A previous blog discussed why every corporation needs a Shiva. In the exponential age, corporations are relentlessly confronted by the disruptive business models of unicorn entrepreneurs – entrepreneurs who build a business from startup to more than $1 billion in valuation. In fact, the length of stay in the Fortune 500 index has fallen from 61 years (1958) to 18 years (2011), and 52% of Fortune 500 corporations were no longer on the index since 2000. The pace is only picking up.
How can corporations fight back? How can corporations channel Shiva and build new unicorns as their old billion-dollar businesses are being destroyed?
Currently corporations acquire companies they think will add growth and value to the corporation. But about 70-80% of acquisitions fail. Another approach used by corporations is to acquire promising ventures to recruit the management team, but few have succeeded. Corporate venture capital funds have been useful in life sciences, but few corporations have built unicorns that way.
Corporations have also sought to use internally developed technologies and ideas. Few of these have resulted in unicorns because internal development gravitates toward fostering evolutionary, rather than revolutionary, businesses.
Silicon Valley offers a blueprint for spurring disruptive ventures, but incumbent corporations have not been able to truly embrace Silicon Valley strategies because destroying the old business is unnatural to corporate functioning and often goes against the interests of top executives. Some CEOs do it well, but they are a rarity. Another problem is the large percentage of failures in a typical venture capital portfolio and the risk from these failures to corporate careers.
A better solution might be the Corporate Silicon Valley Strategy – the Corporate Shiva. The strategy would combine the finance-smart secrets of unicorn-entrepreneurs and a corporate structure to disrupt themselves from within before someone else does it from the outside. One way to do this is by creating the Chief Venturing Officer (CVO) position in a way inherently different from a typical executive position. The CVO would blend the best of unicorn-entrepreneurs like Bezos and Musk with corporate strengths, but it does require major changes to how upper echelons function.
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The CVO strategy is based on an analysis of how 82 unicorn entrepreneurs and 40 mini-unicorn entrepreneurs built their ventures.[1] The central role of the CVO would be to seek opportunities in emerging trends, technologies, and industries that can disrupt the existing businesses of the corporation and make existing business models obsolete. This role contrasts with others in the corporation whose purpose is to protect and grow the existing businesses. Hence, the CVO and the other divisions of the corporation will have a contentious relationship. Getting the structure and incentives right is critical. Evolutionary innovations can be handled best by corporate R&D and corporate divisions, but they are not enough to propel revolutionary or disruptive innovations.
The CVO should not report to the CEO whose primary role is to protect and build the existing businesses. Destroying the corporation from within stands in stark contrast to this mission. Therefore, the CVO reports to a board committee. Such a structure is precisely the kind of hybrid executive role that can blend the best of corporate functioning and entrepreneurial venturing. It preserves the freedom to emulate the Silicon Valley approach of seeking ventures that can dominate emerging industries without concern for existing sacred cows and corporate politics.
The funding for the CVO’s office emulates the Silicon Valley angel model that finances pre-VC ventures in emerging trends. Silicon Valley dominates many emerging industries by launching multiple ventures with the potential to lead each industry. While it is difficult to predict the specific winners, launching multiple ventures improves the odds that the winners will be in Silicon Valley. It also fosters the ability to work with parallel ventures seeking domination in the same space without trying to pick a winner before there is any visibility in an emerging trend.
The CVO would be compensated based on a salary plus performance-based payment like partners in a VC firm. The directors of the corporation receive options in the ventures to sustain support of the CVO’s core tasks – build unicorns by attracting, developing, and financing entrepreneurs, including by bringing in venture capital for late-stage ventures. The way in which the CVO’s office is structured approximates the external market conditions experienced by high-growth entrepreneurs. The entrepreneurs can be employees or recruited individuals.
MY TAKE: Corporations have tried many approaches to addressing the increasing pace of innovative disruption, but the results speak for themselves – not much has worked. The solution may lie in recreating Silicon Valley in the corporation through the CVO position. In the exponential age, every corporation should have one.
This blog was written in collaboration with Dr. Stav Fainshmidt, Associate Professor of International Business at Ivey Business School, University of Western Ontario.
[1] Unicorn entrepreneurs built their companies from startup to more than $1 billion in valuation and sales (to ensure that the businesses are not just the result of inflated valuations), and mini-unicorn entrepreneurs are those who built to more than $100 million in sales but valuations were not available for these privately held companies.
