By Linda K. Yates

At the World Economic Forum in Davos, Price Waterhouse presented the results of their annual survey of 4400 CEOs where the most striking finding was that 40% of those CEOs believed “their companies would not be economically viable within 10 years if they didn’t transform.” The well-known Forbes study gives historical support to that C-suite handwringing citing that “the average life of a company on the Fortune 500 list 50 years ago was 75 years and today it is 15 years and declining…” — and more damning — “of the companies on the list 50 years ago 88% of them are off the list, out of business or completely irrelevant.” Meanwhile, according to CB Insights, the global venture capital community has created over “1200 unicorns worth almost $4 trillion in value,” every one of which could have come out of a large company, meaning that even if the Global 1000 isn’t going out of business, it IS leaving a lot of money on the table. And there is no excuse for any of this to be happening.

Large companies have advantages that not even the most well-funded startups could ever hope to match. You have ideas, talent, capital, brand, technology, channels and best of all you have customers — often millions of them. But most companies never realize the potential of their built-in advantages. Why? Because doing that requires them to think and act differently to overcome the inertia, antibodies and orthodoxies that starve great ideas of oxygen at best, or worse, kill them. These companies must recapture the spirit, spark, scale, and speed of their own entrepreneurial origins. They must build their Growth Engine — unlocking disruptive growth through Venture Building and Venture Investing.

The not-so-secret-secret of the Silicon Valley is that it’s not that hard, it also isn’t fairy dust. I wrote the Unicorn Within to democratize what we do at Mach49, to build capability not dependency, and to extend access to the success we have experienced inside the Global 1000 to a much broader audience by making our methodology, tools, assessments, agendas, processes, scripts and so much more available to everyone who aspires to disrupt themselves from the inside out and the outside in — to not just survive but to thrive and ultimately, hopefully, to change the world.

Let me share five foundational elements to unlocking Venture-Driven Growth:

Element 1: Venture Building

All great ventures start with understanding customer pain. No one knew they wanted a DVR, a microwave oven, or a minivan, but what they could tell you was their pain: they weren’t getting home in time to watch their favorite show; they didn’t have time to cook a healthy meal; and they were having to cart an ever-increasing number of kids, dogs, and sporting equipment to myriad places. They can tell you their pain.

Then you can take that customer pain and marry it with the art of the possible — what are the current trends and technology you can employ to solve that customer pain. Remember Uber does not exist if we don’t have mobile phones, GPS, and real-time payments. The challenge many large companies have is that they don’t stay current on the art of the possible, so they have a hard time coming up with disruptive solutions to customer pain.

Once you have a set of possible solutions, you place a series of small bets — you do pilots, you run experiments, you test, iterate, pivot and test again. In Silicon Valley we look at funding like an onion, every layer of the onion is a layer of risk, it could be market risk, financial risk, technical risk or in the case of a large company, governance risk, you love your venture to death, or you starve it of oxygen. The goal of any entrepreneur whether inside a large company or in a traditional startup is to remove the greatest amount of risk on the least amount of capital. You have to run experiments to prove you can mitigate that risk and only then can you unlock subsequent rounds of funding.

The ultimate goal is to create a pipeline of ventures across the spectrum of new venture creation — Ideate, Incubate, Accelerate, Scale. Most large companies are great at scale, it’s the first three steps that are challenging.

Ideate

The first step in venture building is to make sure you have an idea you can incubate in the first place. Typically, companies fall into one of three buckets when it comes to the Ideate Phase:

• They have one or two great ideas that you are ready to incubate.
  
• They have too many ideas and need to conduct a portfolio review to prioritize the ideas.
• They don’t have a specific venture, but they have a domain they want to explore. We had one client who was interested in water, road safety and food but you can’t incubate water. You can incubate Zero Water Homes as one of our great Japanese clients did. To get to an idea you can incubate, companies will often do a domain exploration, an ecosystem map, and/or run a venture competition (and by the way there are good ways and terrible ways to run venture competitions, see the book for how to run these right).

Remember garbage in, garbage out so it is important to pay attention to how you are assessing ideas during the Ideate phase to ensure you only move those ventures with the greatest potential to the Incubate Phase.

Incubate

Once you have a great idea, you move to incubate. Incubating a venture typically takes 12 to 14 weeks and has three activities: Customer, Product, Business.

• Customer Development is the work you are doing to identify and validate that there is enough customer pain your company can solve. You will conduct a series of interviews: open ended pain point interviews, value proposition/storyboard interviews and, ultimately, prototype interviews. If there isn’t enough customer pain to indicate a large enough market, you need to kill the venture. If there is a ton of pain, you get to move to the next activity…
  
• Product: The magic moment in any Incubate phase is not Pitch Day it is actually that moment when your team moves from pain to an exciting product, service, or solution. This is the phase where you ask: What should we build? Can we build it? Can we deliver it? Or if we can’t build it, can we buy, partner, or invest to make it happen. If the only way to solve the pain is time travel, guess what we don’t have time travel yet so you will need to shelve or kill the venture because the solution isn’t feasible to build.
  
• Business: If there is enough pain, and the product is feasible, then the team will move on to the last phase of incubate — building a very rigorous and robust business and operating plan that you will present to your New Venture Board Members to decide Go/No Go, Fund/No Fund. Besides information on the customer and the product, the Business plan needs to include: size of market; the business model; the funding ask; the operating plan including staffing and organization chart; the gives and the gets, what is the venture going to give to the Mothership and what does it need to get from the Mothership to thrive; risks and competition; why us; and “Do It on Monday,” the immediate next steps you will take assuming you get funded.

Accelerate

Congratulations you have been funded; you are now a real venture being launched into the market.

You get to move to the stage that most companies mess up, the Accelerate Phase. This is the stage when your whole focus needs to be on moving your venture from funding to product market fit and early revenue. Accelerate has three stages and, what we call, five “swim lanes.”

The stages are: Build to Validate, Build to Automate, and Build to Grow, roughly equivalent to Seed, Series A, and Series B funding stages.

The five swim lanes are the areas you need to be experimenting with to remove the greatest amount of risk on the least amount of capital.

• Product: As soon as a team gets launched, everyone wants to focus on building and testing the product and, indeed, that is the first swim lane. But you were funded to create a venture, a whole new company so you must also be focusing on…
  
• Go to Market: Can you find prospects and convert them to users and buyers? What is the best model for acquiring customers? What selling models work?
  
• Business Model: Can you get someone to pay, when and how are they likely to want to pay, what is the pricing model you will use?
  
• Operations/Unit Economics: Can you deliver the product, solution, or experience to the customer profitably? How will you set up the infrastructure? Will you take advantage of shared services at the Mothership? How? Which ones? Can you get to positive unit economics?
  
• Team: Can you recruit, hire—and pay—the team you need across all these swim lanes at every stage.

Element 2: Venture Investing

Venture Investing and Venture Building are actually the yin and the yang of each other, one is about disrupting inside out and the other about disrupting outside in. Typically, there are three main reasons companies opt to do venture investing:

• Optimize their current business by leveraging the speed, agility, and innovation of startups.
• Drive their company into adjacent and new markets using a portfolio approach by placing a series of small bets.
• Creating a channel to stay current on emerging trends and technologies — constantly sensing and responding to the “art of the possible” we discussed above.
  
  

While many companies focus on building a CVC, a Corporate Venture Capital Fund, there are four options our clients typically leverage when disrupting outside in to drive growth:

Build a CVC

The first is, yes, designing and operating a world class corporate venture fund. Although executives are often excited about the idea of making small bets across many startups, they are often intimidated with how much money they think they need to commit. Often people ask us what the minimum is that they need to put into the fund, is it 50 million, 100 million, 300 million of their currency of choice? At which point we look at them and say “There isn’t a minimum.”  Mouths dropped open they say “What, my people are telling me I have to invest a ton of money.” And we answer, think about it, Silicon Valley doesn’t need your money, nor do the VCs in Berlin, London, Mumbai, Tel Aviv or elsewhere, they are sitting on billions of dollars of capital. What they do need is your operating expertise, brand validation, access to customers, marketing knowledge and more.

They need you to be an excellent strategic partner, but you better be prepared to deliver. If you are not set up to support the startups you invest in (or build for that matter), and you waste their time — and remember time is directly related to burning cash for a startup — you will never see a decent startup again. The VCs will dub you as “dumb money” and bring you their dogs that they need you to keep alive so they can raise their next fund. So, designing your fund and learning to execute not just as a top tier CVC but as a top tier VC is critical and it all comes down to deal flow and decision making. Lots more to say here, but one critical point is that you must build and run the CVC on your own not outsource the activity to someone on the outside. You will reap none of the growth benefits a CVC can offer to the organization if you are merely a passive investor.

Forge Strategic Partnerships

There are many companies who never invest a dime but reap great rewards developing strategic partnerships with startups. Others who have a CVC use partnerships as an additional arrow in their growth quiver either to solve challenges they face internally or to solve customer pain they have identified but can’t solve themselves. The same conditions that apply to making you a great strategic partner as an investor are even more important if you are partnering with startups as you aren’t putting capital on the line. Key to successful strategic partnerships is making sure you have someone inside the organization who will play the role of sherpa, helping your startup partners navigate your internal systems, processes (and perhaps politics) to ensure you optimize the value of the partnership for both parties.

Launch an Accelerator Program

We have clients who go even earlier than partnering to try and solve for major gaps in critical spaces and offer an accelerator program to support emerging founders. Think of areas like deeptech or cleantech that are dealing in "hard" business models involving battery chemistries, navigating regulation, creating pilot plants, etc.  These are technologies that will be critical for our sustainable future as society, but they may be underinvested in because these spaces are much harder than traditional Silicon Valley areas like software.  Corporate Accelerator programs leverage the extensive experience and resources that make your mothership great to work with cohorts of startups, guiding them and helping them de-risk to a stage of development where they can have more success in the market. Typically, Accelerator programs invite proposals from external startups and then provide them with the support, resources (which may include capital but doesn’t have to) and channels they need to scale their innovation.

Engage in Venture Acquisitions

While large scale M&A has been a primary tool to drive inorganic growth with mixed results that is not what we are talking about here. Venture Acquisitions is geared towards understanding your buy, partner, and/or invest options vis a vis augmenting and accelerating the ventures you are building. For every venture you are incubating internally, you should be building an ecosystem map of the external world so you are current on where the competition is and, more importantly, who you might acquire to move faster. We had one client who had a venture we got to $50 million in revenue very quickly, a unicorn by Silicon Valley standards, but they were a $60 billion company so that doesn’t move the needle, but we could acquire one startup using cash on their balance sheet for $100 million and the combined entity was valued at $1 billion — that moves the needle. It’s important to understand that acquiring startups, not big or medium-sized companies, is a specialist skillset that needs to be developed, as the traditional rules and evaluation frameworks of M&A may not apply when you’re thinking about an acquihire of a 10-person software company. And beyond that, how you integrate a startup team into the legacy culture of a large company is just as, if not more, important than getting the deal done in the first place!

Element 3: Seizing the Mothership Advantage

The success of your Growth Engine depends on your ability to leverage the Mothership’s established customers, channels, talent, technology, brand, supply chain, and capital to ensure its new ventures reach escape velocity into the marketplace far more quickly, and more robustly, than any independent startup against which the company competes. You must understand your core assets, capabilities, and competencies, and then you must remove the friction. You need to get all that is great about your company in the hands of the entrepreneurs leading the ventures you are investing in and/or building. You must create your own “Silicon Valley inside” to let your ventures thrive.

There are four types of teams involved in seizing the mothership advantage and unlocking venture driven growth which means lots of exciting opportunities to participate and be engaged across your organization. (CHROs love this work as it provides them with a new way to recruit and retain talent and a whole new catalog of leadership and professional development opportunities.)

• New Venture Team: These people are your “founders,” your internal entrepreneurs who are passionate about the idea and are ready to turn it into a new venture. And we don’t just mean the millennials: disruptors come in every age, gender, race, sexual orientation, geography, learning difference, or any other category you want to define. We do mean people who thrive with ambiguity, can handle a fast pace, and love talking to customers.
  
  
• New Venture Board/Investment Committee: These are the senior executives who are your internal Venture Capitalists. Not only do they provide the funding and make the go/no go decisions, they are the people who must lean in and engage, they must provide access to the customers that differentiate you from other startups, they can open doors to the core competencies, capabilities and assets the Mothership can provide to ensure your success and they can remove the friction that comes from the inertia, orthodoxies and antibodies that at some point you will run into.
  
  
• Venture Factory or CVC Team: The venture factory and/or CVC team is the team that becomes expert in the process of venture building or venture investing and helps you build or invest in not just one venture but a portfolio of ventures to drive meaningful growth.

• New Venture or Growth Advocates: Not everyone wants to be an entrepreneur building a venture or an investor analyzing financials and allocating capital, but many in your company are entrepreneurial and want to disrupt or advance the work of their function or department. The New Venture Advocates will be the ones providing services to the venture team, the ones making sure the ventures can Seize the Mothership Advantage, the ones helping the ventures reach escape velocity. For example:
  
  
• Who in legal will write the one-page term sheet for the pilot a customer wants to run with the venture (not the forty-page term sheet)?
  
  
• Who in procurement will get the new vendor that the startup needs to partner with on your approved list in a week versus ninety days?
  
  
• Who in HR is able to write the spec for that growth hacker they have never heard of before or fast-track employees needed to build the new venture who don’t look like your typical employee? Or, more challenging, implement that phantom share plan the venture needs to attract great team members.
  
  
• Who in marketing is going to challenge the traditional brand police and help the new venture develop momentum in the market? (One of our very successful ventures is a wholly owned subsidiary of the Mothership. It was going to use the wholly owned brand of the Mothership as approved by the top executives in the company, and the brand police still wasted six weeks, delaying the venture’s launch, saying, “That’s not possible, you can’t use that brand.”)
  
  

It is incredibly important that you not create the haves and the have nots in your organization, the cool kids getting to do venture building and venture investing and those “stuck” in the core and legacy business. Growth Advocates are the vanguard that will drive true transformation across the organization.

Element 4: Reaping the Rewards

While there are lots of strategic reasons to unlock venture-driven growth through venture building and venture investing, if you do not drive financial impact the effort is dead in the water (the same should be true of all those strategy PowerPoint decks you pay for but I will leave that rant for another day, but do remember the 88% now out of business from the Forbes study above, pretty sure they had plenty of pretty decks they shared with their boards). It’s about Value Creation and Valuation.

Above I said there was no excuse for the Global 1000 to be going out of business or leaving money on the table, they have everything they need to drive meaningful growth. Well, I lied a little bit, there are two excuses (at least for public companies, private companies no excuses) that give traditional startups an unfair advantage:

1. The accounting rules are completely antiquated as every time a big company incubates their own startup, they must consolidate those expenses on their P&L while the VCs just get to write their losses off with no penalty as long as their funds, as a whole, provide returns to their investors. Because we can’t change the accounting rules, while venture investing does put corporates on a level playing field with the VCs from an accounting standpoint, when venture building we need to make sure that large companies adopt a VC portfolio mindset —taking more shots on goal and increasing the chances of success —with VC discipline, not over investing too soon, and rigor, ensuring that their ventures remove the greatest amount of risk on the least amount of capital.
2. Far more problematic is the hypocrisy of the financial markets and how they value your growth initiatives vs how they value startups. Think about it, the financial markets give startups that go public a “hall pass” for years without profit pressure while large company new ventures get valued through the lens of their core/legacy business…on a quarterly basis, which makes no sense. Why should a venture with no customers get a 20x multiple while a big company venture doesn’t get even close to the same credit even though the mothership has 30 million customers. The truth is the financial markets already know how to value your ventures, they do it every time a startup goes public. They typically use two primary metrics: Revenue Growth and Customer Acquisition Rate. They can use the same metrics for your ventures, we aren’t even asking them to come up with new metrics.

We are doing a major piece of research on this topic working with some well-known financial analysts who totally agree which we will report back on next year but, in the meantime, you need to ask those people assessing your stock why they aren’t valuing your growth initiatives in the same way they value a brand-new startup. You at least deserve to get a blended multiple between your legacy business and the new ventures you are building that are beating the startups at their own game and succeeding. The financial markets must adapt to this new model, they should want our big companies to thrive because when Kodak or GE go out of business or any large company (think of the 40% of CEOs mentioned above afraid of just that), that’s hundreds of thousands of jobs lost. The financial markets have a moral obligation to get this right and reflect on whether they are valuing large organizations and the growth efforts they are making, fairly. And, like the startups, you have to tell your story which leads us to the last point.

Element 5: Telling your Story

To reap the rewards and recognition you deserve, you need to tell your growth story — to stakeholders, customers, financial markets, and the world.

• Your New Venture Team must conduct interviews, recruit pilot customers, and test solutions, which means it must present as a legitimate business obsessively focused on solving the pain of its customers.
  
  
• Your CVC must insightfully communicate your investment strategy, excite founders to your accelerator, make the VCs you will be an excellent strategic partner, and amplify the message and successes of your portfolio companies.
• Your Venture Factory or Growth Division must have a strong brand that resonates with your entire organization, including internal and external entrepreneurs and partners. You must be able to communicate the value of doing venture building at scale to all of your internal constituents.
• Your Mothership growth initiatives must engage and excite your internal stakeholders and external audiences. Everyone needs to feel like they are part of your growth story. You need to be able to identify the From-To shifts you are enabling through venture driven growth.

Will your story be about accelerating disruption? Will it be about expanding to new frontiers? Will it be about attracting whole new groups of customers? Or will it be about changing the world?

I will leave you with this thought. There are two altruistic reasons why I founded Mach49. First, people are living longer and longer due to health care and technology. That means they will be working longer and longer. As much as we celebrate startups, most people are employed by large companies — and they need purposeful, meaningful work. I believe most large companies need to look more like Berkshire Hathaway or Alphabet and have a portfolio of companies and new ventures as it allows people to be more creative, stay closer to the customer, move with agility, kill things that aren’t working, and ensure that those that are working can reach escape velocity.

The second reason we founded Mach49 and wrote this book is because the big, hairy challenges we face on this planet: climate change, education, disease, racism/bigotry, poverty, hunger, water, disappearing species and other challenges, need our big companies to know how to experiment, innovate, and disrupt to solve them. Whatever your values, your duty is to build ventures that reflect the change you want to effect in the world. Big companies have within their power the ability to address every one of these challenges. If we fall into the trap of all or nothing, that the challenges are too overwhelming, we risk doing nothing. If we think ‘that’s not our job’, that its government’s task to fix that problem, and that we personally can do nothing, we are wrong, and deeply so. Each and every one of us have within us the capacity to drive profound change. New ventures can be bold. They are a way to place the small bets we need to test solutions. They can move with speed and agility . . . and, when managed right, are unbounded by the status quo.

Even if your new idea isn’t destined to solve anything so grand, the way you go about building and investing in ventures can do good in and of itself. You can be role models in the way you hire, use resources, treat people, interact with partners, engage with the environment, accept differences, respect human rights, and play for the long-term, not just the quarter. You can do well by doing good and you can have fun along the way — whether you are in the C-suite leading the way or the entrepreneur making it happen. Each and every one of us can drive positive, sustainable, meaningful growth for ourselves, our companies, and yes, even, our planet.

The time to start is now. The moment is here. Go do great things.

Learn more about Linda Yates, founder and CEO of Mach49, and author of The Unicorn Within.