Why & How Corporates Should Build Startups Part 1: Why - The Bakery %

Why & How Corporates Should Build Startups Part 1: Why

Andrew Humphries

Growth, delivery and development are all key parts of a business’ strategy for success. However, with COVID-19, many of us have been thrown quite off course and have had to scrap the plans with which we started the year. This is certainly the case with businesses and markets around the world that have been severely disrupted by the global pandemic. From sudden shifts in consumer demands, to reprioritisation of needs and issues within the supply-chain, if you do not quickly adapt in response to COVID-19, your business could be in hot water.

Back in August The Bakery sent out a survey to our network of innovation leaders to understand how COVID-19 has impacted their business and their organisation’s innovation strategy. We found that an overwhelming majority of our network had to shift their focus from pre-existing projects towards new revenue streams amidst disruption to current models and markets. 

The Bakery are strong believers in the start-up way of working; this is even more pertinent in these uncertain times as it is crucial for large organisations (that are arguably slow-moving at times) to exploit new opportunities. A great way to do this is through creating their own startups. While we’ve touched on the topic of co-creation before, in response to our Corporate Innovators’ Survey we decided to open up the discussion around co-creation/venture building and host a webinar on Why and How Corporates Should Build Startups. 

The ‘why’

So why should a corporate try building their own startup rather than purely launching more products/services within existing brands? As mentioned, leveraging startup methods to take new propositions to market can be relatively fast. Beyond this, however, in order to best grow and uncover new revenue streams, corporations may want to target audience segments that don’t currently resonate with their existing portfolio brands, or even to venture into completely new markets for their business.

Case Studies

There are more corporate-born startups out there than you may realise. After identifying a potential growth area (either completely different to the space they currently sit in or complementary to it) large organisations have taken new products to market in the style of a startup. Tipi and Jaunt are great examples of corporate ventures that look and feel like a startup.

Tipi, for example, was launched by Quintain, a property development company. While Quintain’s offerings include residential development and a build-to-rent portfolio, Tipi offers a more radical take with their messaging entirely focused on rebelling against property ownership. A part of this message includes eliminating the hassle that renters often face by getting rid of deposit fees and enabling consumers to rent a lifestyle of sorts, as opposed to solely a place to live. Not only do their homes feature stylish furniture and state of the art appliances but their properties also come with a gym, a concierge, and even an events team. Identifying new and uncharted growth areas is a great starting point. Realising the potential of peer-to-peer car rentals, BGL launched Jaunt which offers short-term car insurance (that again, looks very much like a startup), enabling consumers to make their cars – a typically underused asset – available to rent. Both Tipi and Jaunt demonstrate how large corporations have created an independent and separately branded company that very much delivers a different message from the rest of the brands that sit within their portfolio. This in turn enables them to capture more market share from those who did not previously identify with their current brands. 

Over the past few years we’ve seen B2B and B2C startup brands successfully disrupt more ‘traditional’ brands created by corporations. Consumers are drawn to interacting and working with startups. Startups are smaller, more relatable, and often fuelled by compelling founders stories which are relevant to the company’s purpose/mission to the world. This authenticity associated with startups is a key part to the allure. Launching a startup enables large organisations to build a close community, creating meaningful and more loyal connections they may not have been able to before. Startups are also more reactionary. Through operating outside the larger organisation, leveraging the startup methodology and internal resources and expertise, corporate startups can rapidly test new models, benefit from a larger ecosystem of technologies and rapidly iterate.

Some early examples of corporate startups, such as Nespresso and Lexus, blazed a trail in this area and still provide us with good lessons for the corporates of today. Both of these brands and business models were a drastic departure from the brands synonymous with their parent companies. Nestlé’s Nescafé had a low margin retail model, whereas Nespresso sat on the other end of the spectrum with a high margin retail model. The purchase experience for both brands are very different. Who would’ve thought that Nescafé, a cheap, freeze-dried coffee found in supermarkets around the world, would be under the same parent company as Nespresso – a brand that thrives off the consumerisation of high-end, premium coffee with exclusive cafes and boutiques in cosmopolitan cities across the globe.

Understanding how you are perceived amidst your current market and knowing your limitations can also be key. Toyota understood that customers in the West were not prepared to pay Mercedes prices for what they saw as a Toyota. While Toyota stood for quality, it also stood for reliability, affordability, practicality and value. To compete in a global market and appeal to consumers outside of Asia, Toyota launched Lexus – a completely new brand that not only evoked indulgence and luxury but also sat at a much higher price point. Lexus allowed Toyota to operate differently while also tapping into an entirely new market not previously available to them. 

Lexus can therefore be seen as an early iteration of a corporate startup. While it is a new brand owned by Toyota, it is important to discern that Lexus operates independently from Toyota Motor Corporation. The premise of Lexus itself was to be launched as a luxury car in its own right rather than a luxury Toyota. The team behind Lexus identified a new market opportunity and was also Toyota’s first foray into developing vehicles with speed-related performance. Their own guiding design codes, engineering principles and criteria, also known as the “Lexus Musts”, enabled Lexus to stand as its own separate entity – disassociated from the ‘people’s car’ mentality that generally revolves around Toyotas.

As these case studies illustrate, corporate startups offer huge new possibilities for the parent organisation. The freedom to operate and create an entirely new brand that looks and feels different to a typical corporate brand and sits outside the parent organisation has many advantages. First, the increased speed and agility with which you can take a concept to market. Second, the potential to exploit new areas of growth and capture new markets/audiences. Corporate startups also provide the ability to test multiple offerings while being free of corporate red tape, therefore enabling corporate startups to quickly pivot and refine based on actual customer feedback. And finally, it is a cost effective approach as it utilises a small and fast-moving team, whilst also eliminating the cost of extensive upfront research and insights. 

Keen to find out more? Get in touch! We’ll also be publishing Why & How Corporates Should Build Startups Part 2: How next week so watch this space!



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