How often haven’t we read reports about the churn rates of companies in the S&P 500? It is said that the average tenure of companies in the S&P 500 will fall from 33 years to 12 years by 2027.
Innovation Lethargy is the prime reason for Enterprise Churn.
The alarming rate at which the churn will happen in the next decade (refer chart) is causing jitters in boardrooms. Only agile Enterprises that are adept at quickly seizing new market opportunities can survive this ruthless disruption.
The CB Insights’ State of Innovation Report states more ugly truths for enterprises:
- 84.9% said innovation is very important, but as high as 78% of respondents focus just on incremental changes.
- More than 50% of the corporates surveyed have the propensity for building, over partnering or buying, slows down innovation.
- 60% of companies said it takes a year or longer to create new products, with almost one-fourth saying it takes over two years from ideation to launch.
The Usual Suspects
The perpetrators of this rapid and incisive insurgency on corporate fiefdom – startups – are nimble, solution-driven and hungry. Startups are solving new problems or redefining how existing problems are solved.
Especially those that offer scalable solutions, often backed by rapidly-growing Private Equity, are fearless and empowered to disrupt almost every industry.
Early growth startups with highly scalable solutions, however, can tend to struggle to identify right opportunities that will create necessary impact with scale.
While startups might have the right skill set to develop and maintain a technically-sound solution, they may not necessarily be equipped to succeed with the most appropriate enterprise-level opportunities that will help them scale rapidly, due to endemic issues like:
- Limited bandwidth and resources for business development
- Inexperience to navigate through enterprise decision-making
- Limited access to scalable market opportunities
The World of Incubators and Accelerators
Over the past decade or two, you would have heard or read about business or technology incubators and accelerators across multiple horizontals and verticals.
Their primary goal is to offer access to resources (capital, connections, mentors among other benefits) for startups to incubate their solutions and achieve rapid acceleration.
Names such as Y Combinator and SOSV are commonly referred to as few of the most successful ones when you’re part of a discussion about accelerators. Startups “graduating” from these accelerators typically end up presenting to investor audience at the end in the form of a demo day.
A select few end up winning capital that will fuel their next growth story.
In contrast, corporate accelerators have emerged with the purposes of achieving specific objectives of the sponsoring enterprise.
The objective could either be for the sponsoring corporate to stay close to the emerging trends or for the purpose of building a pipeline for their corporate venture capital investments.
Scale + Agility = Innovation + $$$
Now back to where I started. Innovation Lethargy. From the survey reports highlighted earlier in my article, the high school student will synthesize information and recommend the corporate to partner or buy innovation in order to stay relevant.
The corporate must partner or buy innovation to stay relevant.
That being said, the corporate might witness inherent challenges while following the recommendation:
Sourcing startup technology. Identifying startups that offer solutions aligned to the corporate objectives involves many steps.
First technology gaps that prevent the corporate to capitalize on market opportunities need to be identified.
Modelling the innovation landscape at the corporate, and assessment of its innovation maturity and agility quotient need to be conducted.
Different cognitive biases can lead to higher than actual reporting of the corporate’s innovation health in these models or assessments.
Preparedness for Startup Engagement. Corporate (well, most!) is structured for efficiency while startup is largely unstructured (and this helps with agility). Both these worlds getting together could be a recipe for disaster if the tango between the two is not choreographed carefully.
Understanding the corporate’s readiness for startup engagement and preparing for startup interactions through different conditioning exercises are an essential must.
The key for the corporate to successfully tap into emerging technology is to find the right partner who has experience of working with startups, understands their culture and possesses techniques to evaluate scalability of startup solutions.
On the other side, the partner should be experienced to understand the corporate structure, its strengths and limitations, develop preparedness for startup engagement, and extract innovation opportunities that can be mapped to startup solutions to maximize the benefits for the corporate and startup.