By Paul Greenall, Sara Smoler, and Griffin Olmstead
Capturing the disruptive innovation that smaller startups often achieve can prove difficult for ... [+]
Enterprises and startups need each other. Enterprises control vast resources and infrastructure that make them indispensable customers, partners, or investors. Startups drive disruptive innovation that enterprises must harness to maintain market leadership—or else suffer a tragic fall when the disruptor remakes the market.
Most large companies try to capture startups’ value by acquiring them after they’re operating profitably. But this capital-intensive approach doesn’t create lasting competitive advantage. By the time a startup puts itself on the auctioneer’s block, its long-term synergy value is baked into its price, its fundamental orientation will have shifted from innovation to operational efficiency, and its business model will be well-enough understood that large competitors can quickly catch up or leapfrog.
To drive uncommon growth in today’s rapidly shifting markets, Fortune 500 leaders need a human-led model of corporate development that treats startups as allies in perfecting and scaling disruptive innovation. Companies that succeed will become the indispensable allies of innovative startups and drive disproportionate value for themselves and their entrepreneurial partners.
To drive uncommon growth in today’s rapidly shifting markets, Fortune 500 leaders need a human-led model of corporate development that treats startups as allies in perfecting and scaling disruptive innovation.
Five Strategies for Successful Corp Dev-Based Innovation
Five parallel moves will unlock uncommon growth by making your enterprise a high-performing ally to innovative startups.
1) Build Your Target Search on a Future-Back Strategy
The most successful M&A moves deliver growth the market doesn’t already expect and hasn’t yet factored into your share price. But finding the next successful disruptor in your industry requires looking far into the future to understand the fundamental forces driving change, key uncertainties, and future competitive landscape, developed backwards into the strategic moves you need to make today.
A future-back strategy will help you find the right innovators before they’ve optimized for sale and become a commodity. It will also shift your executives’ time horizon expectations outwards, unshackling creativity from the quarterly earnings cycle and giving your startup partners the space to create new sources of value across your organization.
2) Develop Long-Term Relationships that Make Every Asset Actionable
Proliferating targets and shifting, fragmented value chains offer opportunities to acquire disruptive businesses early. But banker-led searches aren’t in tune with early disruptive startups. They don’t find these early-stage opportunities because the founders haven’t raised enough to generate significant commissions or haven’t moved to hire a sell-side advisor.
Uncommon growth requires looking beyond assets known to be on the block, developing valuable relationships over time, whether as a customer, strategic partner, investor, or acquirer. Early- and mid-stage founders will appreciate your flexible approach to creating value together, building the trust you need to execute market-making deals before your competitors are looking.
Finding the next successful disruptor in your industry requires looking far into the future to understand the fundamental forces driving change, key uncertainties and future competitive landscape, developed backwards into the strategic moves you need to make today.
Enabling successful M&A strategies requires communication between leaders and a clear and creative ... [+]
3) Build Your Brand as a Desirable Buyer
Founders have plenty of options to raise new rounds or accept unconventional buyers: global venture activity has hit several years of new records, fueled by the rise of hedge funds, PE firms, corporate investors, and “crossover” public-private investors. While ongoing interest rate hikes and market volatility threaten the volume of venture capital deals, founders will continue to benefit from the wide variety of capital sources and “off the balance sheet” value developed during the recent boom.
To close the best deals today, you need more than money. You need to offer unique value in your term sheet and maintain a reputation as a company worthy of collaboration. If you do, you can get ahead of the investment banking cycle to drive more efficient and more strategic corporate development.
4) Harmonize the DNA, Mind, Body and Soul of the Combined Organization
Truly innovative founders usually want more than just a return; they’re in business as a creative outlet, a personal challenge, or a mission to change the world. To convince them to sell to you and get the best out of them and their teams, your company needs to help them achieve their personal—not just financial—goals.
In this respect, companies are like people. They have DNA, a mind, a body and a soul. To retain top startup talent, motivate the new organization, and maximize enterprise value, M&A and strategic partnership activity must build intentionally towards human-centered, post-deal integration.
To close the best deals today, you need more than money. You need to offer unique value in your term sheet and maintain a reputation as a company worthy of collaboration. If you do, you can get ahead of the investment banking cycle to drive more efficient and more strategic corporate development.
ZURICH, SWITZERLAND - MAY 11, 2011: Niklas Zennstrom, Skype Co-Founder, speaks at Venturelabs, a ... [+]
5) Prioritize Creating Net New Value for Customers
While most M&A activity pursues cost take-out and synergies with existing businesses, it often under-delivers net new value made possible by the combined organizations’ unique capabilities. This makes sense: none of the new organizations’ leaders will have experience maximizing the combined capabilities of both firms. But it demands extra attention to both the pre-deal modeling and post-deal execution of innovation and new value creation.
To deliver value beyond the expected, you must do the unexpected. And that means translating idealistic post-deal visions into operating models that refocus your enterprise on new types of value for customers. In doing so, you’ll deploy enterprise assets in new, creative ways alongside the flexibility and risk-tolerance of your new startup partners.
Final Thoughts
Corporate development-led innovation must harness the transparency, flexibility, and pace of the modern market. With a long-term, human-led mindset, corporate leaders like you can consummate startup relationships that drive innovation, adapt to digital disruption, and create outsized value for your organization.
With a long-term, human-led mindset, corporate leaders like you can consummate startup relationships that drive innovation, adapt to digital disruption, and create outsized value for your organization.
Paul Greenall is chief strategy officer at Prophet. A growth strategist with strong expertise in increasing enterprise values, he uses his corporate development skills to steer clients toward uncommon growth. Paul’s high- energy consulting approach includes focusing on what matters most in transformations–the importance of aligning Executive teams and building great talent. He has worked closely on dozens of merger-and-acquisition transactions, concentrating on healthcare and operations. Before joining Prophet, he held senior executive roles in enterprise strategy and corporate development at McKesson and EY.
Sara Smoler (CBS ’21) is a consultant at Prophet, a growth and transformation consultancy. A graduate of Columbia Business School, she has spent time in consumer-focused technology-rich environments, at Shiseido and Gucci. Prior to her MBA, Sara managed Business Development at Ogilvy. Sara was included on the Forbes 30 Under 30 List for Marketing & Advertising professionals in 2019. She serves on the Columbia Business School Young Alumni Board and is involved in the Michael J. Fox Foundation’s Young Professionals Board.
Griffin Olmstead is an Engagement Manager at Prophet and brings a pragmatic, human-centered approach to designing and building businesses. Most recently, he has led Prophet teams to drive strategic investments and partnerships between a F50 client and disruptive startups. Building on his background in digital and business innovation, he leads teams towards insights that are both profound and useful. Before joining Prophet, he led business strategy projects for digital agency Huge.
