Large organizations excel at delivering on core offerings, but often struggle at hunting for the next idea that can drive billions in revenue. According to Alex Osterwalder, the companies that are most successful at innovation focus on creating a steady pipeline of ideas — instead of making big investments in a few projects.

He points to the venture capital world as an example. “Every venture capital fund has a portfolio, and it’s always one to two companies that return the entire fund… So they’ll always have between eight and nine losers…some complete failures, some small wins,” said the creator of the Business Model Canvas and author of the book The Invincible Company.

In fact, according to Osterwalder, roughly one out of 250 early-stage venture investments produces a 50X return on capital. “If you look at the wins that corporations require, in the hundreds of millions or billions of dollars — a 50 times return is actually not going to do it,” he said. “So that means you need a portfolio…of at least 250 projects, and then you need to kill them very quickly after three months if they’re not providing the evidence.”

Osterwalder shared his insights on building an innovation portfolio during a conversation held on the Clubhouse app. You can follow the club to participate in future conversations live.

Weathering the COVID Recession

Early in the pandemic, many organizations looked for ways to reduce costs — leaving innovation teams to fight for budget or take a fine-toothed comb to their spending.

“Every company does a very similar sort of dance. The very first thing you do: You focus on everything that’s completely short term. … Inevitably, that leads you into a price game,” said Boris Pluskowski, Managing Director and Head of Silicon Valley Bank’s Innovation Next program. “Price games never seem to last long, because it’s just a really quick route to the bottom. And very quickly, you suddenly realize that innovation…and differentiating [the company] is the only way to really survive.”

Pluskowski opined that this cycle of cost-cutting followed by reinvesting in innovation tends to last around 18 months.

Alex Sion, Head of Venture Incubation at Citi Ventures, agreed with Pluskowski’s assertion. However, Sion suggested that reinvesting in innovation can take even longer — somewhere between 24 and 48 months. That lost time, Sion said, can be expensive. “You pay for slowness these days,” Sion says. “The cost of slowness, and not being able to run in parallel or…learn is getting increasingly high.”

Companies with an eye on the future have continued to invest heavily during the pandemic, according to Osterwalder, and “aren’t holding back.” 

With vaccine distribution underway, an economic bounce-back looks likely, Pluskowski said, so innovation teams are caught in a waiting game. “The economy was always going to bounce back,” he said. “It’s just a question of how long you need to last until you get there.”

Startups vs Big Companies: Who’s More Equipped to Bring Breakthroughs to Life?

“Right now, I think the startup ecosystem is much better equipped to create breakthrough innovations. But that won’t last, is my prediction,” Osterwalder said. Osterwalder suggested that some corporates will find ways to compete successfully, leveraging their loyal customer bases and access to resources.

“When that magic happens, when the board and the senior leadership is committed… These [companies] become unstoppable innovation machines,” Osterwalder said. “That’s one of the reasons why Amazon today has 1.5 million employees and is a disruption powerhouse.”

However, at times funding can feel like more of a challenge inside a corporation, compared to the outside entrepreneurial realm. “Inside companies, there’s a finite number of people you can go to for funding right,” said Innovation Leader CEO Scott Kirsner. “[In startups], you go to a sovereign wealth fund. You go to an angel investor… There’s always another person to just seek capital from. So I feel like that enables a set of high-risk startups and ideas to survive in the true startup world that likely don’t survive in the corporate world.”

Pluskowski recommended that large companies capitalize on breakthroughs from startups through partnerships. “You’re starting to see now [that] startups [will] focus on the very earliest stages of finding product market fit, essentially showing that the concept has some value. And then, they’ll sell to a corporate who has the ability to then scale the hell out of that afterwards,” he said.

Insights from the Audience

Innovators with experience at W.L. Gore, the Olympics, Lego, and Siemens Healthcare shared their approaches to innovation during the Clubhouse session. See their thoughts below.

Relationships Drive Innovation. At W.L. Gore, there are no bosses or stringent hierarchy; instead the organization has adopted a lattice structure. Linda Elkins, Head of Gore’s Innovation Center in Silicon Valley, said this structure enables people to “be front end innovators and create ideas,” and then pitch them to division leaders. “How you build relationships in the company [is] hugely valuable,” she said. “Most people take the time to establish [them], which really has a benefit.”

Innovating with Customers. Today, Lars Silberbauer is the Global Head of Brand, Marketing, and Digital at the Olympics. During his seven-year stint at Lego, Silberbauer noted that the biggest innovations were developed in partnership with Lego lovers. “We needed to…try to build that mutual relationship between the company and the fans,” he said. “The company needs to collaborate with the fans…to make [innovation] scale.”

On Budgets. During a conversation on budgeting for innovation, author and consultant David Bland suggested that teams adopt a metered funding model. He suggested creating several smaller teams and having them share experiments and their outcomes to an internal committee: “Here’s the evidence we generated. Do we pivot, persevere, kill this opportunity?” Bland said. He added the committee can then grant funds to continue promising projects.

Incentivizing Innovation. When it comes to incentivizing innovation, Anupendra Sharma suggested giving teams a set amount of money that they must invest in venture capital, spinning out a company, or pursuing new ideas. The money is not tied to hitting revenue targets and “will be penalized” if it sits unused, said the former Global VP of Growth & BD at Siemens Healthineers. 

Best Practices for Corporate Venture Capital Programs

Another way teams can partner with startups is through corporate venture capital programs.

Anupendra Sharma, former Global VP of Growth & BD at Siemens Healthineers, spent 12 years in corporate venture capital. For big companies like Siemens, Sharma said, keeping tabs on startups can be a challenge. Venture teams can run events to bring startups together and introduce the most promising ones to senior management.

“We were able to get them really focused on looking at companies. Do you want to partner with them? … Do we want to open a dialog with them?” Sharma said. “I certainly found that senior management was able to shift their mindset [about working with startups] and feel that we were a useful tool to them.”

Chris Varley, a Principal at Goodyear Ventures, runs the tire company’s one-year-old venture program. The goal of the fund, he said, is to find startups that align with Goodyear’s mobility and sustainability goals, as well as achieving financial returns. Varley said having a CEO to “keep feet to the fire” when it comes to meeting goals can help venture programs maintain support.

Varley noted that a year in, with three investments made, the program is starting to see wider support in the business. “Once they get used to the idea that there is a different way of doing things, and that it requires a different structure from the corporate mothership, and they see positive benefits back to the corporate mothership, they’re fully on board and supportive, and looking to see well, how else can we make this work even better?” He said.