Making a bold investment: knowing why, when and with who
We’ve reached a point where big groups just can’t continue to do business like they always have done. And the main focus today is knowing where to make the best investment.
The whole ecosystem is changing. New actors are playing increasingly important roles. Clients have different expectations. Internalizations are becoming more and more frequent. Technology is disrupting the traditional business models.
All of these changes call for businesses to adapt. They need to shift their position and take the plunge into the unknown, the disruptive, into the startup world.
And this does not simply involve big digital groups taking an interest in entrepreneurs. We mean ALL businesses, even those that qualify as ‘non-tech’. Because tech is no longer an ‘added value’ to your classic business. It’s a necessity. Innovation and tech need to be both deeply ingrained in the company’s system, and be the main area of investment and interest.
A lot of big groups have already seized the opportunities that the tech world has offered. In the US, VC represents a quarter of the funding in disruptive businesses. In Europe, the VC support for innovation amounts to 5%, not quite as impressive as the US, but we’re working on it. Big European groups are still too tentative when it comes to investing in young startups.
Yet, even if investing in the startup world can feel risky and unprofitable in the short term, on the long run, it’s the best decision a business can make. Well aware that this is easier said than done, we have outlined the basic Do’s and Don’ts of investing in startups.
DO
☐ Make an investment rather than try doing it all by yourself
Big businesses have understood it: innovation is key. And in order to be innovative, they have two solutions: invent all their products internally or make an investment in disruptive startups. Why bother doing yourself what others are already doing better and faster?
Because, in case you weren’t aware, innovation no longer takes place in a vacuum in top-secret science labs. It’s now more of savant combination of disruptive ideas, new user experiences and sharp knowledge of all things digital. Exactly what startups are.
Just take a few examples: WhatsApp is revolutionising mobile communication, Snapchat is reinventing video messaging, Netflix is redefining how we watch television.
Startups are setting the trend in terms of innovation.
So, businesses need to be as involved with the startup world as they possibly can. Therefore, it is much more beneficial to work with entrepreneurs rather than compete against them. Walking hand in hand with young businesses whose activities are in symbiosis with those of the corporation is clearly the way forward. And for those businesses who are not natural tech experts, they are sure to be in good hands.
That way, instead of spending money on R&D, companies can fund startups who are already comfortable with the topic at hand. Big Groups can then benefit from the startup’s business model, tech expertise and appeal.
Investment and acquisition are a new form of R&D.
☐ Ask the right questions – both to the entrepreneur and to yourself
This may sound like a blatantly obvious statement. But when it actually comes to sourcing the right startup at the right time, asking the right questions can be tricky. Yet it is essential if you want to make a wise investment.
First of all, ask the entrepreneur about their project.
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Is their vision clear?
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Is it sufficiently disruptive?
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Do they have a crazy dream backed by ambition or are they just offering a by-product of something that already exists?
Once you understand the project, ask the technical questions.
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Is it realistic?
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Scalable?
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Do they have a business plan?
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A prototype?
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What market is it destined for?
The valuation needs to be tailored and in-depth to ascertain both if the project works and then if it is what you as a business, are looking for.
Then comes the moment when you want to ask yourself if you like the project and the team.
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Do you feel the values and visions of your businesses coincide?
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Is the connection with the founder a good one?
The human relation is crucial for a successful collaboration.
☐ Advise and keep up to date with the startup’s activities
The main reason why you are investing in the first place is because you want the startup to create value for your company. The value will be brought by the impulse the big company gives the startup, allowing it to expand and extend its influence and activity.
Naturally, the funds will contribute to this. But as our mentor Philippe Bourguignon says, the advice and coaching an experienced company is able to provide is just as valuable, if not more, than the money.
To provide this support, you need to follow the startup’s moves closely, be well aware of what and how they are doing.
And then you can also benefit from this proximity through the tech insights and innovation they can bring to your company, both in technical terms and in the scope of innovation.
The same can be said with acquisition. Make sure you incorporate the business into yours cunningly, so that the added value goes both ways and works as a complimentary system. The big business benefits from the innovation, and the newly acquired subsidiary benefits from the resources, while still hanging on to what made it a successful startup in the first place.
DON’T
☐ Be half-in half-out
A lot of big groups are tempted to simply start an incubator and invest small, almost insignificant, sums of money in startups, via VC funds.
Fair enough, this type of sporadic investment can appear safer because it allows to better apprehend the risks. But this is simply not what the tech world is about. The rhythm is so quick it requires full commitment. Innovation won’t wait for you if you are hesitant. It’s not the tortoise that will win the innovation race, because being fast and smart is a key factor of competitiveness.
The hare is the big winner of this race. The hare is the business who dares to go fast, who favours cooperation to boost and diversify its activity.
So, in fact, investing in startups is the wisest move you could make, especially on the long run.
☐ Neglect the importance of internal restructuration
In the digital era, collaborating with startups is fundamental. As a big business, you really want to maximize partnerships and always keep a close eye on the startup world. That’s not a reason, however, to put all your eggs in the same basket and forget about the rest.
Indeed, working with an exterior party shouldn’t mean neglecting your internal system as a result. Especially because to be successful, a business needs to surround itself with tech people but also have a steel-solid tech-based system.
To achieve this, businesses need to focus massively on data. Ensure you have the best systems to collect, exploit and analyse it effectively. It is also vital to deal with the transformations caused by new usage and tech disruptions. This means supervising the evolution of skills and professions and creating a leadership that is entrepreneurial, forming the team to be much more aware of how to tackle these disruptions.
It’s all about learning how to constantly shift your position and anticipate where the trend is going. In a nutshell, learn to adapt to the changes to benefit from them. Take Orange as an example of a successful transition. They are developing a banking branch to their business, and training their teams accordingly.
The leaders who are going to do well in the development race are those who will simultaneously invest or acquire in new activities whilst conducting internal transformations. This calls for a strong arsenal of transferable skills and a lot of agility.
Submitted April 12, 2017 at 10:11AM by OneRagtime http://ift.tt/2ptrGOS
