Recently, I participated in a very interesting discussion organized by our friends at Mind the Bridge with many other open innovation responsibles of global corporations.
The discussion I joined was around a new potential model for corporate accelerators, which is a topic I have strong opinions about ;).
As Marco Marinucci mentioned in his opening statement, only 19% of corporations have no accelerator activities at all, but there is a decreasing interest in traditional acceleration programs.
In this article, Steve Blank states how «incubators and accelerators started popping up into every large company. We have created a ton of innovation theater, but I’m not sure we moved the needle on increasing revenue and profit in the line with all those investments».
Over the last years, we have taken many steps in Wayra to evolve from the temptations of the Innovation theater into providing meaningful tangible results. Moving from our previous 11 Academies in Europe and Latam centered around yearly batches and wide ecosystem support, to our current network of 7 regional Hubs aimed for more mature startups, and lately towards our on going plan of transforming our Hubs into Wayra Labs, where technologies & APIfied platforms are exposed and startups products are showcased for our customers, with space for co-creation and prototyping.
We are very much aligned with the vision presented by Mind the Bridge on the accelerators evolving towards Hybrid models: with blurry boundaries between physical and virtual worlds, stage agnostic, very open to external partners (VCs, universities, corporations, public bodies) and with different flavors depending on regions, business needs and strengths of the local ecosystem.
HOW TO STEP-UP IN MATURITY OF STARTUPS?
In order to move the needle of the corporate P&L, product market fit is key. And you cannot dismiss the relative size of the Elephant and the gazelle, hence if you want to shoot for opportunities over €50 million revenues to start with, understanding the total addressable market of your open innovation efforts is very relevant.
If you are really successful and you become the main reselling channel for your whole startup portfolio and represent, let’s say, 30% of their revenues (which is already a lot), then, in order to achieve a relevant aggregated number for your corporation: i.e over 250 Million euros for a company like Telefonica, (which would still be less than 5% of our B2B business), that means you will need the aggregated revenues from all your portfolio to be around 850M euros. And if your portfolio size is around 300-400 active startups, then their average revenues need to be on the range of 2-3 Millions euros por startup.
The corollary of this theory implies that if you work with early stage startups making yearly revenues of around €200-500K, it will never work out for you.
You may need to be stage agnostic and add some startups making over €5M or €10-15M in the series A-B space to your open innovation activities. And you also will need to design a mix between a venture capital and a venture client model, where investments are not the first step but the consequence of achieving relevant business development.
And you need to be very clear about the value proposition for the startups, moving from just smart capital into market & tech validation, customer access and expansion to other geographies with your brand and network as anchor partner.
ORGANIZATION: BATCH VS. CHALLENGE DRIVEN
My bet is definitely on a sniper, targeted approach, where you add into your programs any startup which fits your needs with a 365 days a year scouting effort.
But you can spice this up, adding specific open challenges for the ecosystem, where you call out for innovators on very concrete pains or areas of interest. And the more you can add more relevant logos to the challenge the better; the quality of our joint challenges with NSCS, Novartis or RENFE around topics with strong personality, is significantly higher than our solo efforts.
And those key partners will also help you cover some of the OPEX of your initiatives and infrastructure, ensuring the model becomes more sustainable, which leads me to the next question:
ARE IN-HOUSE ACCELERATORS SUSTAINABLE IN THE LONG RUN?
If you try to just balance your OPEX against the return of the investment, it will be pretty hard to get your numbers in black.
An in-house corporate accelerator costs per year, counting office space, headcount, events budget, mentorships or external consultants, travel, scouting expenses.. will add up to a budget of around 1 million euros (heavily dependant on localization of course)
If you invest 2 million euros a year in CAPEX and you finally deliver a 2x cash on cash over 5 years (which would mean you are on the 10% best performance decile). Then you are giving back to your corporate controllers: 20 million euros – 10 million cash back= a 10 million ROI (not counting taxes or fees).
But it will take at least 10 years to get the money back (even more so if you invest very early on) hence you are also spending 10 millions in OPEX over the period, to keep your accelerator up and running. Thus, the odds are you will most likely lose money if you just count on the portfolio returns to cover your expenses.
But there are other returns on the investment besides comparing the portfolio financial metrics, like, what are the induced revenues you generate in the business units, which is the main reason you should have started your open innovation activities in the first place, or what business opportunities do you anchor through the innovations coming from the accelerators. How many revenues can you add by segmenting the startups as a high growth customer group?. And what is the value of the cultural shift you are fostering?.
There is this ripple effect on corporate innovation besides just the new revenue streams or operational efficiency savings, which goes way further, enabling Tech discovery, cultural change, high level institutional and corporate relations, etc.
ARE COMPANY BUILDERS & STARTUP STUDIOS AN ALTERNATIVE?
I am a big proponent of Venture Builders for corporates, but only if you have a truly unfair competitive differentiator for a specific business idea, which is also sustainable over time.
With the Venture Builder, you are actually creating sort of a Frankenstein, mixing corporate ideas, corporate go-to-market channels and pseudo-entrepreneurial managers. If you want to beat your agile startup competitors in the space, you will need a unique unfair advantage. It can be access to assets which are not open to the public (data, infrastructure, IP..) or a key insight about a potential future thanks to customer research etc
And it is critical to be able to source and validate the ideas internally and furthermore, avoid mild yeses when you push the project forward in the different committees. You will need very strong internal sponsorship and accountability.
Try to avoid the backing corporate becoming your first customer in the new companies you build. Actually try to get some middle sized more flexible companies to be your guinea pigs, and after that you can try to get scale with the Bigger mother company.
And use the same scouting and company’s needs sourcing interface for the Venture Builder and the rest of the investment vehicles, to avoid duplicities and misaligned efforts. If you have a strong sponsor, a clearly defined need with a strong unique competitive advantage and you don’t find any startup solving those really huge pains, then it is probably worth building it.
Coordination is critical there!.