Building a culture of transformation by partnering with start-ups

Start-ups, enterprises and the growth of corporate venturing

Enterprises and start-ups have absorbed the lesson that both can benefit from corporate venturing. The revival of corporate venture capital investment over the past decade has been striking. In Europe, for example, corporate investments and formal Corporate Venture Capital (CVC) are now involved in a quarter of venture capital deals, up from approximately 10% in the early 2010s. Last year, 2,344 corporate investors took part in start-up funding rounds worldwide.

The direct benefits of scaling innovations that originate elsewhere are obvious. For enterprises, this can result in new or improved products, processes and services powered by emerging technology. In addition, corporate venturing offers a range of more subtle benefits, including the opportunity to accelerate culture change within large companies.

“Technology is the visible aspect of digital transformation, but culture change is the invisible driver,” says Florence Sardas, Chief Transformation Officer at Forvis Mazars. “Without culture change, transformation is like hardware without electricity, or a drama without actors. Transformation becomes a kind of fantasy that everyone discusses, but no-one sees in practice. As the gap between reality and ambition grows, so does frustration.”

All too often, companies working toward transformation fail to sufficiently interrogate how they operate. Their ability to analyse the process of value delivery can be constrained by existing loyalties, received wisdom and pressure to achieve near-term goals. Cross-functional collaboration may well be ineffective or even absent.

By contrast, when enterprises act like start-ups, digital transformation is more likely to succeed. One simple example: when senior leaders encourage employees to experiment with new ideas, success rates increase from 13% to 22%, according to McKinsey & Company. Similar levels of outperformance occur under the following circumstances:

·         Employees in key roles are more involved in developing initiatives than during previous change efforts.

·         Senior managers ensure collaboration between units on transformation initiatives.

·         Key leaders encourage employees to challenge established ways of working.

·         Employees are encouraged to generate their own ideas for digital transformation.

Innovation requires the cultural bravery to question the status quo, build and test new solutions and fail fast if necessary. Start-ups bring these qualities to the table. When enterprises manage these relationships well, the cultural benefits can be substantial. The same mentality, the same behaviour, become transferable to transformation initiatives.

Florence Sardas Partner, member of the Executive Committee

Developing a culture of partnership

Recognising what start-ups want from the partnership is key. Véronique Beaumont, a former engineer who now manages L’Escalator, a tech incubator financed by French industrialist Maurice Levy, describes this as the ‘Triple C’ requirement. “Cash, credibility and customers are strategic for start-ups,” she says.

·         Cash is shorthand for the fuel on which start-ups depend: sales, contracts and real income, created via equity investment or the enterprise becoming a customer.

·         Credibility is the signal transmitted by proximity to a large, successful enterprise. When a major company signs up with a start-up, it suggests that the start-up’s solution is serious, and worthy of consideration.

·         Customers are critical for start-ups. Enterprise partners that offer access to end users, partner networks and wider institutional exposure become catalysts in the quest to bring new solutions to market.

Enterprises have their own Triple C requirement from start-up partners: creativity, challenge and cadence. Each can enrich digital transformation efforts in the enterprise:

·         Creativity is what start-ups bring to the table. They develop ideas by thinking about need, rather than process, in some cases producing prototypes before a comprehensive business case exists. The outcomes form the basis for experimentation and testing. In enterprises, this tends to get things moving.

·         Challenge  involves moving beyond the enterprise’s comfort zone as start-ups question the status quo and re-examine what has become routine. The productive friction this creates is healthy.

·         Cadence refers to the way in which start-ups develop products over weeks, rather than months or quarters. This means testing minimum viable products (MVPs) and aiming for iterative success rather than perfection on paper. In a world where speed is a competitive advantage, these qualities are a strategic resource.

Both sides in this relationship need to move beyond binary notions of enterprises as rigid behemoths and start-ups as endlessly disruptive. In fact, both share a common objective: value creation. Start-ups can help large companies to look again at bottlenecks and sources of inefficiency. Enterprises can help start-ups structure and frame solutions, working in a way that acknowledges the need for long-term sustainability. The key challenge involves building a culture that allows both approaches to maximise their contribution.

Five key success factors

Large companies maximise the chances of success when they adopt five strategies for corporate venturing:

·         Clear and shared objectives: people across the organisation, not just those in the boardroom, need to understand why you’re engaging in these partnerships. Once the partnership is under way, practise continuous alignment on schedules, definitions of success and intentions (e.g. if goals change, ask whether what was originally a short-term partnership is becoming a longer-term proposition.)

·         Purposeful management: reconcile the dynamism of start-ups with the controlling approach of corporates by setting up protected sandboxes where start-ups and internal teams can test real hypotheses. Avoid pointless reporting and streamline decision-making. Replace committee meetings with short 30-minute alignment sessions. Most important of all, grant employees the freedom to fail. Without this, the full benefits of corporate venturing will not materialise.

·         Useful measurement: avoid vague or exclusively financial KPIs and objectives that remain fixed despite ongoing evolution. Integrate KPIs focused on rapid validation, business impact and scalability. Adjust incentives to reward-validated learning (e.g. tests run, insights generated).

·         Active sponsorship: every start-up/corporate collaboration needs a visible, committed, well-connecteddecision-maker who sets the roadmap, eliminates bottlenecks and protects the project from bureaucratic wear and tear.

·         Trust-building skills: within the venture, build durable bridges between different groups with staff rotations, joint squads and secondments so that improved ways of working become embedded. The enterprise needs to clearly describe internal constraints, real priorities and unavoidable deadlines. Transparency, feedback and visible, mutual respect are essential.

These are the fundamental characteristics of enterprises that learn lessons from start-ups. In these organisations, leaders encourage agility, and teams see themselves as co-owners of change. As a result, culture evolves to match the pace of technological progress. Instead of perpetuating inefficiency, digital tools accelerate new ways of working. The inevitable result is an environment in which digital transformation is more likely to succeed.

If you would like to further explore the ideas discussed in this article, please reach out to Florence Sardas, Chief Transformation Officer at Forvis Mazars.