If you’re a $100 billion consumer packaged goods company, with brands like Gerber, Hot Pockets, Nespresso, and Stouffer’s, how do you set up a new ventures group to successfully seek out new growth opportunities?
That’s the challenge faced by Doug Munk, the Senior Director of New Business Ventures for Nestlé USA.
In an interview, we spoke with Munk, a 20-year veteran of the company, about how his team works with business units, criteria for killing projects, and how the strategy has shifted over time. “The growth agenda in the past had us looking at new spaces like healthy snacking, where we didn’t necessarily have the capabilities, nor the brands, to a place now where we’re supporting our actual divisional categories and/or brands that we have, and the capabilities that we bring to bear.”
Excerpts from this interview appeared in our Q1 2024 research report, Driving Growth Through New Ventures and Corporate VC. A more in-depth Q&A is below.
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Thinking about the structure of your team — is it split into new ventures and core innovation? Or is it one team that all works on the same initiatives together?
It’s split. We don’t call it new ventures and others but, essentially, that’s what it is. The objectives of our team are first and foremost building the confidence and competence of our large marketing organization around the front end of innovation, which helps support building the innovation pipeline for their categories and brands. That covers everything from coffee creamers, frozen food, baking, and so on. It’s a new arm that isn’t new ventures focused, but it’s about solidifying the core.
We take more of a horizon two focus on transversal opportunities that are outside the core. How do you leverage those across other businesses or divisions? Or it may be taking a new category and adjacent category that we’d get into.
An example might be how our division or our company wins in shelf-stable meals. As we build a strategy around shelf stability, that would be the focus.
The new ventures piece, I’d say, is three-fold. One is around emerging growth territories that support our strategy within consumer packaged goods. So, we call that our incubation arm. That team is working on incubating new products, to get to a level of scale that we would then hand off to the division. What’s different about that, versus the core organization, is a lot of these food and beverages start with a very niche group, and you build that loyalty and awareness over some time.
We take emerging trend opportunities and new technology, and incubate that in the market over two to three years to hit a specific volume threshold, where we then hand it over to the divisions. That’s one core focus. The other is more horizon three [and] new business models. That’s looking at what are some of the capabilities we have, but what our other partner capabilities [may be, and] bring those together to get into new areas of growth outside of CPG.
We innovate differently than we have in the past, around both H1, H2, and H3, but really leveraging the wisdom of the crowd, starting with our people, but broadening outside of that to consumers as well as companies to make sure that we’re not ideating within our little silos.
How are you collaborating with existing business units at Nestlé?
The evolution of new business ventures started in 2017, when we actually moved from our headquarters back then in Glendale, California, out here to Arlington, Virginia. This was part of a larger transformation of the organization moving from one that was very much focused on driving efficiencies and scale, to creating a profit engine that would feed growth.
The growth agenda in the past had us looking at new spaces like healthy snacking, where we didn’t necessarily have the capabilities, nor the brands, to a place now where we’re supporting our actual divisional categories and/or brands that we have, and the capabilities that we bring to bear.
Therefore, the connection that we have with the divisions is extremely tight and connected, to ensure that everything we do is in support of our overall growth agenda and growth strategy, which is critical to get the traction that we need.
Is the funding model that helps get new ventures launched all funded directly by Nestlé? How do you evaluate new business ventures? What makes you sure that it might be a good thing to launch, and what are some examples?
A good amount of the investment is through R&D, which gets funneled globally. The hard work is really distilling down what you’re going to focus on. That’s a challenge that I’ve seen with a lot of organizations, including our own. We get excited about so many different spaces and territories. The first thing we’ve done, especially in the new business models, is just be extremely expansive. We had 80 different new business models that we could go after. We used our traditional model of just understanding what is the right opportunity to pursue in terms of size, price, and growth. Small opportunities are not ones that we typically prioritize. While things may be small now, there has to be a fundamental belief that this can achieve at least $100 million within the next four or five years.
While things may be small now, there has to be a fundamental belief that this can achieve at least $100 million within the next four or five years.
Financially, investment needs to happen now. We do a decent amount of work determining a path to profitability. In the early stages, you don’t have the benefit of scale, you don’t have the benefit of manufacturing. We do a pretty decent job of putting up a form of P&L to make sure that it is either neutral or accretive to our current profit position.
On top of that is the ability to win. We will look at what are the capabilities we bring to bear, whether it’s R&D know-how, whether it’s our brands, or other technical capabilities that give us a leg up in the marketplace. Finally, we will look at, is it a unique proposition? Are we providing something that has distinctive value over a competitor in the marketplace, where we believe either being first to market or having a patent to enable us to create our kind of first-mover advantage to generate that value?
Those are, I’d say, key pieces to distill it down to the common elements. There’s desirability, feasibility, and viability, which I’m sure you hear from everyone. Then, I’d say each of the ventures has its unique KPIs. What we’re looking at, in the world of personalized nutrition, and just bringing that example to life, we are creating delicious meals for consumers through our Stauffers Lean Cuisine brand.
We’ve designed some products that are designed for patients within hospitals, who have specific conditions — whether it’s diabetes, maybe they have heart conditions, or cancer patients — where they need to meet certain dietary or nutritional standards to support them. There’s a model by which some insurance companies will reimburse consumers for this, because it reduces their [costs] and the hospital’s costs, if someone’s following a diet to improve their lifestyle and improve their health.
That’s very different than the vending space…where we’ve been piloting at a Walmart and both also within our facility, a hot pizza vending machine under the DiGiorno brand. It’s a first-of-its-kind vending machine from a CPG company. We’ve leaned in, and there are some good market conditions to help provide that business case. That is a bit more quantitative. We look at how many pizzas consumers have per day in a Walmart. What is their willingness to pay? We’ll monitor different price points. Then, we’ll do the qualitative feedback and have consumer intercepts and just understand their liking or not.
[The goal] is to understand what is the size of the prize that we’re looking at, and are there learnings. [That] helps us modify or pivot from what we just piloted to the next phase.
Would share a little bit more about how your team as a whole is measured inside your organization? What metrics are you looking at? How are you delivering ROI to the business at large?
To me, the projected size of the prize and the new ideas generated are one of them. We have specific targets by 2026 that we need to achieve. We all track ourselves around that. As a new business ventures team, and the beauty of that is we have several different new business models within our team, we flex if needed.
Some of our incubation projects are already on the shelves of Publix, and then other ones are in the pilot stage. It’s more projections based on strong data and forecast inputs into that.
The second piece that we look at is servicing the divisions. We do surveys with our key leaders to make sure that we’re delivering their needs and expectations. There’s a certain amount of evaluation to make sure that, again, we’re in service to the divisions.
I’ve seen, in the past, other companies, including ours, where you operate in a bit of a silo. If you don’t have the divisional pull, it becomes really challenging to go past a year or two on new business ventures and sustain yourself. Outside of that, there’s also…how many experiments are we running per week and per month, just to drive the speed-to-learning mentality of it all. That’s just for us to try to ensure that we’re flexing a different muscle than what is typically done within the traditional business units. I’d say those are obviously the big ones that I also rely on, beyond key stakeholder surveys. I will send surveys out to the cross-functional teams and get a measurement against what we call our “ways of working,” which are more cultural. It’s not such an easy numbers as ROI, but we look at speed, agility, courage, and collaboration.
How many ventures have you guys launched at this point, and what is the timeline? How long on average does it take for them to go from ideation to launch?
I’d say on average, probably about six months for us… It’s probably twice as fast as our traditional methodologies to get out into the market. Some things, even in the new business model side, we try to get out even faster, because we’re just getting an MVP out there and just getting real quick, scrappy feedback. In six months, I want to say we’ve probably launched between 30 to 40 new ventures.
We have 20,000 employees within Nestlé USA [and we do crowdsourcing activities with them.] What I typically say [is that] most ideas, at least in the past, is 12 to 20 people in a room brainstorming with Post Its. So leveraging the collective wisdom of the organization is by far the biggest weapon that most companies have, and don’t take advantage of.
We do that, and we do that with our factory employees who are near and dear to the proximity of our products. An example of this is, at our Springville, Utah factory that does a lot of money in mac and cheese, one of the factory workers is super passionate about a specific spicy recipe for mac and cheese. While this is not a breakthrough, and we wouldn’t necessarily probably put it under the banner of a new venture, it was something that we wouldn’t have done historically. That idea was pulled forward by the president of the meals division and presented, honestly, within weeks to Walmart, and that’s launching within the next month or so.
That’s an example of a new venture that wouldn’t have happened without the platform that we’ve created internally. I do want to distinguish between that. If you take that out, we’ve probably launched you know, 15 new ventures over that time, but we’d like to give ourselves credit for more than that.
When you launch these ventures, ones that are more business model related, are they fully owned by Nestlé through and through, sold off, or operating as startups?
There are models by which we would externally incubate and take a minority stake and find other ways to be creative with the P&L. The reason why that might be surprising. Our CEO, who came on six years ago, has a very big ambition for this organization. He could have taken the company and said, “We’re going to continue to make the US market one that drives great profitability for the global market.”
He just saw a huge potential. He set out these ambitions around growth, and part of the strategy is around reimagining the base business, which is all about, how you continue to make Stouffer’s relevant for our next generation? This is about making sure that we support our core as best as we can. The second is around portfolio optimization. We’ve acquired the Starbucks business outside of their cafés, that’s now Nestlé’s, and then sold off other businesses that haven’t been profitable to us in the US, like confectionery and ice cream. The third one, as part of the strategy that he talks about, is around new business models. What he calls new innovation models.
It’s a core part of our strategy, and therefore the investment. He puts his money where his mouth is, and that’s part of the overarching Nestlé USA growth strategy. Long story short, we realize that, while it’s an investment upfront, there’s a firm belief that we need to do that to stay relevant with the next generation of consumers and create another 150-plus years for Nestlé USA to thrive.
After a year-and-a-half of making pivots, adjustments, and optimizing the product, we did not hit the threshold that we needed, so we killed it before our retailers did.
When you are deciding to kill ventures, what are some telltale signs that it needs to be done?
We’ve killed a lot. There’s been a bunch of failures along the way. We’ve generated north of $100 million of incremental top-line revenue. It more than offsets it by what we’ve been able to deliver. I wouldn’t say there’s a number. We have just been very diligent in that we are not like…a startup entrepreneur, where you will do anything to keep the business alive, because that’s what’s needed for them. For us, it’s about managing a portfolio.
It’s making smart business decisions around thinking we…should kill this because we could divert resources to better support something bigger.
In CPG, what the category owners in stores look at is, how many units are you selling, or how many dollars you selling per week. We had very definitive measures around that for a probiotic bar that we launched called GoodBe. After a year-and-a-half of making pivots, adjustments, and optimizing the product, we did not hit the threshold that we needed, so we killed it before our retailers did. A lot of that is around velocity, which is how big is your growth and path to profitability? Can we make it profitable?
It always comes down to those elements. That’s where we’ve been pretty brave and making those decisions to continually kill things.
What would you share as one best practice or a piece of advice that you would give to somebody else who’s working to build up a new venture capability inside of a large company?
It’s about understanding what it takes to build an ambidextrous organization. …Helping educate leadership about what this new organization is around, new business models, the different approaches, the different people, and the different KPIs, is critical. Different structures versus your base business are critical. Starting with the understanding that this can’t necessarily be embedded within an existing business unit, because the pressures of the day-to-day will eventually kill or collapse this.
When you’re talking about large organizations and not a founder-led company, you need to have this embedded within the organizational strategy. For me, I think it is both a competence and skill education around the continuous learning, pivot, scale type of model. Lean design like that, to me, is a full-on competence that doesn’t necessarily exist within our core. It has implications in many ways of how you need to operate, the culture you need to create, the people you need to bring in, and the leadership that’s needed.
