Last year, venture capital funding hit its highest level since 2000, coming in at $47.3 billion, according to CB Insights, a startup that keeps tabs on private companies. And more than a quarter of that money came from companies’ venture arms.
Venture capital firm Andreessen Horowitz has invested in some of today’ most talked-about startups, including Slack, Buzzfeed, and Instacart.
Andreessen Horowitz has its finger on the pulse of what’s happening in tech. Over on the firm’ website, its investors have shared 16 trends and themes they’re excited about this year. It’ a sort of State of the Union for what’ happening in tech.
We’ve compiled Andreessen Horowitz’ predictions for the 16 startup themes that will be big this year.
1. Virtual reality
“Computer enthusiasts and science fiction writers have dreamed about VR for decades. But earlier attempts to develop it, especially in the 1990s, were disappointing. It turns out the technology wasn’t ready yet. What’s happening now — because of Moore’s Law, and also the rapid improvement of processors, screens, and accelerometers, driven by the smartphone boom — is that VR is finally ready to go mainstream,” Chris Dixon, a general partner at Andreessen Horowitz, says.
We’ve already started to see the emergence of virtual reality: people are still excited and curious about Oculus, which Facebook announced it was acquiring last March. Microsoft and Apple are also reportedly exploring virtual reality too.
2. Improving enterprise software design
Andreessen Horowitz partner Scott Weiss says this is the year for enterprise to play catch-up. Enterprise companies need to get up to speed with consumer-facing startups, which have already created beautiful, functional interfaces, especially on mobile.
“Enterprise UI is woefully behind,” he says. “All those well-understood motions that have taken hold from our everyday smartphone behaviors — pinch, zoom, swipe, tap, speak, even just moving stuff around with our fingers — have yet to take hold in the enterprise. The user interface has always been an afterthought, the last thing one did after building a database. That is changing now.”
3. Machine learning and big data
Andreessen Horowitz’ Peter Levine says we’re going to continue to see big data as a trend this year.
“Where business intelligence before was about past aggregates (‘How many red shoes have we sold in Kentucky?’), it will now demand predictive insights (‘How many red shoes will we sell in Kentucky?’),” he says. “An important implication of this is that machine learning will not be an activity in and of itself … it will be a property of every application. There won’t be a standalone function, ‘Hey, let’s use that tool to predict.'”
4. The full-stack startup
Chris Dixon thinks you should put your money behind “full-stack startups” — companies that “build a complete, end-to-end product or service that bypasses incumbents and other competitors,” he says. He uses Apple as an example of a full-stack company — it makes its own chips, apps, and retail stores.
Dixon thinks Lyft and Uber are full-stack startups. “Companies like Lyft and Uber said: ‘You know what? Instead of trying to sell software as an add-on, we’re going just going build the whole service using our modern software.’ They asked: What would this industry look like if it were rebuilt from scratch using technology we have today?”
Computing has become more efficient since it first started, but Peter Levine says containers will be huge in 2015.
“Containers aren’t actually a new thing. They’ve been around for a long time, but are taking off for a few reasons,” he says. “One reason is because Windows has become less prevalent in the datacenter; one of the downsides of containers compared to VMs is that they can’t run multiple operating systems, like Windows on top of Linux. Another reason is ‘microservices’ app architecture driving enthusiasm for containers; these app architectures are especially suited to containers because they have discrete pieces of functionality that can scale independently, like LEGO building blocks.”
6. Digital health
A lot of medicine that’ being practiced today — a lot of the devices doctors use — is being designed by people without medical degrees. Andreessen Horowitz’ Balaji Srinivasan says the trend of mobile and digital health will continue to increase this year.
“One center of action is likely going to be the mobile programmable medical record — the container for all diagnostics and test results — something like what Apple’s HealthKit may evolve into,” he says. “All this diagnostic history isn’t necessarily ‘big data’; it’s just never been tracked and cross-correlated before in one place. Once technologies like HealthKit get a little more traction, millions of software engineers without MDs can build new applications on top of that data store (perhaps collected by other applications) without injuring the phone owner.”
7. Online marketplaces
Online marketplaces like eBay and Craigslist have been super successful. But Jeff Jordan, a partner at Andreessen Horowitz, says the next trends to watch with e-commerce and marketplace spaces include businesses that are built by fleshing out niche services you’d find on Craigslist, like ridesharing or sublets; “mobile-first” marketplaces; “people marketplaces,” where you can find niche services like Instacart or Glamsquad; and marketplaces for new segments, like B2B.
2014 was not a great year for password security. Between the Sony leaks, the large-scale iCloud photo hack that resulted in private, naked pictures of celebrities leaking online, and security breaches at companies like Target and Home Depot, it seemed everyone was vulnerable to having their privacy breached.
So it comes as no surprise that one trend Scott Weiss is predicting will be big in 2015 is security. Companies that can identify when and where data breaches occur and then lock everything down and do damage control will be invaluable.
9. Bitcoin (and blockchain)
Even though the price of bitcoin has been dropping, Balaji Srinivasan says there are three things to consider in regards to the cryptocurrency this year. First, he says, bitcoin is still really new — so we should except adoption to increase significantly in 2015. Srinivasan also says we can expect new payment applications to develop for bitcoin, and that we should consider bitcoin as infrastructure.
10. Cloud-client computing
Peter Levine says there’ a lot of potential with computing today to make your devices work more efficiently.
“We have more processing power in our hands today through smartphones than we did in large computers decades ago. So why shouldn’t some of this processing move out of the cloud and back into the endpoint, into the phone?,” he says. “Doing processing locally has its advantages. For instance, the cost of an endpoint CPU and memory is a 1000x cheaper than the cost of CPU and memory in the server. And in many places around the world, connectivity and transmission costs are sometimes far more expensive than the device.”
When we think of crowdfunding now, we think about sitting at our computers and occasionally donating to someone’ potato salad project or a movie campaign on Kickstarter. Jeff Jordan says this will change. “With smartphones in our pockets, we not only have access to crowdfunding platforms whenever we want, but to the crowd that comprises the various social circles of our lives — from family to school, work, and the region we live in,” he says.
12. Internet of Things
Scott Weiss says the solution to our society’s culture of planned obsolescence — where you constantly have to replace old or broken devices because they’re not built to last forever — is the Internet of Things. “We tend to focus on the glorified outcomes [of IoT] but the mundane ones are equally if not more powerful,” he says.
“The IoT could change things here, and create a new culture of repair. If you’re a small family-owned restaurant that can’t afford to constantly upgrade equipment or fix things, you can answer a whole new set of questions with the IoT: Is that freezer working extra hard because someone left the door open, or because its compressor is about to fail and you’re about to lose $6,000 in food?”
13. Online video
YouTube has been around for a decade, but Jeff Jordan says online video is still just ramping up now. He predicts YouTube will be carved out by entrepreneurs and companies for their own purposes. Besides new ways of monetizing video, Jordan says new forms of video advertising will emerge, and YouTube will start taking better care of its stars. Jordan also says other players could get in on the online video game too — it doesn’t have to be all about YouTube.
Software and data have improved, Andreessen Horowitz’s Frank Chen says, so shouldn’t the way we purchase our insurance also change? “Software will rewrite the entire way we buy and experience our insurance products — medical, home, auto, and life,” he says, in three major ways: “By changing the way insurance companies price risk; by empowering an ongoing relationship between an insurer and insured; and by changing the way insurance companies pool capital.”
DevOps — a portmanteau of the words “developer” and “operations — is a skill-set that any modern programmer should have, Scott Weiss says. He says there’ a lot of opportunity for DevOps to grow this year.
“The rise of the hyperscale cloud datacenter has now made this job much harder as developers have had to hack together tools and complex scripts for pushing code to thousands of pancake servers,” he says. “This complex cloud infrastructure — coupled with the growth of the DevOps movement today — has opened up many opportunities, starting with helping developers and companies to manage the entire process … to much more.”
“‘The goal is not to fail fast. The goal is to succeed over the long run. They are not the same thing.’…Enough said,” the VC firm says on its website, paraphrasing a tweet by known tweetstormer and Andreessen Horowitz co-founder Marc Andreessen: “My goal is not to fail fast. My goal is to succeed over the long run. They are not the same thing.”
How ‘venture builders’ are changing the startup model
If you haven’t yet heard of venture-builders — also called tech studios, startup factories, or venture production studios — let me introduce them to you: They’re organizations that build companies using their own ideas and resources.
Unlike incubators and accelerators, venture builders don’t take any applications, nor do they run any sort of competitive program that culminates in a Demo Day. Instead, they pull business ideas from within their own network of resources and assign internal teams to develop them (engineers, advisors, business developers, sales managers, etc.).
You’ll want to get used to the idea because we’re going to see a lot more venture-building organizations emerging.
Venture builders develop many systems, models, or projects at once and then build separate companies around the most promising ones by assigning operational resources and capital to those portfolio companies.
In its most basic form, the venture-building company is a holding company that owns equity in the various corporate entities it helped created. The most successful venture builders are, however, much more operational and hands-on than holding companies: They raise capital, staff resources, host internal coding sessions, design business models, work with legal teams, build MVPs (minimum viable products), hire business development managers, and run very effective marketing campaigns during their ventures’ pre- and post-launch phases.
Technology futurist, serial entrepreneur, and angel investor Nova Spivack is part of the early technologists who pioneered the venture production studio model. He wrote about the model in 2011 at a time when most of the elements that make it up were still in gestation. Nova actually invented the Venture Production Studio term, calling it a “new approach to building startups.” This new approach certainly paid off, as his own venture production studio enjoyed multiple exits three years later.
A Rising Movement
The venture-building philosophy is a rising movement in the tech and startup industries. The most notable venture builders include Obvious Corp, which spun off Twitter and Medium; Mark Levin’s HVF (Hard Valuable Fun), which produced Affirm.com and Glow.com; Betaworks, whose portfolio includes Instapaper and Blend, and Germany’s Rocket Internet (PayMill, Jumia, FoodPanda, etc.). Although these highly successful companies have obvious differences in their business models, they also have significant characteristics in common. They use shared resources (capital, teams, connections, etc.) to launch solutions that then operate as fully-operational companies.
The venture-building movement is starting to become more popular outside of the United States as well: The Netherlands gave us StarterSquad, the self-proclaimed “European version of Betaworks”; and the South African team at Springlab had made the entire African continent proud with their innovative joint-venture business model.
We can thank the highly successful and equally controversial Samwer brothers at Rocket Internet for leading the way and showing what the rest of the world has to offer in terms of venture-building capabilities. A lot of U.S. entrepreneurs and venture capitalists see the Samwer brothers (who are known for copying every successful American Internet startup idea under the sun and importing it to Europe and the EMEA) as unscrupulous copycats. I beg to differ. While there is no denying that they reproduce existing business models, they also have an uncanny ability to execute in unknown markets in the most perfect way. Every good entrepreneur will tell you that ideas are worthless and execution is everything. It certainly holds true for venture builders, and the Samwer brothers are the undisputed kings in that category at the global level.
The Sharing Economy Creates Venture Builders
The uberification of society, on-demand services, and the new sharing nature of the American economy have all contributed to the creation of the venture building ecosystem. The term uberification, which is derived from the popular on-demand taxi service Uber, refers to vertical integration of the customer experience within a specific industry. The uberification effect creates on-demand services that in turn create a new sharing economy that redefines the way society accesses resources. Venture builders help enhance this access by building powerful networks and ecosystems from which resources can be instantly pulled. Thus, they are the shapers of the sharing economy. Analysts and thought leaders define the sharing economy as a socio-economic ecosystem built around the sharing of resources. It includes the shared creation, production, distribution, trade, and consumption of goods and services by different people and organizations.
According to Steve Schlafman, a Principal at RRE Ventures, the uberification of our economy signals a fundamental shift in the way local services are discovered and fulfilled. Entrepreneurs should take this concept to the next level by not only enhancing a specific industry but also by radically transforming the startup business model and, ultimately, the way society generates income.
A Startup That Builds Startups
There is a deep correlation between the startup ecosystem and the venture-building universe: The venture-building company is similar to a high-paced tech startup, where the product is the venture, the prototype is the business model, and ‘shipping code’ means perfect and timely execution. In this regard, the venture builder is essentially a startup that builds startups.
This is a model that deeply resonates with my own venture-building team. Our company sees itself as a bootstrapped startup that applies Lean Startup principles such as process management, validated learning, iteration, and innovation accounting to the venture building process. We act as a collective that allows seasoned entrepreneurs from within our network to share resources (capital, skills, and market expertise). Those resources then power equity joint-ventures that operate in areas where the venture partners have a significant competitive advantage (an existing business, traction, superior market knowledge, dedicated operational resources, etc.). It’s a win-win business model that emulates the philosophy of the PayPal Mafia as we greatly benefit from the sharing nature of our growing network to seize opportunities.
PayPal Mafia Principles
The PayPal Mafia is a collective of Silicon Valley entrepreneurs who founded PayPal and who went on to build the most defining technology companies of the world. The collective includes Elon Musk (Tesla, SpaceX), Peter Thiel (Clarium Capital and Facebook’s original angel investor), Steve Chen (YouTube), Reid Hoffman (LinkedIn), Dave McClure (500 Startups), Russel Simmons (Yelp), Yishan Wong (Reddit), David Sacks (Yammer), and many more.
John Greathouse, a VC at Rincon Venture Partners who teaches at the University of California, lists the key elements of a PayPal Mafia-style network on Quora:
Capital from past venture success
Pertinent experience – folks who have helped drive the bus, not gotten a ride in the back
Operators who are still hungry enough to “do it again”
A desire to work together again
All venture-building companies share these four values: capital commitment, industry experience (market knowledge, know-how, and operational expertise), a strong desire to build something new (call it the entrepreneur’s bug or just plain ADD), and a natural gravitation towards collaboration (correlated with a profound respect for the values of trust, friendship, and loyalty). I call these four values The Pursuit of Happiness. Venture builders are in constant need to innovate, enhance, and build better solutions. They can’t be trapped by the static nature of success. They need to challenge things and to feel challenged.
The Venture Building Ecosystem: An On-Demand Network
Another important characteristic of a venture-building company is the presence of a strong sharing network capable of unifying a vast array of resources in the most effective way. Venture builders rely heavily on the quality and the dynamics of their networks and thus need to figure out which combination of resources will produce the most explosive results in order to capture market share quicker than its competitors.
The challenge lies in the managing partners’ ability to federate all these resources under one governing body that can build ventures in a very focused and dedicated way. The Venture Builder’s network must act as a pool of instantly available resources that create an internal culture of trust, deal flow, attentiveness, and determination.
This network-first model is certainly different from the standard startup business model, and there is a good reason for it: As the entrepreneurial world adapts to the ever-changing needs of consumers and corporate clients, startups and organizations will need to evolve and share resources under a unified business model in order to remain competitive and to respond to their clients’ needs faster.
As you probably noticed, the venture builder model is close to that of the venture capital firm: It funds ventures, builds a portfolio, and looks for successful exits. However, it is also much more involved in the operational aspect of its ventures than a traditional VC. In some cases, it goes as far as pulling all the necessary resources from its vast connection network to crush its competition and scale extremely fast. This “Damn the torpedoes, full speed ahead” operational technique, which is highly reminiscent of Uber’s business strategy, proves that venture builders are first and foremost gifted entrepreneurs and savvy business developers who don’t simply pour money into ventures and watch them grow. They implement aggressive business management techniques that benefit all the ventures that are part of their network.
The Monopoly Effect
You may wonder what an ever-growing venture building ecosystem will lead to. I believe the ultimate goal of the venture builder is to exhibit characteristics of a monopoly. This is a natural evolution of any organization that combines unlimited capital, ever-expanding clusters of ecosystems and an eternal pursuit of happiness, which I defined earlier as the constant need to innovate, enhance, and build better solutions.
In fact, a monopoly strategy should be part of the vision of every venture-building company. This controversial sentiment is shared by venture capitalist and visionary PayPal founder Peter Thiel, who argues in his groundbreaking book Zero to One that a business should thrive to become a monopoly. He defines a monopoly as “a kind of company that is so good at what it does that no other firm can offer a close substitute.”
A Bright Future
Despite threats of monopoly, Mafia-inspired networks and conspiracy theories, the venture-building production model has a bright future ahead of it. I foresee an increasing number of startups and organizations applying this business model in the years ahead. By combining their resources, they will develop dynamic ecosystems that will birth amazing products, solutions, and ventures.
The Marvel universe-inspired network my team is currently building is already 15 companies strong after a mere seven months of activity, with sequential company launches in four countries. Despite many challenges, we successfully built a powerful resource pool of more than 20 venture partners that are financial experts, digital media entrepreneurs, mobile money specialists, technologists, economists, and even economic operators. Yet, we are just getting started. And the list of new business entities with venture-building characteristics keeps growing around the world. All these initiatives will radically transform industries by creating new avenues and opportunities for society to generate income and access more capital.
Let a thousand flowers blossom.
Ali Diallo is an American entrepreneur of Senegalese descent focused on building ventures in West Africa and in the U.S. A former Manager of Advertising Operations at Gannett, he now runs Media Investment Tech Ventures(MIT Ventures), a global venture building company founded last year. He is also a cofounder of Mobility Technology, a new venture focused on mobile money, and VP of Operations at Quake Marketing.
Facebook may have reported sales of just EUR 2.68 million in Spain in 2013 but the company itself claims its social network last year generated some EUR 3.4 billion and created 52,000 jobs.
A new study commissioned by Facebook and conducted by Deloitte reports that the social networking site had a global economic impact of EUR 195 billion and indirectly created 4.5 million jobs in 2014.
Facebook Spain’s director Irene Caro told Expansion that the company’s tax affairs were fully in accordance with existing legislation and that the aim of the study was to demonstrate Facebook’s economic impact and how it drives job creation. “Facebook serves to democratise the ability of small businesses to market their goods and services, helping them to connect with millions of potential customers,” she said.
What persuades an investor to write a check for an entrepreneur’s raw idea? We spoke with active angel investors and venture capitalists, as well as scouring the Web, to compile a list of some of the best startup pitches ever.
From those, we learned a few things to keep in mind if you want to make a great pitch.
If you don’t grab people within the first minute, they’re going to start checking their email.
Tell the story through the problem. It needs to be a story about problems and solutions.
Have a concrete business plan and drive home how you’re going to make money.
Know your material, and keep the energy up.
When pitching directly to an investor, make sure you say what you’re going to do with the money.
Finish strongly and sum up why someone should invest in the company.
By connecting institutions with the earliest-stage startups, AngelList is upending the system
One recent evening a group of institutional money managers was ushered into a backroom at San Francisco brasserie the Cavalier via an unmarked secret entrance that most customers would mistake for an emergency fire exit. Their host was Naval Ravikant, a wildly successful angel investor—Uber, Twitter, etc.—and serial entrepreneur who wanted to pitch them on his latest venture. Not by asking them to invest in it, but by asking them to invest through it. If enough of the money managers take him up on the offer, it could usher in an era of radical disruption in the world of angel investing.
That’s why we thought it would be useful to pinpoint the moments when the billionaire found himself at a crossroads and see which path he chose.
Here are nine of those critical turning points.
1988: Moving from South Africa to North America for college.
Musk grew up Pretoria, a city in South Africa. He stayed there until he was 17, when he was faced with the decision of whether to attend compulsory military service.
He chose to leave, heading to Canada to attend Queen’s University in Kingston, Ontario.
“I think South Africa is a great country,” he says of his homeland. However, “if you wanted to be close to the cutting edge, particularly in technology, you came to North America.”
From there he got even closer to the center of business, transferring to the Wharton School at the University of Pennsylvania, earning degrees in physics and business.
1995: Dropping out of Stanford University to “build the internet.”
After graduating from Penn, Musk was going to get thrown out of the country unless he got himself sorted out. So he did what anybody does in that situation – he studied applied physics at Stanford.
But he soon realized that the academic life wasn’t what he wanted.
“It got to the start of the quarter at Stanford, so I had to make a decision, and I decided to go on deferment,” he tells Foundation. “I figured if I start a company and it doesn’t work, then I can always go back and graduate school. So I talked to the chairman of the department and he let me go on deferment. I said I’d probably be back in six months, and he said he was probably never going to hear from me again. And he was correct. I’ve never spoken to him since.”
They began Zip2, a startup that helped provide online publishing for Knight-Ridder and other print publications.
“The initial idea was to create software that would help bring the media companies online,” he says. “So we helped, in a small way, bring companies like The New York Times, and so forth, online. They weren’t always online; people don’t realize that.”
Zip2 sold to AltaVista for $307 million in 1999.
Suddenly, Musk was rich.
1999: Immediately founding another company, X.com.
Musk got rich with the Zip2 acquisition.
But he wanted to have a bigger impact.
So he started in on another idea: taking financial services online in ways that banks wouldn’t imagine possible.
“The banks are terrible at innovation, and financial services is a huge sector, so I thought, ‘There should be something here,'” he tells Inc.
The idea resonated. Sequoia Capital led a $25 million dollar investment round on X.com.
2000: Joining forces with Peter Thiel and Max Levchin to ramp up PayPal.
As 1999 wore on, Musk reoriented X.com to doing strictly online payments.
This put him in direct competition with Confinity, a company run by Peter Thiel and Max Levchin. When Confinity released its PayPal product in late 1999, Musk was coming for them.
“So I went to the NASA website to see when we were going to Mars,” he said during a SXSW talk, “and I couldn’t find that out. I thought maybe it was there, but well hidden or something.”
His goal: to put a greenhouse on Mars. But he’d need a vehicle.
He went shopping in Russia.
“I went to Russia three times to try to buy a couple of their biggest ICBMs,” Musk said. “It was an interesting experience. I sort of got the feeling I could have bought the nuke, too, but I didn’t want to go there.”
But there was one problem. He couldn’t figure out the rockets.
“I was clueless,” he said. “I had no idea what the heck I was doing.”
In 2001, Musk gave a talk at Stanford about how humans could possibly deal with gravity on the planet Mars.
Struck by the clarity of his ideas, Martin Eberhard and Marc Tarpenning introduced themselves after his talk.
Three years later, they wrote to Musk about the fast, efficient electric car they were developing at their startup, Tesla Motors.
He took a meeting with them. With a few days convincing, he decided to lead the first round of financing. Musk would supply much of the coffers in Tesla’s fraught first few years, pouring in his “last $35 million” of cash.
2006: Helping to found SolarCity.
Not content with electric cars and space exploration, Musk decided to get into solar power, too.
In 2004, he was in an RV driving to Burning Man with his cousin Lyndon Rive.
Unlike with PayPal, Tesla, or SpaceX, Musk doesn’t run SolarCity, but its goals are characteristically ambitious.
“Our intent is to combine what we believe is fundamentally the best photovoltaic technology with massive economies of scale to achieve a breakthrough in the cost of solar power,” they wrote in a blog post.
2008: Taking over as Tesla CEO.
Eberhard and Musk had a constructive – and contentious – relationship from the start.
Jeff Novich provides a rare and honest introspective look into why his digital health startup Patient Communicator, a patient portal CRM for doctors ultimately failed.
My father is a primary care doctor. In 2009 he asked me to help build a product that would enable his patients to access him online rather than through the phone. Patient Communicator was basically a patient portal + CRM for doctors + practice management system and it completely transformed my father’s practice. (Read his profile in Forbes.) Then in January 2012, I was part of the first class at Blueprint Health, a healthcare tech incubator that was part of the Techstars network, and my co-founder Larry Cobrin and I spend the next 3 months trying to commercialize the product.
The sum total of our efforts – which included hundreds of cold-calls, tens of thousands of emails (I was invited to a “top 20 customers” dinner with TK from Tout), seminars, an appearance on FOX News Live, ads, reaching out to our personal networks as well as the Blueprint Health mentor network – was one paying doctor (who later went out of business) and a handshake deal to partner with a small 20-year-old EMR.
One of the outcomes of the 2008 global financial crisis was the “funding gap”. Banks were less willing to provide loans and investors moved capital into more stable platforms. In general, the market tolerated less risk.
In this new environment, raising capital became the greatest challenge for small and midsize businesses (SMBs). They needed new platforms. Enter crowdfunding.
While some players have been around since 2008, the huge crowdfunding wave crashed onto the market between 2012 and 2013, particularly in Europe and the U.S. As of April 2012, there were more than 450 crowdfunding websites worldwide.
Given the relatively recent arrival of the crowdfunding wave to the market, its future iterations will be interesting to follow.
Here are six waves to watch in crowdfunding.
1. Crowdfunding will continue to grow. Online crowdfunding platforms raised $2.7 billion in capital in 2012 with expectations that the number would reach $5 billion by 2013, according to a study from crowdfunding-focused research firm Massolution. And these figures will likely continue to rise.
The World Bank commissioned a study and estimated that by 2025, the global crowdfunding market potential could be between $90 billion and $96 billion.
“The best startups generally come from somebody needing to scratch an itch.” – Michael Arrington, TechCrunch founder and co-editor
If you’re an innovator or Entrepreneur, you don’t have to quite your day job.
You can innovate inside of a big corporation, too.
The question is, how can you launch a successful startup within an established business?
When most people think of start-ups, they think they have to launch startups outside of a big corporation or outside of an established business.
And for good reason.
Start-Ups Don’t Have to Die Inside of a Big Company
As a pattern, start-ups tend to die inside of a big corporation. The existing businesses tend to kill them off because they treat the start-up like a foreign body.
But that does not need to be the case.
In fact, start-ups and new business ventures are a necessary part of business growth.
The trick is to know how to survive and thrive as a startup inside of a big or established business.
In the book The Future of Management, Gary Hamel shares how IBM learned how to launch new business ventures and create new start-ups from the inside out .
The Story of IBM and How it Launched Successful Startups
Here is the story in a nutshell, according to Hamel …
IBM had a growth problem. After an exhaustive review, top business leaders on the review task force realized that the problem was systemic, it was not the fault of a single leader or individual, and they would need a systematic solution.
As a result, IBM created an Emerging Business Opportunities (EBO) campaign. It was a comprehensive system for identifying, staffing, funding, and tracking new business initiatives across IBM.
Within the first five years, out of 25 startups, 3 were bad bets, but the remaining 22 were delivering $15 billion in annual revenue.
Now that’s impressive!
What Did IBM Learn About Launching Startups Inside of a Big Company?
Of course there were a lot of challenges when it comes to doing startups inside of a big business.
Luckily, the business leaders at IBM were well aware of the potential challenges and they used some management innovation skills to create a better environment for startups and new business ventures.
Here is a summary of the key lessons learned:
To deal with the issue that no one “owns” new market space, IBM leaders orchestrated wide-ranging conversations aimed at identifying an initial portfolio of new business candidates. They also established a regular forum for identifying emerging opportunities by conducting regular conversations with IBM R&D leaders and with the executives who run IBM’s major divisions.
To avoid getting orphaned, each EBO was assigned to a “host” business unit that could contribute the most in terms of customer access and technical expertise.
To avoid getting staffed with second-string executive talent, IBM leaders gave enormous visibility at the top of the company, permission to pull in resources from across the IBM empire, freedom to defy conventional thinking, and the right to recruit their own team from IBM’s best and brightest.
To survive budget crunches, IBM leaders made investing in the EBOs a part of performance reviews and they tracked investment into each EBO.
To avoid death by measuring profits, IBM leaders focused on learnings accumulated, rather than profits generated.
Looking back, I can relate to many of the challenges I faced as part of starting startups inside of a big corporation. I can also see how some things were done well, and how other things could have been improved.
I think the most important insight though is this: It’s very easy to take start-up failure or success personally, when a lot of it really is a system issue.
You can work with the system, or against, the system, but in the ideal scenario you find a way to change the system so that it supports you and your startup success.
When it comes to change leadership and start-ups, what you don’t know can hurt you. On a good note, I’ve had the privilege to work with many of the best change artists in the world, and it’s an amazing journey of learning and growth. Many of the masters of change leadership draw from resources such as John Kotter (a professor at Harvard Business School and world-renowned change expert), work from VitalSmarts (such as Influencer: The New Science of Leading Change), Prosci (a learning center for change management), and SixBoxes (an approach for improving human performance).
I believe that as more Enterprises go digital and Agile, we will see a lot more growth and startup mentality changing what it means to be part of a company in today’s ever-changing world.