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The Importance of a Commercial Pilot in Corporate Ventures
Starting a new corporate venture is an exhilarating journey filled with possibilities, but it also comes with its fair share of challenges and untested hypotheses. As such, within our model, we always suggest following the venture in the wild approach as closely as possible and augmenting it with the corporate advantage. This is opposite to many approaches we see in the industry that try to build the venture “corporate style”, which adds the bureaucracy of corporate to venture building, often resulting in sub-optimal ventures
To reduce time and resources spent on the early stages of the ventures (the research and ideation part), which ultimately does not last as long in the venture in the wild compared to most corporate venture-building approaches, the Wright Partners approach is always to conduct a commercial pilot early on. We test and validate key aspects of a business model before incorporating it.
In this article, we explore the importance of piloting when embarking on a new corporate venture, how we have conducted pilots in the past, and some best practices based on our experience.
Piloting is more than just a trial run; it’s a deliberate and systematic approach to testing a business concept and specific hypotheses. The method enables corporates to strategically assess the feasibility of their venture, meticulously considering the corporate context and intricacies involved.
By testing assumptions in a controlled environment, corporations can gather valuable implications and assess the viability of their idea. The commercial pilot allows for adjustments and improvements based on feedback from real clients in the real world who will agree (or not) to pay for the not-yet-created product. It mitigates a level of risk that you cannot attain by intellectualising. Real-world responses during a pilot provide insights beyond theoretical market research, enabling entrepreneurs to tailor their offering(s) to actual customer needs. In addition, when building a corporate venture, or any startup for that matter, financial constraint is a reality and financial prudence a necessity. A pilot offers a cost-effective approach to resource allocation.
In our approach, pilot ideation happens within the first 4 weeks, and in fact, it is a key go, no go decision milestone by the corporation. Much like in a venture in a wild situation, the founders, in this case, would be deciding what to try and sell, and the corporation gives (or not) the go-ahead to us in this stage. This pilot template is a result of the initial process of value chain mapping, pain point identification and value quantification, as well as the resulting problem statement. All of the work is done in the first 4 weeks in our model.
The pilot importance in this case is not necessarily to “reach the right answer” but to test specific hypotheses which will validate the business approach. We do so by ensuring we know what hypotheses we want (and can be proven) within the context of the pilot. To ensure that a hypothesis is relevant, we ensure that
- It targets a problem that is clear and specific. And evaluates hypotheses that can be tested independently.
- It has a specific value that a customer can understand. For example, if we know that the price of a good is high for a specific reason and we want to see if we can mitigate the price by an intervention, we have to know the value of the mitigation.
- It involves a transaction versus questions about willingness to pay. When it does not, it is used to test technical hypotheses. For example, when we tested our cold storage solution, we first made sure it worked before getting an MOU (and a contract within the first 6 months from the start of the venture). This was after we reviewed the research on the specific technology we were using and wanted to test it in a real-case scenario.
- It involves a solution attributed to the venture intervention, and the venture can capture that value for a significant amount of time. A negative example would be creating a marketplace for limited actors, solving their problems in the discovery of counterparts. While this can be a valuable problem, in most cases, it will be difficult (because of the small number of actors) for the platform to capture the value as the actors can leave the platform and engage outside.
A commercial pilot is critical in pointing the venture in the right direction in a short amount of time and with limited funds. It requires taking risks, not for the faint of heart. If a pilot fails, we treat it as a negative success. It saves significant time, money, and other resources for the corporation and allows for refocusing on a better pivot or a potentially better venture.
Case Study 1: Engram — Unlocking Investible Creative IP
With GenAI, royalties for the use of artistic pictures to create new works of art are completely eliminated. Destroying both the intrinsic value of creative works and the ability of advertising agencies to utilise these tools.
Engram set out to solve that problem by deploying a dedicated model for the advertising industry, the largest consumer and monetiser of creative IP.
Wright Partners validated the willingness to pay for this service by deploying an efficient pilot, utilising off-the-shelf open-source software. The initial setup cost $1.20/day, and within 2 weeks, the generative artificial intelligence (GenAI) interface was ready for use by external parties. Agencies were then able to fine-tune the GenAI model to fit their specific purpose and generate creative IP. Ultimately, this pilot proved the willingness to pay for the pain point in the market.
Engram went on to successfully raise USD$1.5m from the corporate partner as a stand-alone venture.
Case Study 2: Polar — cold storage-as-a-service (CSaaS)
Cold rooms are essential for preserving perishable goods. F&B businesses face several pain points with small warehouses that have cold room requirements.
- They lack in-house expertise in cold room management and maintenance
- High upfront capital commitment for a cold room
- Significantly fluctuating electricity costs when operating cold rooms
During the Polar’s pilot, Wright Partners focused on reducing temperature fluctuations and elongating the power cycles required to cool down the warehouse using phase change material (PCM) batteries. We designed, sourced, manufactured, and deployed PCM batteries in customers’ cold rooms.
Early indications from the pilot deployment with a partner in Indonesia suggest that cooling load balancing does indeed work, reducing amperage by ~27%.
In addition to the technical success, the venture team walked away with increased knowledge and learnings on setting up a CSaaS business. This involved importing Phase Changing Materials (PCMs), which is complex with multiple regulations and standards across borders. This in turn impacted cash flow and the working capital requirements. It also saved 4 to 5 months for the founders coming in as it was already done in the validation phase. It also allowed the team to try and see if they can make the PCMs within the country.
Pilot design
Launching a pilot program involves careful planning and consideration to ensure its success. Note that we have not incorporated a company, and have no employees or rasied any funds at this point.
How do we then plan for our pilot?
Pilot Design begins with us asking ourselves these 5 questions:
- What is the long-term objective?
- What are the pain points experienced by our target customer?
- What is our current hypothesis that we want to validate and how do we measure success?
- How do we design our experiment to test our hypothesis?
- What is the budget and other resources we need?
Let’s answer these questions for Polar.
- Objective: Develop a way to manage cold rooms effectively at scale and increase access to customers.
- Pain Point: Cold rooms are not managed properly and have large amounts of wastage.
- Hypothesis and data: By using PCMs we decrease the electrical consumption (kWh), temperatures of the shelves and PCMs, and frequency of on/off cycles.
- Design: Find a target client, source PCMs, and measure the 30-day electrical consumption of a commercial cold room.
- Resources: Total budget below SGD 50k. We assume a pilot will take about 1 month for initial results and 2 months for final ones. In the case of hardware (or sometimes light software to be developed) we take a soft break in our process to allow for the equipment to get in.
By addressing these basic requirements, we enhance the likelihood of a successful pilot program and gather valuable insights for informed decision-making when scaling or adapting their venture. You can download/duplicate the ‘Pilot Design’ template here that we use to design our pilots.
In conclusion, navigating the uncharted territories of a new venture in collaboration with a corporation requires a strategic and focused approach. The commercial pilot method plays a pivotal role in mitigating risks, validating markets, and positioning corporate ventures for long-term success.
We’d love to tell you more about our approach and how we build investible ventures with corporations. Don’t hesitate to contact us.
We are pleased to be an appointed venture studio of EDB’s Corporate Venture Launchpad 2.0. CVL 2.0 is an expanded S$20m programme by EDB New Ventures, designed to enable companies to incubate and launch a new venture from Singapore, supported by venture studios experienced in corporate venture building. You can also find out more on our website.
Interested to learn more about investable ventures? Drop us a line: contact@wright.partners
Author:
William de Vos Venture Partner at Wright Partners
Ziv Ragowsky, Founding Partner at Wright Partners
Pada Phosaard, Venture Architect at Wright Partners
