In this write up we will talk about why corporates need to innovate, why most of them of failing and need to startups and corporate start collaborating with each other for survival
Me the General Partner of Pitchworks VC Studio Gokul Rangarajan have started my career in working with large enterprises like HCL technologies, Network-18 and Caterpillar inc later moved out to having a long startup career with Freshworks, Bigbasket, Keka HR and now with as Venture Investor in GV. From a organised process driven environment to working in startup roller coaster amidst chaos and growth, raising $400 million as an investment relationship manager and also seeing IPOs and a exit, though both are really really contrasting environment I can say to there is a need for both the worlds to come together and form a hybrid model. My view has changed from how I have been viewing corporation, 10 years back to how I have been lately seeing it. Being in the VC circle for some time and seeing the with the birds eye view also tells me that there is a potential opportunity if the right recipes from both worlds combine together and amalgamate. This is the same case for my Venture Partner Sudharsan Srinivasan who have been in large corps like Landmark group and later contrastingly bootstrapped a AR VR agency startup, and an Gaming Studio later to partner with a Med-tech startup which later got sold to a listed corporation. He also feels though the startup world is largely exciting and promising growth, the most successful trait which leads to exit comes from the enterprise training and basic he had been through on th early days. His ability to deal with pressures situation and uncertainty has been groomed with the his entrepreneurial and startup life but he says he cannot visualize success without the the odds of not being groomed by both the environments.
On marking both of our journeys together with Pitchworks VC Studio on helping founder lunch and succeed and corporate innovate we can't stress the importance of combining the agility and innovation of startups with the resources, process and market access of established corporations.
At Pitchworks VC Studio, we've curated over 10+ startup events within enterprise environments, intentionally fostering an environment where diverse audiences seamlessly mingle and collaborate. Surprisingly, cultural interlock or shock has been conspicuously absent, We came to a conclusion that underscoring humanity's natural tendency to adapt and embrace new ideas. This adaptability has not only streamlined interactions but has also enriched the collaborative outcomes, driving innovation and forging enduring connections among participants.
Over coffee, my partner and I had a lively chat with the Chief Innovation Officer the one of the largest Healthcare brands in Asia, sharing data on the surprisingly vibrant atmosphere of our recent startup events pointing to some of the event held on his office. Between sips of coffee and a few humorous jabs at our inability to function without caffeine, we noted how even the shyest colleague seemed to blossom on stage—prompting the CIO's raised eyebrows and a quip about needing event-level enthusiasm in daily office sync-ups. As we exchanged takeaways, we couldn't help but laugh about the stark difference between "pitch-perfect" event dynamics and the Monday morning office blues, vowing to sprinkle a bit more startup magic into our daily routines. In the same lines we were discussing how employee retention also has a direct co relation on how the challenging the job can be and how on his or her belief and ability to contribute to an organised success. The reason how early stag startups are able to attract talent in a huge numbers is because of the challenges poised to employees and of-course the incentive too
At the end of the conversation the CIO asked us 3 questions which sparked us to write this blog. 1 Do my organisation need innovation ? 2 Even if I need Innovation why are so many other corporates of our size fail in innovation ? 3 How can I test it in most cost effective way ?
First let's address the Elephant in the room, is Innovation optional ?
Why Should Corporate Innovate Yes Indeed they should Innovate for the folllwoing reasons
Relevance for customers
Building Business Reslience
competitive advantage
Corporate innovation is essential for businesses striving to remain relevant and competitive in today's rapidly evolving market. By continuously developing new products, services, and processes, companies can better meet the changing needs and preferences of their customers. For instance, Apple's regular release of new iPhone models keeps them at the forefront of consumer technology, while Amazon's introduction of Prime services has revolutionized online shopping convenience. Statistics show that innovative companies are 2.5 times more likely to have high-performance outcomes compared to their peers.
This proactive approach not only helps in retaining existing customers but also attracts new ones, ensuring sustained growth and market presence. Furthermore, innovation fosters a culture of creativity and adaptability within organizations, enabling them to quickly respond to emerging trends and disruptions. In essence, corporate innovation is the driving force that keeps companies aligned with customer expectations, ultimately leading to long-term success and relevance.
Business Resilience
Building business resilience is paramount for companies looking to thrive amidst uncertainties and disruptions. Corporate innovation plays a crucial role in fostering this resilience by enabling businesses to adapt, evolve, and maintain continuity during challenging times. For instance, during the COVID-19 pandemic, many companies that swiftly innovated their business models, such as shifting to remote work or expanding e-commerce capabilities, managed to survive and even thrive. According to a McKinsey report, organizations that prioritize innovation are 30% more likely to be high-growth companies. Innovation not only helps in developing new revenue streams but also in creating more efficient processes and resilient supply chains. This agility allows companies to quickly pivot in response to market changes, ensuring they can weather economic downturns, technological disruptions, and other unforeseen challenges. Therefore, corporate innovation is not just a strategy for growth but a vital component of building a robust and resilient business capable of sustaining long-term success.
Competitive Advantage
Corporate innovation is a powerful driver of competitive advantage, enabling companies to distinguish themselves in crowded markets. By fostering a culture of continuous improvement and creativity, businesses can develop unique products, services, and customer experiences that set them apart from competitors. For example, companies like Tesla have leveraged innovation to revolutionize the automotive industry with electric vehicles and autonomous driving technology, capturing significant market share. Statistics reveal that companies investing in innovation are 50% more likely to report growth in market share compared to those that do not. Additionally, a Boston Consulting Group study found that the most innovative companies outperform their peers in terms of revenue growth and shareholder returns by up to 2.6 times. Through innovation, businesses can anticipate market trends, meet evolving customer needs, and create barriers to entry for competitors, thereby securing a lasting competitive edge.
Lets look at some of the established companies innovated
The case of how Netflix beat its competitor with its business model innovation.
Netflix exemplifies corporate innovation and competitive success through its transition from a DVD rental service to a leading streaming platform. By pioneering online streaming in 2007, Netflix disrupted traditional entertainment models, investing heavily in original content like "House of Cards" and "Stranger Things" to differentiate itself from competitors. This strategy not only increased subscriber loyalty but also attracted millions of new users globally. Continuous innovation in data analytics allowed Netflix to personalize recommendations, enhancing user experience and retention. As a result, Netflix has consistently stayed ahead of competitors like Hulu and Amazon Prime, maintaining its position as a dominant player in the entertainment industry.
Netflix outpaced Blockbuster by innovating its business model, transitioning from DVD rentals to a subscription-based service in 1999, and pioneering online streaming in 2007. This eliminated late fees and provided on-demand access to a vast library of content, enhancing convenience for customers. Additionally, Netflix invested heavily in original content and data analytics to personalize recommendations, creating a superior user experience. Blockbuster’s failure to adapt to these digital innovations and changing consumer preferences ultimately led to its downfall, while Netflix emerged as a leader in the entertainment industry.
Nike VS Adidas
Nike surpassed Adidas through relentless innovation across product design, digital engagement, and marketing strategies. By pioneering technologies like Air Max and Flyknit, establishing a robust digital ecosystem with personalized fitness apps, and leveraging high-profile athlete endorsements and culturally resonant campaigns like "Just Do It," Nike created a compelling brand identity that resonated globally.
This innovative approach not only differentiated Nike's offerings but also enhanced customer loyalty, market share, and cultural influence, outpacing Adidas in key markets and solidifying its leadership in the sportswear industry.
Nike’s innovation strategy focuses on product development and marketing. By leveraging cutting-edge technologies like Flyknit, which creates lightweight and sustainable footwear, Nike continuously sets new performance and sustainability standards in the athletic wear market. Collaborations with athletes and influencers amplify its brand appeal, while direct-to-consumer sales via digital platforms enhance customer engagement and data collection. These innovations enable Nike to anticipate market trends and consumer preferences better than competitors like Adidas and Under Armour, solidifying its market leadership and driving consistent revenue growth.
Philips Healthcare
Philips Healthcare is a notable example of a B2B health tech corporation that has driven innovation to maintain its competitive edge. By focusing on integrated solutions for healthcare providers, Philips has developed advanced medical imaging technologies, patient monitoring systems, and health informatics.
One of their key innovations is the IntelliVue Guardian Solution, which combines predictive analytics with patient monitoring to detect early signs of patient deterioration in hospitals. This technology enables healthcare providers to intervene proactively, improving patient outcomes and reducing hospital readmissions.
Philips' continuous investment in R&D and its ability to provide comprehensive, connected healthcare solutions have helped it stay ahead of competitors like GE Healthcare and Siemens Healthineers, solidifying its position as a leader in the health tech industry. Now that we know that innovation should be a centre piece of the any business
the next question to ask is, are corporate really struggling with Innovation problem ?
Lets look at numbers ?
Only 10% of Global 2000 Companies succeed with innovation programs despite significant investments (BCG, 2019).
70% of Executives believe their companies are not good at developing breakthrough innovations (McKinsey, 2019).
53% of Senior Leaders cite "organizational inertia" as a key barrier to innovation (Capgemini, 2018).
High Failure Rate: Only 6% of Fortune 500 companies are satisfied with their innovation performance, highlighting the difficulty in achieving successful innovation outcomes (Accenture, 2015).
Resource Allocation: Despite the critical need for innovation, only 10% of Global 2000 companies, including many in the Fortune 500, succeed with their innovation programs (BCG, 2019).
Why many established corporates are averse to any new ideas or innovation ?
It comes to lesser than 10 or less key points
Slow Decision-Making Processes: Hierarchies often lead to bureaucratic decision-making processes that can stifle innovation. According to a study by McKinsey, 94% of executives surveyed said they were dissatisfied with their firms' innovation performance, citing slow decision-making as a major barrier.
Lack of Incentive Insufficient rewards for employees who innovate in corporate settings can significantly impact motivation and morale. When innovative efforts go unrecognized, employees may feel undervalued, leading to decreased engagement and reduced willingness to contribute creatively in the future. This lack of recognition can also create a culture where employees are less likely to take risks or think outside the box, ultimately stifling innovation across the organization. Research shows that recognition and rewards are crucial for fostering innovation. For instance, a study by Gallup found that organizations with highly engaged employees are 21% more profitable, highlighting the importance of rewarding employee efforts. Top companies like Google and 3M have long understood this, implementing substantial rewards for innovation. Google’s "20% time" policy, where employees can spend 20% of their workweek on projects they’re passionate about, has led to the creation of successful products like Gmail. Similarly, 3M’s commitment to rewarding innovation is evident in their "15% rule," which encourages employees to spend 15% of their time on innovative projects, leading to groundbreaking products like the Post-it Note. Innovation requires dedicated time and resources. Overloaded teams or inadequate support structures can prevent innovative projects from gaining traction. Successful companies often allocate specific time for innovation, such as Google’s "20% time" initiative.
The wrong tools and Processes: Companies with a highly aligned business and innovation strategy experience a 30% higher growth in enterprise value compared to those without such alignment.
Aversion: Complex hierarchies tend to prioritize stability and risk aversion over experimentation and innovation. This can discourage employees from proposing and implementing new ideas. Research by Deloitte found that 84% of executives agree that innovation is important to their growth strategy, but only 6% are satisfied with their innovation performance.
Lack of Communication and Collaboration: Siloed departments and layers of management can hinder communication and collaboration across different parts of the organization. This fragmentation can prevent the cross-pollination of ideas necessary for innovative breakthroughs.
Resource Allocation Challenges: Limited resources and budget constraints can restrict the ability of innovative teams to pursue new ideas and initiatives. A PwC survey revealed that 54% of executives believe their organizations struggle to align their innovation strategy with their business strategy.
Resistance to Change: Established norms and traditions within hierarchies can create resistance to change, making it difficult to implement innovative ideas that challenge the status quo.
Fail to Meet Customer Needs : Innovations that fail to meet consumer demands can lead to significant losses. For instance, the "New Coke" formula was rejected by consumers, leading Coca-Cola to revert to its original recipe within 77 days
Startups are often seen as hotbeds of innovation due to their agility, risk-taking culture, and focus on disruptive technologies. Several statistics highlight the superior innovative capacity of startups compared to larger, more established corporations. For instance, a 2018 study by the National Bureau of Economic Research found that small firms produce 13 times more patents per employee than large firms, underscoring their prolific innovative output. Additionally, according to the Global Startup Ecosystem Report 2020, startups in the top 30 global ecosystems created $3.8 trillion in value, rivaling the GDP of major economies and demonstrating their significant impact on innovation and economic growth.
Furthermore, the Kauffman Foundation's research reveals that startups are responsible for nearly all net new job creation, indicating their role in driving economic and technological advancement. A report by CB Insights shows that 70% of startups pivot their original business plan, reflecting their flexibility and willingness to adapt and innovate in response to market demands. Lastly, according to a survey by Silicon Valley Bank, 79% of startup executives believe their companies are better at fostering innovation compared to larger firms. These statistics collectively underscore the dynamic and innovative nature of startups, highlighting their crucial role in advancing technology and economic progress.
But Startup founder do face different problems
Founders must juggle a multitude of responsibilities to mitigate expenses and drive their startups towards success. They need to hire and retain talent, manage payroll, and handle legal matters, all while taking care of daily administrative tasks. Networking and managing partnerships are crucial for growth, alongside ensuring customer success and providing support. Founders are also responsible for branding and dealing with co-founder conflicts, as well as navigating regulations and addressing technical debt. Their roles extend to investor relations, sales, quality assurance, and product development. Optimizing costs, raising funds, and employee training are equally important, with each task requiring careful attention to sustain the business.
The multifaceted nature of a founder's job demands adaptability and resilience. Statistics show that 23% of startups fail because they don't have the right team, highlighting the importance of hiring and retaining talent. Another 18% fail due to pricing and cost issues, emphasizing the need for cost optimization. Additionally, 14% of startups fail because they ignore customers, underscoring the significance of customer success. With 29% of startups failing due to running out of cash, efficient financial management, including fundraising and investor relations, is critical. Balancing these diverse roles is essential for navigating the complex startup landscape and achieving long-term success.
Is the Current venture model, Pushing the founders too much?
First-time founders face significant challenges, with only 18% of highly driven "super alpha" individuals achieving success. The mental health toll is severe, as 72% of founders struggle with mental health issues: 37% suffer from anxiety, 36% experience burnout, and 10% have panic attacks. Even a well-balanced three-member startup team often cannot fully manage the complexities of corporate governance, including admin, HR, regulation, finance, talent, marketing, distribution, sales, and growth. Additionally, 45% of founders do not pursue another startup after their initial failure, especially if it wasn't a notable one, and 20% take up to 18 months to recover from mental health issues. Having so many issues , what if both the world can start co creating with each other Startups benefit significantly from collaborations with established corporations. Here are some key advantages: Understanding the problem, establishing a clear structure, and following a defined process are crucial components for achieving success in any endeavor. A deep understanding of the problem ensures that efforts are focused on the right issues, while a well-thought-out structure provides a solid foundation for systematic progress. Adhering to a defined process ensures consistency and efficiency in tackling challenges. Additionally, mentorship and guidance play a pivotal role, offering invaluable insights, experience, and support that help navigate complexities and avoid common pitfalls. Together, these elements create a robust framework for achieving goals and driving innovation. Corporate-startup collaborations have become increasingly significant for driving innovation. According to a Sopra Steria report, 72% of European corporations engage in such collaborations, with two-thirds rating them as essential for their strategic goals. This trend has accelerated post-pandemic, as companies seek agile partners to maintain innovation amid economic uncertainties. Notably, 69% of corporations plan to collaborate with startups within the next 18 months, underscoring the importance of external innovation.
However, these partnerships come with challenges. Cultural differences between agile startups and bureaucratic corporations can lead to clashes in expectations and decision-making processes. Additionally, startups often face longer decision-making times and potential intellectual property risks when working with larger firms. Despite these obstacles, successful collaborations hinge on aligning strategic goals, fostering open communication, and setting clear, measurable objectives.
For instance, companies engaging in these collaborations report a 19% increase in sales and a 7% boost in customer engagement due to the innovative solutions developed through these partnerships. Additionally, these partnerships often lead to improved financial performance. For example, businesses that focus on collaborative innovation see a 29% increase in profits
Given example of startup Corporate Collaboration
Nest Labs, founded by Tony Fadell and Matt Rogers in 2010, focused on creating smart home devices such as thermostats and smoke detectors. Their innovative approach to home automation quickly caught the attention of Google, which saw potential in integrating Nest's technology into its ecosystem.
In 2014, Google acquired Nest Labs for $3.2 billion. This acquisition allowed Nest to leverage Google's resources, including its advanced technology infrastructure and vast user base, to further develop and distribute its products. On the other hand, Google gained access to Nest's cutting-edge smart home technology, enhancing its own offerings in the connected home space.
The collaboration between Nest Labs and Google demonstrated how a startup with innovative ideas can benefit from a partnership with a large corporate entity. It provided Nest with the resources and platform needed to scale its products globally, while Google expanded its capabilities in the burgeoning smart home market. This successful collaboration ultimately contributed to the advancement of smart home technology and improved user experiences in home automation. One notable example of successful collaboration between a startup and a corporate entity is the partnership between SpaceX and NASA. SpaceX, founded by Elon Musk in 2002, aimed to reduce the cost of space travel through innovative rocket technology. Their collaboration with NASA began with contracts to resupply the International Space Station (ISS) and evolved into a partnership to transport astronauts to and from the ISS using SpaceX's Crew Dragon spacecraft. This collaboration not only revitalized America's human spaceflight capabilities but also demonstrated how a startup can work with a government agency to achieve ambitious goals in space exploration, marking a significant milestone in the commercialisation of space travel.
Proteus Digital Health, a startup specializing in digital medicine and health monitoring, partnered with Otsuka Pharmaceutical a global pharmaceutical company, to develop a groundbreaking digital pill system. The system combines Proteus's ingestible sensor technology with Otsuka's medication to create a pill that, when swallowed, sends a signal to a wearable patch. This patch then transmits data to a mobile app, allowing patients and healthcare providers to track medication adherence and other health metrics in real time.
This collaboration exemplifies how a startup and a corporate entity can work together to innovate in healthcare. Proteus provided the innovative sensor technology, while Otsuka brought pharmaceutical expertise and resources to develop a novel solution that improves medication adherence and patient outcomes. This partnership has paved the way for advancements in digital therapeutics and personalized medicine, demonstrating the potential impact of collaborative efforts in the health tech industry.
Flatiron Health, a startup specializing in oncology-specific electronic health records and real-world evidence for cancer research, collaborated with Roche, a global pharmaceutical and diagnostics company. Roche acquired Flatiron Health in 2018, valuing the startup at $1.9 billion. This collaboration aimed to leverage Flatiron Health's data analytics capabilities and extensive oncology data set to accelerate Roche's research and development efforts in personalized medicine and oncology treatments.
In conclusion, the partnership between startups and corporate entities offers a powerful synergy that drives immediate impact, measurable return, low risk, and universal applicability. Startups bring innovation and agility, allowing for quick, transformative changes that large corporations can scale efficiently. These collaborations often yield measurable returns, as the innovative solutions introduced by startups can rapidly show improvements in processes, products, and customer satisfaction. Additionally, the support and resources provided by corporate partners mitigate risks for startups, creating a more secure environment for experimentation and growth. Finally, the universal applicability of such partnerships means they can thrive across various industries, from tech to healthcare, benefiting both startups and corporates while driving overall industry advancement.
About Pitchworks VC Studio and Enterprise At Pitchworks Corporate Innovation Program, we specialize in bridging the gap between corporate entities and startups, creating a collaborative environment where both can thrive. Our approach is structured yet flexible, focusing on identifying common ground to address pressing problems, uncover new opportunities, and establish long-term processes for sustained innovation. By leveraging the unique strengths of startups and the extensive resources of corporate partners, we facilitate impactful collaborations that drive significant, measurable improvements, and foster a culture of continuous innovation. We can detailed that out in another blog of our process works
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