Your Innovation Process Is Killing Your Returns
In the face of the high variability of innovation outcomes, corporations have come to sing the gospel of best practices. But overbearing processes without the right mindset are killing potential returns
If You Only Have a Minute
While process is important, a strict adherence to a fixed process can adversely affect your ventures’ returns. In the worst cases, promising topics that do not fit the process get killed too early, teams are bogged down in reporting, and no meaningful hands-on work gets done. To address this, you can consider the following:
- Focus on building quality ventures that will support the corporate goals, not an arbitrary number of zombie ventures even if it means being flexible with timelines and budget.
- Benchmarking your process versus innovation drivers (e.g., startups), not competitors (do not look for big budgets). Remember that ventures in the wild use less than USD 2 Mn to get to series A.
- Leverage outside expertise, e.g., by bringing in founders to lead ventures but only once there is meat on the bone, and not too early as that can result in misaligned incentives for quality ventures.
- Explore equity and optionality from early days to ensure that the venture has discipline, the people working on it have incentives, all the while giving the corporate the ability to take over if needed.
Listen to the presentation of corporate innovation leaders and, invariably, you will be able to successfully get five hits in a row on your buzzword bingo card. Process names, tools, and artifacts are everywhere, whether they speak about Design Thinking and Customer Insights, Problem Fit and Solution Fit, Lean Startup and Experimentation, or Agile and Sprints.
This is a symptom of the corporatization of innovation. Large companies are structured in ways that produce predictable outcomes and reduce variability. They manage known operational risks well, create procedures, and strive for continuous optimization — all laudable goals and ideals in an operating business, yet terrible mindsets to manage innovation. New ideas, especially new ventures, start in a place where they have to rapidly explore — which means trying things and failing at them, to learn what works and double down on that with haphazard structures together by string and duct tape.
How Processes Can Kill Ventures
No matter which process you have chosen to implement (they are all some variant of each other anyways), it will include some form of the following:
- Stages / Phases: There is a logic to what we call the current level of chaos the team is in and what we expect them to do and achieve before they can move on to the next. Usually, these are assigned specific capacities and budgets to invest “risk-aligned.”
- Activities / Artifacts: Each stage includes things the team should be doing and artifacts they should be producing, which will lead them through the jungle to find the right way forward.
- Reviews / Reporting: Regular retrospectives that let the venture builders explain what happened, what the status is, and what comes next, as well as what support they might need.
- Stage Gates: Big, hyped-up meetings at the end of a phase that have a group of people who are typically not involved in the venture make decisions on its future.
None of these things are wrong in and by themselves. On the contrary, they can all help govern activity systems and ensure information flows that generally generate better outcomes. However, problems start when the process is not taken as guidance, and the underpinning ideas/premises are lost. So instead, it is accepted as rigid gospel to follow precisely and without deviation. In that case, some of the following will happen:
- Killing Opportunities Without Good Reason: Your process is set up for software ventures, and the stages and budgets have been designed accordingly. The team has identified a great IoT opportunity, but it will take three times the time and ten times the budget of your usual phase allotment. Because it is out of the standard boundary conditions, the decisions get escalated to corporate leaders who do not understand it and shut it down.
- Focusing On Deliverables Over Progress: Venture builders are expected to produce every template and deliverable for every stage in every iteration they go through with their solution. Instead of focusing all their energy on solving customer problems and hearing what works, they spend 70% of their time filling out PPT templates to report back on what they think might work — taking shortcuts in validation to save time.
- Spending More Time Reporting Than Venturing: Your company has set up a bi-weekly stakeholder meeting and a monthly C-level meeting for every venture beyond a certain stage. The venture builders are expected to talk for 1–2 hours about all their progress so that leaders feel good about what is happening. Those meetings are constantly moved to fit the leader’s calendars instead of the venture builders. As a result, the team allotts a lot of time to update slides and schedule changes, which could’ve been invested in optimizing the product.
- Cutting Great Team Alongside Bad Ideas: Because there is a linear logic of moving through the process on paper, once a team does not make a stage gate and does not get to pivot their current idea, the idea is killed. Too often, the whole team is cut along with the idea rather than thanking the team for learning on this topic and assigning them to the next topic. There is no reason to axe great teams along their ventures except for rigid process logic.
These are just a few examples of what happens daily in large corporations. Venture teams are regularly drowned in process in an effort of the corporate to reduce variability, increase quality and create transparency. While the motivations are understandable, more often than not, the outcome is that a lot of process work gets done but little venture work, which kills the venture that needed to move fast instead of producing all those slides. How can we do better?
Progress-Focused Venture Governance
Based on our experience, there is a different way to run a managed process with better outcomes, focusing on progress.
- A program’s goal should be a set of quality ventures looking to expand the parent company’s reach and impact on the world, not a number of zombie ventures. This means a focus on solid ideas and progress. Management should avoid counting deliverables or the pure number of ventures created — quality over quantity.
- A venture-building process should be better than building a venture in the wild. As we often mention and is widely reported, a venture in the wild costs no more than USD2 Mn to build over the course of 2 years and get to Series A. Creating a map for achieving this benchmark at a corporate venture and the relevant process to follow (e.g., engaging with venture capital firms early on) will allow for better outside validation.
- Not looking for ideas but instead exploring value chains. While running brainstorming sessions with a KPI of developing ideas provides a great way to engage management and see things from the company’s perspective. A structured analysis allows for seeing things from the perspective of the various value chain experts and ecosystems and allows for finding contrarian views. Looking at the value chain and, specifically, the profit and revenue pools provide for identifying opportunities and not ideas.
- Bring in founders when something has legs, don’t build a bench. While having an entrepreneur in residence sounds exciting, they usually have one of two goals that might not be conducive to a promising venture. One of their goals might be to overly extend their stay in the role while they look for their next role. Or they are looking for the founder role regardless of the nature of the venture. This is due to the next point, “explore the value equity.” But regardless, the main thing is that finding a founder later allows for identifying the right founder, de-risking the venture for them, and ultimately allowing for better outcomes for both sides.
- Understand and explore equity structures. One of the above drivers is that internal builders are not driven by equity, and external builders are building “ventures” but take no risk. The idea of equity is the main thing that drives innovation and ventures in the wild. People are taking early risks and scaling success up with progress. We dare to say that each company today, looking to build and innovate, started as a venture a long time ago. While exploring equity is tough, it is one of the main things that will ultimately lower costs, align incentives (by converting salary into equity), and allow scaling up quickly when the venture achieves product-market fit (through external investment).
Conclusion: Don’t Let Your Process Kill Your Returns
While helpful, venture building and innovation processes often stand in the way of real success. They usually exist to bring transparency and understanding to stakeholders while reducing variance and increasing a form of success the corporate can measure (like the number of ventures), yet most often don’t yield quality outcomes.
With a few fundamental changes that bring flexibility and variance into the right parts of the process, the impact of all activities can be dramatically improved. We strongly suggest reviewing your current processes to determine whether they are conducive to creating actual quality outcomes or just the appearance of quality control and find the right levers.
We are also 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: email@example.com
Sebastian Muller, Co-founder at MING Labs
Arnold Egg, Founding Partner at Wright Partners
Ziv Ragowsky, Founding Partner at Wright Partners