CBInsights recently released their State of Innovation Report based on a survey of 677 strategy leaders. It’s worth downloading and digesting. Based on those findings, here are four deeper insights about corporate innovation from GrowthX Corporate, a boutique innovation advisory that works alongside global enterprises helping them commercialize new products profitably, scout startups, and effectively deploy corporate venture capital.
1. Your Product is not Market Ready…and that’s okay!
The State of Innovation survey reported that 78% of corporate innovation focuses on iterating the status quo, rather than on disruptive risks. In our experience, that’s because companies with existing products and recognizable market and mind share mistakenly employ the same processes used to increase existing product revenue when focused on corporate innovation and working to launch a new innovative product. They also turn to emerging managers with a track record of following corporate processes and mitigating risk.
Corporate innovation is messy, new products are not born fully baked and the market response is not predictable. Discontinuous innovation creates true behavioral change and, therefore, requires a different framework – one that positions market development alongside of product development, with team characteristics that reward a growth mindset focused on problems, not products, and embrace ambiguity, a high tolerance for failure and a genuine love of learning.
2. “Everyone has a plan until they get punched in the mouth.”
CB Insights reported that high-performing companies do less “ad hoc” corporate innovation. They reported that the majority don’t have processes for corporate innovation ideation and development phases. But, as Mike Tyson famously said, “everyone has a plan until they get punched in the mouth.”
In our experience, where companies do have a plan for corporate innovation it relies on standard corporate practices with lengthy approval processes and an over-reliance on product marketers, mature-product sales teams and the same general management who are charged with stewardship of existing business lines.
Innovation has nothing to do with the stage of the company; it’s all about the stage of the product.
3. Corporate venture capital should knock on every door in the C-Suite
The State of Innovation survey reported that respondents from high-performing companies experienced a culture of corporate innovation across every business function. A corporate venture capital arm is an effective way to create this culture and realize both financial and strategic objectives.
Whether investing off of the corporate balance sheet or establishing a traditional GP/LP fund structure, corporate venture capital can drive corporate innovation and strategically benefit numerous business functions including, for example:
- R&D, by closely observing developments in adjacent markets, new business and revenue models, and spot areas of future growth that might not otherwise have been visible when focusing on core business areas.
- Business Development, by investing in startups that directly or indirectly stimulate demand for existing product lines.
- Branding and Recruiting, by establishing the company at the forefront of innovation to refresh the corporate brand and enable it to attract and retain top Millenial (and Gen Z) talent. In today’s marketplace, there is little distinction between product brand and employment brand.
- Corporate Development, by creating a database to support future M&A decisions, revealing potential M&A targets before competitors discover them (and reduce a later acquisition price), and help avoid expensive M&A mistakes.
4. Setting corporate innovation objectives is important, but learning must precede revenue.
CB Insights reported that 85% of companies use revenue as a success metric. Setting measurable objectives is important, but using existing-product metrics – such as revenue – to judge the success of corporate innovation virtually guarantees its failure.
Launching a new innovative product is an experiment in search of a business model. Companies must resist the temptation to immediately generate revenue by engaging their existing sales force. Instead, companies should follow a market development framework designed to discover the purpose for which customers will use it and how they will buy it.
Following a market development framework establishes a functioning learning organization to test hypotheses with its customers and iterate based on feedback to find your truth faster about where your proposed product fits in the market (if at all).
Companies that immediately focus on revenue impede (if not prohibit) learning which is the backbone of sustainable innovation, create false expectations which can hurt team morale, and risk missing major growth opportunities by not giving corporate innovation a chance to develop.