Who are you?
I’m Rick Kolsky, a Faculty Partner at Mach49 and an Adjunct Professor of Marketing at the Kellogg School of Management. I have 30+ years of teaching, consulting, and research experience with global brands. I help Mach49 client venture teams unlock customer insights, disrupt industry economics, and convert the mothership from a liability to an asset. In my personal time, I love coaching and mentoring women basketball players and spoiling my new grandson Griffin.
Why is growth incubation so important for global brands?
A great migration is sweeping the marketplace right now. Unicorns are eating the lunch of entrenched market leaders. As a response, global brands are spending billions on incubators, accelerators, and corporate venturing. They’re trying to mimic the practices and ecosystems that spawn unicorns in the first place.
What are some of the most common pitfalls of growth incubation?
On the surface, ventures in large corporates use the same customer-centered design practices common to start-up entrepreneurs. But they often fail to fully capitalize on the vast resources of global companies, like customer relationships, established channels, operational expertise, technology, and so on. Not only do they fail to utilize available assets, new ventures are often saddled with mothership mindsets and processes that stifle and starve the ingenuity, agility, responsiveness, resourcefulness, and urgency of a true start-up.
How does a company avoid that particular pitfall?
The big question is this, “How can we fully leverage mothership assets while avoiding mothership liabilities?” Based on our experience at Mach49, a well-defined model of “gives” and “gets” between ventures and the mothership can turbocharge the innovation process, from initial concept, through incubation, to acceleration and scaling. Perhaps no recent disruptive corporate venture illustrates this better than Alibaba’s MYbank business. Launched in 2014, MYbank has lent more than $290B to SMEs in its first five years of operation at half the interest rate of bank and private lenders—and with only a 1% loan loss rate. That’s an amazing thing to consider.
What did the company do well?
One key to success was mutually beneficial “gives” and “gets” between venture and mothership. Unlike most new ventures, which seek unilateral “gives” from the mothership, the MYbank venture was triggered by Alibaba’s need to “get” a solution to help their most reputable merchants expand rapidly while squeezing out less reputable merchants, who were undermining the core business’ credibility with fakes and out-of-stock delays. At the time, reputable merchants needed financing to accelerate growth. But they were at the mercy of expensive local money lenders, because they lacked collateral to work with banks. The missing link was using AI to tap into the trove of big data in Alibaba’s Taobao and Tmall marketplaces, as well as leveraging Alipay’s financial ties with its merchants. By accessing and analyzing the Alibaba mothership’s information on revenue, merchandising, competition, and customer satisfaction, MYbank could underwrite far better and far less expensively than any commercial bank. What’s more, by using the Alipay payment mechanism, collections became automatic.
Specifically, how did this help their business?
It enabled MYbank to underwrite and collect on loans for half the cost of banks with one-fifth of the loan losses. As the business moved from acceleration to scale, MYbank discovered additional “gives” and “gets” with the mothership, tapping into Taobao and Tmall merchant information to deliver merchandising and financial management advice that not only helped reputable merchants grow but become better credit risks.
In your opinion, what's the critical lesson learned here?
A word to the wise for burgeoning corporate ventures. Whether you’re ideating, selecting, incubating, accelerating, or scaling a disruptive venture, deliver mothership “gets” to facilitate access to mothership “gives.” Find ventures that help the mothership address its pain points in order to grow share and margin in its core business.
Anything else you’d like to add?
Absolutely. I love hearing about others’ experience in the world of growth incubation. What lessons have you learned from your successes and failures? What have you found to be the key barriers and enablers of effective mothership management for your new ventures? How have you tapped into the expertise, technology, networks, customer relationships, and financial resources of the mothership? How have you managed the risk aversion, mindsets, and business processes that support established businesses well, but often stifle disruptive ventures? I highly encourage readers to chime in.