It's time to talk about a luxury problem. What do you do when your corporate venture is a success? Seriously. Your team of innovators has been working hard to make something amazing. They came up with a great idea, proved that it solved a real problem for real customers, built an MVP and conducted a whole bunch of experiments going through the Build-Measure-Learn loop. Finally, they launched it into the world and it started growing. It had a Problem-Solution fit, Product-Market fit, Business-Model fit and an awesome team - they nailed it all. You are nearing the end of the funnel, now what? What are the options?
If your venture survives the long and bumpy journey from an idea to a proven new business model, at some point, you'll need to think about its future. And converting it into an internal business line isn't the only possibility. There are multiple options you can choose from:
- Spin-off: Transforming your venture into an independent company with possible limited involvement from your corporation as a shareholder.
- Spin-in: Integrating your venture as a line of business within the core company.
- Sell: Putting the whole venture or specific components of it (technology, patents, brands, equipment, etc.) up for sale.
- Kill: Completely terminating an initiative and transitioning all intellectual property and knowledge to an archive.
How do you decide on, and manage the right decision? At oneUp we often get this question from our clients, I'll walk you though our approach in 3 key steps below.
But first! If you only start thinking about this when you are at the end of the funnel, you are too late. We advise our clients to start thinking about the future transition as soon as your venture is ready to enter the pilot phase. We use our oneUp Venture Building process to track the different life stages of a corporate venture.
Step 1: High-level assessment
The moment when your venture starts showing some signs of potential Product-Market fit and Business-Model fit is the right time to start thinking about the future transition. This way, you allow enough time for the preparations and corrections needed for a smooth transition. At this point you can already do a temperature check to see if your venture is likely to be more successful as a spin-in or spin-off, or, if you should sell or kill it. A simple exercise we use is our Spin Selector which is a high level assessment based on dependency and strategic fit with the parent company.
Step 2: Detailed assessment
From doing many interviews with corporates on this matter, one thing stood out: Aside from the more ‘analytical’ assessment, it is key to spend enough time on the ‘why’. Why would a venture fare better as an independent entity? Or why would a venture benefit from being part of the parent company as a business unit? Here it’s key to think about culture, talent, revenue growth and the ‘story’. Having the story straight helps tremendously internally to get support for the chosen direction.
Having said this, our second step also includes a more analytical assessment of the benefits of different spin-in or spin-off scenarios and fleshing this out in more detail. There are many flavours out there, and it is key to have all the pros and cons straight before making any further decisions
Step 3: Actively manage a spin-in or spin-off
We are nearing the end of the funnel and approaching the scale phase. It’s time to get serious about the governance of our corporate venture. During the pilot and scale phases we actively manage the process towards spin-in or spin-off. We do so by setting up and managing our oneUp Spin Tracker. Three important buckets are of particular importance:
- Human Capital (Technical, Operational, Management)
- Financial Capital (Funding, Revenue generation)
- Operational Capital (Development infrastructure, Business processes)
Let’s say we have decided that our corporate venture will be more successful as a separate entity, a spin-off. This means we have to have the right talent to run this newfound company. We need to think about the right management, teams and areas of expertise. On the financial side we need to be mindful of funding and of course sales. Typically so far, the corporate venture was fully funded by the parent company and its clients could have come through existing sales channels. Finally, the venture needs to be independent also in terms of its Operational Capital, think IT infrastructure and business processes.
Managing all this well should not be underestimated, and we always advise to manage this as a (separate) governance project next to the venture building process. Sometimes even in three separate work streams based on our buckets. The Spin Tracker allows for a spin-in, i.e. managing an integration into the parent’s systems, processes and people, or to make a venture independent.
The Spin Tracker gives you a lot of flexibility. You might decide that for some categories you want the parent company to be more involved. For example, you might agree that the parent will remain the main partner in the newly created entity, and have an important financial role. That’s good insight for setting up your exit criteria in the Spin Tracker and defining when the venture is ready to transition.
Reaching the end of the innovation funnel is a massive accomplishment, but managing a successful transfer is vital to completing the success story. Happy spinning!
