovative ventures aligned with his priorities and watching them develop over time. These ventures are not captive to his corporation’s culture, processes and procedures, and therefore they often are better able to tune in to emerging market signals from customers not well served. People outside with diverse expertise and resources have parts and pieces to create new business models that are not possible on the inside of the executive’s corporation alone.
When entrepreneurs with informed intuition present early ideas to the executive, both Christensen and Moore emphasize that is it is essential for the executive to acknowledge that ambiguity exists and must be addressed with appropriate tools. Demanding “numeric information as a source of refuge or reassurance,” and “demand[ing] market data when none exists and mak[ing] judgments based upon financial projections when neither revenues nor costs can, in fact, be known,” is almost certain to fail. Christensen warns that “it is simply impossible to predict with any useful degree of precision how disruptive products will be used or how large their markets will be.”
Informed intuition is personal and informal knowledge that the executive can only discover through conversations with entrepreneurs who have it. John Seely Brown, former chief scientist of Xerox and director of its Palo Alto Research Center, observes, “As edges arise ever more quickly, all of us must not only find the people who carry this new [tacit] knowledge but get to know them well enough (and provide them with sufficient reciprocal value) that they’re comfortable trying to share it with us.”
A visceral concern of many corporate executives when engaging in public conversations for the first time is ensuring the confidentiality of proprietary information. The executives should disclose only enough information publicly to entice those with whom they are interested in having more private conversations. The executives should also appreciate that this process is more about them listening to entrepreneurs than about them talking about themselves.
It’s impossible for anyone to predict in advance how emerging ventures will develop and which will ultimately prove the most successful. Successful venture capital firms have refined a process of managing this inherent risk by investing in a portfolio of ventures. Investments increase through progressively larger rounds as ventures achieve validation milestones. A well-executed process of investing in a portfolio of ventures and watching them develop over time allows most of the corporation’s investments to be made winners.
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John Warner is CEO of InnoVenture, whose global Web platform helps people with big ideas attract needed customers, capital, talent and technology. InnoVenture.com partners include major corporations, universities and entrepreneurial companies regionally and around the world.
