Writing your corporate incubation playbook – Part 2

The second article on how to build a tailor-made corporate incubation program deals with the ‘BUSINESS’ revenue of such an initiative.

hacker - innovation copilots

To follow up on our last article on your corporate incubation playbook, we’ll explore further the ROI architecture of such a program, starting with the “business” revenue. 

B Is for Business

To briefly recap, we were previously talking about three revenues: business or “finding the next business model of your company”; knowledge or “identifying the next wave of opportunities on your market”; and culture or “rebooting your innovator’s DNA”. I’m not saying they are not other revenues, but these ones are the key to identifying the composite ROI of your incubation program.

Think of it as:

Your corporate incubator's ROI = (X Business + Y Knowledge + Z Culture) x 3 Years

Where X, Y, and Z are the relative weight of each revenue in your strategy.

That being said, you may want to consider other revenues, such as the engagement of the teams, external communication, or contribution to your brand value. After all, launching a corporate incubation program is still viewed as a very positive initiative by your employees, the medias, and the market.

Wrong. This is changing, fast.

Why? Because it’s been five years that the first waves of new incubation programs have been launched all over the US and Europe. And it’s a rude awakening for the executive boards that have signed for these initiatives. Mind you, there’s no big loss incurred. But there’s also no ROI; just a few pissed off employees that were candid enough to think that a new era of innovation was ushered into their daily routine.

I remember two years ago, the director of an incubation program in Paris, explaining to me that they had to kill the only successful project they got after five years when they realized it would cannibalize a core business unit. Which is obviously the point? It’s just kind of surprising to uncover this at the end of an incubation program… Don’t fret, we’ll come back to that.

Letting go of communication, or engagement revenues, is now the cautious thing to do. If you eventually get positive press and employees spontaneous enthusiasm, treat yourself to a bonus this year.

Your Step-By-Step Plan

If you focus your corporate incubation program on the business revenue, you’ll be in a pretty standard position.

This is, after all, the usual idea of finding the next $X million, or billion, opportunity. On paper, the goal is simple: starting from your core market, find new business models that should at least net $50 million within three years. This won’t probably even register on your corporate bottom-line, but it will be proof enough that they are worth following up.

When discussing this strategy, your conference room should be buzzing of keywords such as “digital”, “IoT”, “uberization”, or “design thinking”.

After a month or so of brainstorming, and reading about best practices, you will conclude that the following step-by-step plan is pretty much perfect:

  1. Redecorate a room next to the cafeteria, or the entry hall, to ensure visibility and have (for once) a cool space to work in – treat a 3D printer as an optional, but a nice touch;
  2. Get interns on board to have a fresh perspective on things, and challenge the consensus;
  3. Order and read all recent books on innovation and startups (Kawasaki, Ries, Blank, Osterwalder, etc.);
  4. Go on a two-week expedition in the Silicon Valley and immerse yourself in a thriving innovation culture;
  5. When you feel ready, launch a contest for employees to suggest new businesses online;
  6. Get a few key executives and outsiders to review the ideas, with a broad perspective;
  7. Select 5-6 of the best projects, recruit the engineers in the program (you will have political support for temporary extradition out of their BU);
  8. Have a press conference to celebrate the official program’s kickoff;
  9. Accelerate the ideas into a business for the next 12 months, with the help of a business school or designers.

What Can Go Wrong?

Before we go any further, I have a personal message for every Innovation VP or Director I’m currently working with: I know what you’re thinking, but NO I’m not speaking about YOU. At this very moment, you’re a dozen thinking this, and probably even more that I don’t know of. That’s the problem with this strategy, it looks smart because it’s a linear answer to the “find new business models” request.

What can go wrong are you asking? Pretty much everything. This request is all but about linear thinking.

In real life, your strategy translates as:

1. Innovation Room

Innovation is not a matter of Feng Shui. A nice new room is meaningless. The fact that employees love it just translates how sad the rest of your offices is. Where do you think is the “special” innovation room at Google or Apple?

2. Fresh Mindset

Interns can challenge the status quo for sure. It’s just that we never saw an intern able to move the company away from said status quo. It’s the role of the executive committee. Chances they will listen to ideas backed by interns are (hopefully?) very slim. You’re probably just insulating yourself from key stakeholders here, that’s all.

3. Best Practices

Books are fantastic because we know that (1) they explain methodologies that will work no matter what, and that (2) once you’ve read them, you know how to do it in the specific context of your own company. Just like Neo learning Kung-Fu. Oh, wait…

4. Innovation’s Pulse

Innovation is not an air-born virus growing in surfer’s wax. It’s a tad more complex. It has something to do with regional ecosystemic liquidity, critical mass of the national market, talents’ mobility, public-to-private research interoperability, and cultural optimism. California doesn’t transpose. It’s a tad more complex.

5. Engineers Doing Business

Really? I have to explain this one? OK, here it goes: engineers have essentially zero business acumen. They haven’t been trained, educated nor experienced in business. Why, oh why, torture them with the fallacious promise of “everyone can be an entrepreneur”? Unless you actually fire them, how do you want them to adjust to extreme risk-taking? And saying “intrapreneur” is not changing a thing. Also: Kaizen, and idea boxes worked for Toyota-like companies in the 80s. They were used to generate constant process improvement on production lines. Not. To. Sell. Cars.

6. Innovation Committee

The key executives you’ve selected are just being nice with you for a while. They don’t have any specific interest in what you are doing because it has no obvious impact on their strategic KPIs. And external entrepreneurs haven’t a clue, about what ramping up a business in a culture of more than ten thousand employees means. And just to be sure to kill this silly idea once and for all: what is the current track record of the innovation cluster you’re connected to? I think that we understand each other.

7. Project Portfolio

The biggest problem of them all: however you do it, 5-6 projects won’t cut it. Statistically we should be speaking of 120+ projects. We’ll go back on this one in just a moment because it’s the most massive blind spot you have on innovation…

8. Press Release

We pretty much explained this one already. But sure, why not start a time-bomb? You now have 24 months before it goes off because you won’t have results to show for your efforts. I might add on top of that if this project was so strategic for your company none would ask you to do any press releases. You’d be flying under the radar for the next three years.

9. External Resources

Be worried when business schools, designers or consultants have the exact solution that you need. They don’t know you intimately, and yet they know exactly what to do? And it happens to be exactly what they’ve been selling to the market for these last 10 years? You. Lucky. Bastard. I think that you’re been damn lucky there. Go ahead, throw as much money as possible at them, as quickly as possible.

Innovation Is Not a Process

Now understand me: I’m not so much making fun of you pain, as merely trying to explain for the Nth time that your answer is just to linear. It only plays on the surface of an ill-conceived request.

You’re experienced and now how to work in a multinational. You’ve been educated to weight risks, minimize them, and increase sustainable, stable ROI. You’ve actually unlearned innovation. Innovation is not a gentle process that will flow out of a pipeline. It’s far trickier than that, and will go against every part of your corporate DNA.

And, among many, many things, point 7 is key:

(…) 5-6 projects won’t cut it (…)

For your own corporate incubation playbook, you may want to steal a page from Dave McClure’s 500 Startups:

startup ecosystems - 500 startups

If you’re seeking new businesses, then you’re playing a big number game. It is comparable to the step where an ecosystem would invest $10-100K in 300 “accelerator startups” and then, push to the 1-3 “mature companies” step. One that will require tens of millions of investment. Translated for you in corporate incubation, my rule of thumb is:

Incubate 120 projects other 3 years:
Find 2-3 new business models with core business potential.

If you only push for 5-6 project a year (15 projects over 3 years), Dave will also give you a rapid forecast of your expected results:

VC fund ROI on 15 startups by Dave McClure

It ain’t pretty. No, I’m not speaking of the outcome, I’m speaking of your understanding of innovation’s rules of engagement.

Is Searching for the Next Business Model Unreasonable?

At this point, you may want to reconsider your program. After all, rare are the cases where I’ve seen a multinational seriously incubating 50-60 projects a year in their own incubator. Although, if you understand all this and don’t want to reconsider, know that it is perfectly doable. I’ve personally worked on two such cases (outside Big Pharma). Both did work out quite well. The first one in the first year by sheer luck. The second one 3.5 years later, which was more what to expect.

If you decide to play this game, here’s the three critical things I would suggest to tackle rapidly to design your program:

1. Hack the Critical Mass of Projects

I usually start every incubation program by mapping the risks we want to explore. They are two sorts usually: the market risk and the technological risk. The riskier a project, the further is its e time to market. It means a map like this:

hacking corporate incubation - merkapt

This is strictly indicative but as you can see, each zone can be fed by different strategies or partnerships.

As you can see, with 7 zones to play with, if you manage to find half-a-dozen projects a zone, a year, then you’re reaching for a total of 50 projects. You’re perfectly on track! There’s only one thing that is more subtle than what it appears. Since we are still speaking of corporate incubation, it means that most of the projects shouldn’t be public, and we won’t be able to simply acquire in every project. How you invest, or support them while staying under the radar is at this point quite an art form.

But again, very doable.

2. Sell Incubation Inside Your Company

Now that you start to solve the key issue, you may overlook the simple things. Such as selling what you are doing to others directors or VPs, Don’t be surprised that at this stage, your colleagues are not expecting anything form you. You have to sell the program to them, acquire their long term support (and of course divert part of their resources).

My practical experience is that you will have three types of stakeholders:

The directors of other business units: they’ll play nice with you, won’t help, and wait for you to fail. You know they’re not bad persons, but they just don’t want to be challenged by outsiders on their direct strategy and maintain their leadership perimeter. What you can sell to them is that you’ll be a third-party that can try things and fail without impacting them negatively. Strike a bargain with each of them, asking for a few resources, in exchange of exploring one or two projects way to risky for them, but that can have big payoffs. It works like a charm every time.

Human Resources usually play very nice with you. There rarely get innovation, but you just have to format your program to highlight what employees will learn, how it will enhance their cross-BUs mobility, etc. And they’ll love you. This is also a very honest to explain anyway, because willing it or not, you will have impact in term of “culture” revenues when you’re seeking “business revenues”. We will also see in another article focusing on culture, that you should ask them to prepare an HR pack for every employee detached in your program… But I digress.

And sell again the program to your Board. Even when it’s the board that has put you in charge of the program, when you’re ready to take an hour or two, and reexplain what they asked, and how you’re going to do it. The part on 50 projects a year will cause some serious stress (they never seen other companies doing it that way — they just don’t acknowledge that the companies they know have failed, or are failing at incubation new businesses). But it’s OK, keep your cool, be professional and just sell your strategy as an adaptation of VC venturing. They will get it. And it’s exactly what it is anyway.

3. Build Optionality

The last key thing you should do is to learn how to achieve what we call reverse pipelining. I already touched this notion here. The core idea is that doing an innovation pipeline is not only inefficient but also very counter-productive. This is how classic pipeline works:

classic innovation pipeline - corporate incubation playbook - merkapt

As you can see, this strategy where you start with 50 ideas, select the 10 “best” projects, accelerate them, kill some, end up selecting the best one, is not adapted to serious business incubation. Quite the opposite since you start with a stock of ideas, and from there go downhill, loosing most of them, and not be able to adapt to what you’ll learn along the idea.

And when you incubation program last three years, you end up with the best idea… from three years ago. If you think you’re in a high-velocity market, then think again how you pipeline ideas.

What I would suggest is doing the opposite:

reverse innovation pipeline - corporate incubation playbook - merkapt

As you can see, you don’t need to start with tons of ideas. By the way, take advantage of this to just scrap any idea box where everyone is posting half-baked things.

You are not running a startup week-end remember?

A reverse-pipeline is just a simple way to inject on-going feedbacks in your program, and maintaining a flow of projects and business prototypes. Key principles are: kill some, recreate others, enrich all. This will net you a good level of optionality in the program. Exactly what any seasoned investor is seeking when dealing with future uncertainty:

optionality in corporate incubation - merkapt

Obviously redecorating a “cool” room for creativity is not my utmost priority, but please feel free to have fun with this. I hear it can be very soothing.

You’re welcome.

B is for Busy

So in essence, seeking new businesses in corporate incubation is not unreasonable. It just asks you and your organization a clear mind and a very strong focus.

As a disclaimer, I obviously haven’t covered every tools and strategy involved in corporate incubation when really seeking new businesses. This is not just doable, and there are quite critical steps to personalize your approach to your company, the markets you’re playing in, your culture, etc.

The big question will always be for in this kind of project: is your board committed to this for the next five years? I may be repeating myself, but in my experience, this is seldom the case.

Nonetheless, the very good news is that the business revenue is not the only one to seek, and my opinion maybe not even the most important one. And we’ll explore next what a corporate incubator more geared toward market exploration means.

Author: Philippe

Philippe has been training 200-300 startups a year since 2007, consulted for dozens of multinationals on rupture innovation or corporate incubation, and was directly involved in more than 150 startups building their market fit and scaling up their business. He also teaches business model innovation in key MBA programs whether they are in Paris or Shanghai. And since 2017, Philippe is now living in Amsterdam, one of the best European business hub around.

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