Linda Yates is founder and CEO of Mach49, the growth incubator for global businesses with clients including Goodyear, Gundersen Health, Hitachi, Intel, Pernod Ricard, Schneider Electric, Shell, and more.
Below, Linda shares 5 key insights from her new book, The Unicorn Within: How Companies Can Create Game-Changing Ventures at Startup Speed. Listen to the audio version—read by Linda herself—in the Next Big Idea App.
1. Understand customer pain, marry it with the art of the possible, and then place a series of small bets.
All great ventures start with understanding customer pain. No one knew they wanted a DVR, a microwave oven, or a minivan. What they could tell you was their pain: they weren’t getting home in time to watch their favorite show; they didn’t have time to cook a healthy meal; and they were having to cart an ever-increasing number of kids, dogs, and sporting equipment to myriad places.
Take that customer pain and marry it with the art of the possible. Ask yourself, what are the current trends and technology you can employ to solve that customer pain? Remember Uber does not exist if we don’t have mobile phones, GPS, and real-time payments. The challenge many large companies have is that they don’t stay current on the art of the possible, so they have a hard time coming up with disruptive solutions to customer pain.
Once you have a set of possible solutions, you place a series of small bets. Do pilots, run experiments, test, iterate, pivot, and test again. In Silicon Valley we look at funding like an onion, every layer of the onion is a layer of risk. It could be market risk, financial risk, technical risk, or in the case of a large company, governance risk, which is when you love your venture to death, or you starve it of oxygen. The goal of any entrepreneur, whether inside a large company or in a traditional startup, is to remove the greatest amount of risk on the least amount of capital. You have to run experiments to prove you can mitigate that risk and, only then, unlock subsequent rounds of funding.
2. Ideate, incubate, and accelerate.
The first step in venture building is to make sure you have an idea you can incubate in the first place. Typically, companies fall into one of three buckets when it comes to the ideate phase: they have one or two great ideas that are ready to incubate; they have too many ideas and need to conduct a portfolio review to prioritize the ideas; they don’t have a specific venture, but a domain they want to explore.
We had one client who was interested in water, road safety, and food, but you can’t incubate water. You can, however, incubate Zero Water Homes as one of our Japanese clients did. To get to an incubatable idea, companies will often do a domain exploration, an ecosystem map, or run a venture competition. It’s important to remember garbage in, garbage out, as it is important to pay attention to how you are assessing ideas during the ideate phase. Ensure you only move ventures with the greatest potential to the incubate phase.
Once you have a great idea, you move to the incubate phase. Incubating a venture typically takes 12 to 14 weeks and involves three activities: customer development, the product, and the business. Customer development is identifying and validating that there is enough customer pain your company can solve. You will conduct a series of interviews, and if there isn’t enough customer pain to indicate a large enough market, you need to kill the venture. If there is a ton of pain, you get to move to the next activity.
“Ensure you only move ventures with the greatest potential to the incubate phase.”
The magic moment in any incubate phase is not pitch day, rather it is the moment when your team moves from pain to an exciting product, service, or solution. This is the phase where you ask: What should we build? Can we build it? Can we deliver it? If we can’t build it, can we buy, partner, or invest to make it happen?
If there is enough pain, and the product is feasible, then the team will move on to the last phase of incubation—building a very rigorous and robust business operating plan that you will present to your new venture board members to decide whether the business is worth funding or moving forward. Besides information on the customer and the product, the business plan needs to include: size of market; the business model; the funding ask; the operating plan including staffing and organization chart; the gives and the gets; risks and competition; why us; and the immediate next steps you will take assuming you get funded.
Congratulations you have now been funded; you are now a real venture being launched into the market. You get to move to the stage that most companies mess up, the accelerate phase. This is the stage when your whole focus needs to be on moving your venture from funding to product market fit and early revenue.
Accelerate has three stages and what we call five “swim lanes.” The stages are: build to validate, build to automate, and build to grow. The five swim lanes are the areas you need to be experimenting with to remove the greatest amount of risk on the least amount of capital, across the three stages.
As soon as a team gets launched, everyone wants to focus on building and testing the product and that is the first swim lane. But you were funded to create a venture, a whole new company, so you must also be focusing on going to market, the second swim lane. Can you find prospects and convert them to users and buyers? What is the best model for acquiring customers? What selling models work? The third swim lane is the business model. Can you get someone to pay, when and how are they likely to want to pay, what is the pricing model you will use? The fourth swim lane involves operations and unit economics. Can you deliver the product, solution, or experience to the customer profitably? How will you set up the infrastructure? Will you take advantage of shared services at the mothership? How? Which ones? Can you get to positive unit economics? The final swim lane is regarding your team. Can you recruit, hire and pay the team you need across all these swim lanes at every stage?
3 . Focus on the people behind New Venture Teams, New Venture Boards, New Venture Advocates, and the Venture Factory Team.
There are four types of teams involved in venture building which means lots of exciting opportunities to participate and be engaged across your organization. The New Venture Team are your “founders,” your internal entrepreneurs who are passionate about the idea and are ready to turn it into a new venture. We don’t just mean the millennials: disruptors come in every age, gender, race, sexual orientation, geography, learning difference, or any other category you want to define. We do mean people who thrive with ambiguity, can handle a fast pace, and love talking to customers.
The New Venture Board are the senior executives who are your internal venture capitalists. Not only do they provide the funding and make the go/no go decisions, they are the people who must lean in and engage, they must provide access to the customers that differentiate you from other startups, they can open doors to the core competencies, capabilities, and assets the mothership can provide to ensure your success, and they can remove the friction that comes from the inertia, orthodoxies, and antibodies that at some point you will run into.
“Disruptors come in every age, gender, race, sexual orientation, geography, learning difference, or any other category you want to define.”
Not everyone wants to be an entrepreneur building a venture, but many in your company are entrepreneurial and want to disrupt or advance the work of their function or department. The New Venture Advocates will be the ones providing services to the venture team, the ones making sure the ventures can seize the mothership advantage, the ones helping the ventures reach escape velocity.
In regards to your team, it is helpful to find the right people who will be tasked with certain objectives. Who in legal will write the one-page term sheet for the pilot a customer wants to run with the venture (not the forty-page term sheet)? Who in procurement will get the new vendor that the startup needs to partner with on your approved list in a week versus ninety days? Who in HR is able to write the spec for that growth hacker they have never heard of before or fast-track employees needed to build the new venture who don’t look like your typical employee? Who will implement that phantom share plan the venture needs to attract great team members? Who in marketing is going to challenge the traditional brand police and help the new venture develop momentum in the market?
Finally, the Venture Factory Team is the team that becomes expert in the process and helps you build not just one venture but a portfolio of ventures.
4. Build the platform for your Venture Factory.
To truly institutionalize growth for decades to come, every company can and should build and run its own venture factory, or even better, their own growth division. No venture capitalist invests in one venture, nor should you only build one venture. You need a pipeline and portfolio of ventures to drive meaningful growth. Among the many benefits to building a venture factory, it’s important keep three things in mind.
First, a venture factory drives growth by creating and launching a portfolio of high-quality new ventures, manages the downside risk by reducing the greatest amount of risk on the least amount of capital, and develops a laser-like focus on solving customer pain.
Second, building a venture factory with new, highly talented employees sends a message that the company is committed to real innovation and providing creative growth opportunities for its people (not just growth for its shareholders.) This, in turn, enables the company to recruit and retain a pool of highly motivated and often exceptionally talented, internal entrepreneurs. Venture factories often become the darling of the chief human resources officer because they can set up a rotation through the incubator or accelerator for their best and brightest. That is sure to beat any of the offerings from their worn-out, nineteenth century catalog of leadership development programs.
“You need a pipeline and portfolio of ventures to drive meaningful growth.”
Finally, by focusing on growth through venture building, senior executives are forced to expand their playbook and shift their mindset from being management review board members to adopting the discipline and mindset of top-tier VCs in Silicon Valley and beyond. They learn to execute a portfolio strategy, building many, not just one; to think in terms of seed funding, not overspending too early; to focus on option value, not net present value; and to obsess on customer acquisition and revenue as the early key performance indicators most relevant to a startup, not short-term profit.
You must build a blueprint for your venture factory and make decisions on how you will run it by design, not by default. One of the challenges large companies face is that the financial markets do not do them justice when they look at their internal ventures. Startups in Silicon Valley go public and get a hall pass for years before they are expected to turn a profit. Yet they get incredible valuations solely on the financial markets using the metrics of customer acquisition and revenue growth. Our big companies deserve those valuations as well, and creating a division that is responsible for developing and nurturing new ventures often enables that division to have a different set of metrics to report that are separate from the core and legacy business metrics. Financial markets need to value the unicorns within and reward them with the same or better multiples than pure startups who have none of the advantages the large companies possess.
5. Find your purpose while doing good and having fun.
People are living longer and longer due to health care and technology. That means they will be working longer and longer. As much as we celebrate startups, most people are employed by large companies and they need purposeful, meaningful work. Most large companies need to look more like Berkshire Hathaway and have a portfolio of companies and new ventures. That will allow people to be more creative, stay closer to the customer, move with agility, kill things that aren’t working, and ensure that those that are working can reach escape velocity.
The big, hairy challenges we face on this planet—climate change, education, disease, racism/bigotry, poverty, hunger, water, disappearing species—need our big companies to know how to disrupt, innovate and experiment to solve them. Whatever your values, your duty is to build ventures that reflect the change you want to affect in the world. Big companies have within their power the ability to address every one of these challenges.
If we fall into the trap of all or nothing, and the challenges seem too overwhelming, we risk doing nothing. If we believe that its government’s task to fix that problem, and that we personally can do nothing, we are wrong, and deeply so. Each and every one of us have within us the capacity to drive profound change. New ventures can be bold. They are a way to place the small bets we need to test solutions. They can move with speed and agility and, when managed right, are unbounded by the status quo.
Even if your new idea isn’t destined to solve anything so grand, the way you go about building your venture can do good in and of itself. You, your incubators, and your ventures can be role models in the way you hire, use resources, treat people, interact with partners, engage with the environment, accept differences, respect human rights, and play for the long-term, not just the next quarter. You can do well by doing good and you can have fun along the way. Each and every one of us can drive positive, sustainable, meaningful growth for ourselves, our companies, and yes, even, our planet. The time to start is now. The moment is here. Go do great things.
To listen to the audio version read by author Linda Yates, download the Next Big Idea App today: