The concept of disruption may have been mangled and disfigured since it was first popularised by Clayton Christensen back in the 90s. But it remains a big worry on the minds of the world’s top bosses. While those who run big corporations wield great power, they are always at risk of being outclassed by a small, innovative and fast-moving competitor.
A FTSE 100 business is capable of achieving remarkable things at great scale, but with layer upon layer of management and lots of formal systems limiting how people behave, it’s a challenge to remain relevant – especially as we’re undergoing a period of profound technological change. What’s a business big cheese to do?
Well, some are going down the ‘Can’t beat them? Join them,’ route. Corporate venturing, where big firms invest in start-ups, usually in their own industry, is nothing new. But in the hope of learning more from their new partners many companies, including John Lewis, Barclays and British Airways are taking a more hands-on approach, in the form of so-called accelerators. These offer promising start-ups a combination of funding, mentoring and other support.
‘Engaging with some partners from not in the mainstream of automotive finance gives us an opportunity to [learn from] people who take things from a different perspective,’ says Mike Dennett, CEO of BMW Financial Services UK. The firm launched its first ‘innovation lab’ last year, inviting five financial technology (fintech) start-ups to spend 10 weeks working from its HQ and mentorship from its senior team.
‘Our industry has been pretty stable, both in terms of its business model but also process-wise for a number of years,’ says Dennett. ‘[But] we shouldn’t rest on our laurels. I think we should anticipate that something may come through soon and I’d rather be on the foot front and part of that than on the back foot having to react.’
Rather than building a scheme from scratch, the done thing in most cases is to bring in an expert to organise it for you. So the company got in touch with Stuart Marks, CEO and founder of ‘innovation specialists’ L Marks, which is behind John Lewis’s JLAB accelerator and Hangar51 by British Airways owner IAG, who put together the programme.
‘We went in quite gingerly not really knowing what to expect, but having had the demo day last week and coming to the end of where we've got to, it's surpassed all expectations really,’ says Dennett. ‘Not only did we come away with some great ideas from the five, we've also had a fantastic internal learning. We wanted to open our minds on how can we be more agile, how can we be faster to market, how can we think a bit differently. These start-ups have certainly helped us open our minds to that.’
A similar approach worked for Diageo. The drinks giant was approached by Shilen Patel and Frank Lampen, founders of innovation agency Indepedents United about the possibility of creating Distill Ventures, an accelerator that would invest in and mentor emerging brands.
‘It allows us to really stretch the breadth of our innovation as a company beyond the kinds of innovation that had been successful for us in the past,’ says James Ashall, innovation director in Diageo’s futures team. ‘It gave us another vehicle to access the right opportunities to deliver the breakthrough for the business and for the industry.’
Three years in and Ashall says they have a ‘thriving portfolio - the companies are performing really well, the metrics are strong.’ Start-ups it has backed include the Danish whisky brand Stauning, Australia’s Starwood whisky (pictured) and the non-alcoholic spirit Seedlip, which claims to be ‘Solving the dilemma of "What to drink when you’re not drinking".’
‘We’re taking learnings from them back into the organisation,’ Ashall says. ‘There are some exceptional things in terms of how some of these guys market their brands some of the activation they do and the innovative ways that they bring that to life that we use to inform the organisation.’
Done effectively, accelerators are a good way of bringing new ideas into an organisation and help it spot challenges on the horizon, but there are risks. Backing start-ups can be a risky business so it's wise to avoid piling huge amounts of cash into a venture. And if the accelerator isn't integrated well into your company there's a danger it just becomes an echo chamber.
5 tips for a successful corporate accelerator
Define your aims. Are you looking to invest in or acquire start-ups or just learn from them? Your scheme should be designed accordingly.
Make sure senior bosses are on board. ‘You need the freedom and the time to build and execute a programme like this, and that comes from having the right sponsorship, decision makers and funding, and the right commitment over the length of time to build these businesses,’ says Ashall.
Get help. Starting an accelerator from scratch with no expertise will be risky and time consuming. ‘The danger of doing it on our own would be that we would do it in the same way that we've done everything else,’ says Dennet.
Don’t be too hands off. Unless your main aim is simply to make a good financial return then you and your colleagues need to be spending a good chunk of time with the chosen start-ups. The five start-ups in BMW’s Innovation Lab were given an hour each week with a mentor in the company’s senior executive team.
But don’t smother the entrepreneurs either. ‘We are really clear that we're investing because we have believe in the entrepreneur and the founding team so the last thing we want to do is get in the way of them doing the stuff that caused us to have that belief in the first place,’ says Lampen. ‘What we do want to do is to help them be a better version of themselves, to help them, go faster’.