Startups are the new corporates, and corporations know it.
The average age of an S&P company today is under 20 years, down from 60 years in the 1950s. More than 50 percent of the S&P 500 has disappeared in the last 15 years.
Corporate life cycles are becoming compressed. Competitive margins, efficient operations and talented employees aren’t enough to ensure the future. These days, sustainability demands groundbreaking products, new lines of businesses, entries into whole new markets and exits from declining ones.
More than ever, corporate innovation is the hallmark of companies that endure. The strategy of innovation isn’t new, but the approaches have changed.
Here are three ways corporations are tapping into the forces of external entrepreneurship as a creative and productive strategy for sustainable growth.
Corporates team up with startups in joint development, exchanging industry expertise and customer experience, and even providing capital. This is a modern twist on the “skunk works” approach to innovation. Rather than sending stealth teams of employees off to work on ideas outside the day-to-day restrictions and practices of the firm, corporations are identifying and investing in solutions being developed by startup companies.
Potential advantages include speed to market, breakthrough technology and greater creativity fostered by more diversified teams. Additionally, instead of skunk works separation from the business unit, joint development projects between startups and corporates create deeper ties, leading to stronger needs identification and market validation.
Corporates adopt the innovation methods of universities and research institutions to put their corporate intellectual property to work. Certainly there may be competitive reasons to leave some unused IP in the vault, but far-sighted corporations periodically assess their stores of IP with the goal of spinning out new technologies into startup businesses with the potential to redefine industries and gain entrance to untapped markets serving customers in novel new ways.
Corporate venture funds identify transformative technologies and solutions that can reinvent companies and even whole industries. It takes ready capital, connections and C-level commitment to create the momentum to identify and vet external, investable, high-growth opportunities. CEOs set the pace.
Recently, Forbes named Columbus one of the Top 10 Rising Cities for Startups. It is because Central Ohio has become a nationally recognized hub for startup opportunity. And that’s because CEOs and other senior leaders of our region’s forward-thinking corporations are stepping out and stepping up to build, buy and invest in startups with disruptive technologies.
Early stage investors believe deeply that with the right support and capital, entrepreneurs can (and will) grow our portfolio companies into sustainable firms. These young firms can be the way for corporations to grow share in their traditional markets, break into new markets or reinvent themselves entirely.
After all, startups are the new corporates.
Tom Walker is president and CEO of Rev1 Ventures, where he has built an experienced team that has invested in more than 100 companies in the past five years and secured $90 million in capital to support their growth. Tom has been helping entrepreneurs build great companies for most of his career. He’s formed multiple venture capital funds, founded angel groups and is an active angel investor. He is also the author of “The Entrepreneur’s Path: A Handbook for High-Growth Companies.” You can reach him at [email protected].