9 min read

5 Steps for CEOs to Innovate Like a VC

Vijay Rajendran

Director of Innovation and Partnerships

Published

18.05.21

How future-focused are today’s business leaders? The cliche is that many are managing for the next quarter. Many spent 2020 managing for the next week as business continuity became paramount.

We believe 2021 and 2022 will be about getting back to growth, but the future will not look like the past.  In our opinion, the old tools of strategy will not suffice and the strategic playbook will not be found by following some 2×2 diagram “up and to the right.” Instead of strategic choices being about choosing what to do at the exclusion of other things, we believe a portfolio approach will be necessary. In an age of uncertainty, we expect leaders will increasingly need to say “Yes, and” rather than “No.” We expect they will need to think about a multitude of bets for a set of possible futures and will need to innovate like a VC– and Venture Capital (VC) firms like ours live in the future. We believe that others should place bets in similar ways to ready themselves for the future.

This does not mean these choices are free – we believe they require the management of financial resources and financial returns. As Jeff Bezos shared in a recent letter to shareholders, “Most large organizations embrace the idea of invention but are not willing to suffer the string of failed experiments necessary to get there”.  Amazon likely runs thousands of experiments a year, some big and some small, but all are about testing and learning quickly and implementing new improvements, investing, or creating new business with a north star of optimal customer experience in mind. In our opinion, the key to this is portfolio construction: determining the number of projects, internal ventures and capital necessary to set aside and invest in future sources of growth. Portfolios also likely need to be pruned, so we view killing off old projects and investment areas that have not produced results as a healthy phenomenon and a sign of success. Two examples come to mind: Alphabet was able to buy-to-build in the way that it has acquired businesses like Waze and Android to make search, mobile and maps better and in time built new AI-driven moonshot businesses like Waymo. Or take Siemens which has created the independent Next47 unit that invests, partners, and accelerates new businesses to create opportunities for the future of the organization.

The pandemic we are hoping to soon put behind us will leave us with a different world. That world will be the product of the headwinds of the last year. The global financial crisis brought the global economy to its knees and impacted the lives of millions in ways that may have been more severe than the economic impact of Covid-19. As our managing partner Tony Wang has observed, the aftermath of the Global Financial Crisis of 2008,  included a period of historic growth in technology and startup activity over the last decade. We believe we are at a similar moment today and some industries will likely fast forward to the future while others are on pause. We think businesses will need to adjust to a different rate of change. That change of business processes, product development, or business model reinvention has been commonly understood as innovation. As it is commonly practiced today, we believe corporate innovation is not adequate. In 2021, corporate innovation has to change and be replaced with new approaches. These include tools to build new ventures, buy new businesses, partner with a consortium of other firms and invest in startups. In our opinion, these tools need to emerge from the sidelines and now be central business activities that help enterprises move faster. It deserves more top management attention than ever before. Efforts at digitalization were often about mobile UX and migrating data to the cloud. The easy work has been done. New challenges now lie ahead.

How does one get started on a path to these future outcomes?  Our global corporate growth team at 500 has worked with many senior leaders to think about this and show them our “5 Steps to Innovate like a VC”. 

 

Here are the 5 Steps to Innovate like a VC:

  1. Investment thesis: Have insights; Know something others don’t

    For one information services company that sees the population aging and increased spending on health care, they are looking for new startup partnerships as a way to invest in and build valuable new businesses around healthcare data and AI.
  2. Portfolio approach: Make many bets (build, buy, partner, and invest in new businesses)

    CEOs and their teams now need to understand how to build a portfolio or activities for the decade ahead and allocate capital like venture capitalists. Part of the CEOs role is to allocate capital and so the VC metaphor is apt.

  3. Pipeline: Have great deal flow

    One major tire company not knowing when the future of autonomous fleets will arrive started reimagining and retooling their services arm as a way to provide future services to this future customer segment. Goldman Sachs has made a series of acquisitions like Bond and Folio and partnerships with Stripe and others to create a technology platform to serve its customers.

  4. Unfair advantage: Create Competitive Advantage and reduce market risk

    At 500 we recommend that CEOs create ways to increase the impact of “inside-out” innovation activities. We believe they should deliver value to the startups they partner or invest in, in terms of what they need. This includes helping them get to distribution or scale to new markets. That might mean starting small. For example, developing in areas where others are not and running experiments like POCs and pilots and reducing risk. Last year, corporates invested in 3,450 deals worth an estimated $128.56bn of capital. This was a modest increase on a year-on-year basis (5%) according to GCV Analytics from 2019, but how many helped their portfolio companies to be more competitive?

  5. Exit: timing a financial return or transforming the growth story of the business

    From a 500 Global survey last year on “The Future of Innovation”, 4 out of 5 companies polled said that the events of 2020 have impacted their innovation process. What are they looking for? More than 80% of the companies polled expect to measure success in innovation as coming from new revenue and growth above all other metrics. What’s stopping them? They tell us that  Internal Team Agility (i.e. speed to action) represents the greatest innovation challenge for large organizations. Startup collaborations are the solution. Startups fundamentally move fast.

    We believe business strategy itself has to evolve. In 2002 Henry Chesbrough observed in his book “Open Innovation” that activities like creating startups and venture capital investing were like “playing poker” whereas closed innovation like traditional R&D was like “playing chess” where the moves are more obvious and clear. Nearly two decades later, it is our opinion that there is still too much-closed innovation in the corporate world. We view this as a luxury that few can afford. It appears to us that the current uncertainty and increasing rate of change have us all acting like entrepreneurs and now building future businesses under a veil of uncertainty whether we know it or not. We expect it is time to learn the principles of poker and operate with more improvisation rather than clear rule-based strategies as in chess. We think all business leaders, but especially CEOs, need to be more creative and agile in playing the hand we have been dealt these days and start innovating like VC to get back to growth.

Want to learn more about how 500 partners with corporate leaders to identify and create new growth opportunities? Get in touch: ecosystems@500.co

—-

Vijay Rajendran is head of the global corporate growth group at 500 Global. He is the former head of venture design for global bank BBVA and the founder of startups in the fintech and e-commerce industries. Our team at 500 Global helps the world’s most promising startups partner with major corporations that want to invest, craft new partnerships and create their future growth areas.

1.  Amazon Letter to Shareholders 2016
2. CNBC How Google’s parent company is paving the way to become a transportation giant through deals and internal projects 2018
3. Siemens next47: Siemens founds separate unit for startups 2016
4. DW Coronavirus shock vs. global financial crisis — the worse economic disaster? 2020
5. CB Insights Goldman Sachs Strategy Teardown 2017
6. Global Corporate Venturing GCV Analytics Q4 2020
7. This data is based on data from 82 responses to 500 Global ’ “The Future of Innovation” survey as of [May 12, 2021]. No representations are made as to the accuracy of the information and while reasonable steps may be taken to ensure that the information is accurate and up-to-date, no liability can be accepted for errors or omissions. This data is provided for educational or informational purposes only. Further details on methodology can be obtained from the 500 Global Data Team.

500 GLOBAL PROGRAMS, INVESTOR EDUCATION SERVICES, STRATEGIC PARTNERSHIP CONSULTING SERVICES, AND EVENTS ARE OPERATED BY 500 GLOBAL INCUBATOR, L.L.C. (TOGETHER WITH ITS AFFILIATES, “500 GLOBAL”) AND THE FUNDS ADVISED BY 500 GLOBAL MANAGEMENT COMPANY, L.L.C. DO NOT PARTICIPATE IN ANY REVENUE GENERATED BY THESE ACTIVITIES.  SUCH PROGRAMS AND SERVICES ARE PROVIDED FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY AND UNDER NO CIRCUMSTANCES SHOULD ANY CONTENT PROVIDED AS PART OF ANY SUCH PROGRAMS, SERVICES OR EVENTS BE CONSTRUED AS INVESTMENT, LEGAL, TAX, OR ACCOUNTING ADVICE BY 500 GLOBAL OR ANY OF ITS AFFILIATES.

THIS POST IS INTENDED SOLELY TO PROVIDE INFORMATION REGARDING 500 GLOBAL. ALL CONTENT PROVIDED IN THIS POST IS PROVIDED FOR GENERAL INFORMATIONAL OR EDUCATIONAL PURPOSES ONLY.  500 GLOBAL MAKE NO REPRESENTATIONS AS TO THE ACCURACY OF INFORMATION CONTAINED IN THIS POST AND WHILE 500 GLOBAL HAS TAKEN REASONABLE STEPS TO ENSURE THAT THE INFORMATION CONTAINED HEREIN  IS ACCURATE AND UP-TO-DATE, NO LIABILITY CAN BE ACCEPTED FOR ANY ERROR OR OMISSIONS.

UNDER NO CIRCUMSTANCES SHOULD ANY INFORMATION OR CONTENT IN THIS POST BE CONSIDERED AS AN OFFER TO SELL OR SOLICITATION OF INTEREST TO PURCHASE ANY SECURITIES. FURTHER, NO CONTENT OR INFORMATION CONTAINED IN THIS POST IS OR IS INTENDED AS AN OFFER TO PROVIDE ANY INVESTMENT ADVISORY SERVICE OR FINANCIAL ADVICE BY 500 GLOBAL. UNDER NO CIRCUMSTANCES SHOULD ANYTHING HEREIN BE CONSTRUED AS FUND MARKETING MATERIALS BY PROSPECTIVE INVESTORS CONSIDERING AN INVESTMENT INTO ANY 500 GLOBAL INVESTMENT FUND.

Vijay Rajendran

Director of Innovation and Partnerships

Vijay Rajendran is the Director of Innovation and Partnerships at 500 where he helps the world's most promising startups connect with innovative large enterprises that want to see what's out there in the venture ecosystem, navigate new partnerships, and make new VC investments.

Recent news & articles

See all articles →
Republic’s Kendrick Nguyen on Democratizing Investing

Republic’s Kendrick Nguyen on Democratizing Investing

On December 2, 2021, 500 Global is convening the global venture capital community in Miami to its PreMoney 2021 conference for an interactive experience at the nexus of culture, technology, investment and global finance.
Read more →
Rosetta.ai Wants to Give Fashion Retailers a Boost with AI-Enabled E-Commerce Tools
AI
7 min read

Rosetta.ai Wants to Give Fashion Retailers a Boost with AI-Enabled E-Commerce Tools

As fashion e-commerce grows, it is important for brands to lean into online sales and create engaging shopping experiences.
Read more →
Leveling the Playing Field for Low Wage Workers
Reskilling
6 min read

Leveling the Playing Field for Low Wage Workers

Employers have clocked out on workforce investment by continuing to invest in outdated technology solutions for a workforce that has been changing rapidly.
Read more →
Clockster Is Creating Affordable HR Tech Solutions for SMEs and Service Industry Players in Asia
hrtech
7 min read

Clockster Is Creating Affordable HR Tech Solutions for SMEs and Service Industry Players in Asia

We’re seeing an opportunity for innovative HR tech in markets far and wide, as many companies globally still lack access to digital tools for HR and hiring.
Read more →