From Problem to Solution: What to Do in CVC
“We Can Learn From Mistakes, Not From Fairy Tales”. — Gregg Sattel
Who doesn’t remember Blockbuster? On weekends, families would head to the nearest Blockbuster to rent their favorite movies, watch them with their favorite snacks, and return them at the beginning of the week. This company, founded in 1985, became a monster in the entertainment sector, employing close to 85 thousand people in nine thousand stores worldwide. It is even said that in 2000, Netflix approached Blockbuster to sell the company for USD$50mm. However, as we know, Blockbuster did not acquire Netflix, and each went their separate ways. Blockbuster’s comfort zone and lack of vision about the future of the digital world resulted in the company not investing in organic development or buying players in the market that would allow them to develop their business in parallel.
The lack of innovation and the fear of investing in new technologies is not only reflected in Blockbuster, it can also be seen in TV channels, movie theaters and niche technologies such as Tivo, which at the time innovated in the market but someone else came along and they were displaced by new disruptive companies.
The Blockbuster story reminds us that innovation is a fundamental element for any company to thrive and grow. Sometimes corporations are slow and arrogant, so the question arises, in what ways can they identify problems and seek to strengthen their long-term competitive advantage?
Although there is no single way to visualize problems, companies must be receptive to explicit or implicit consumer feedback, to the competitive dynamics of the industry and to major generational and technological changes. Moreover, according to José Pascual, director of Cencosud’s corporate Venture Capital fund, there are two ways of approaching the issues. The first is to have an internal reference benchmark of how the company has adapted to the changes, and the external view of how others comparable to it have evolved. The second is related to looking beyond what has happened and focuses on finding risks and opportunities in the future, that is, being open to know how different changes in the context surrounding the company may impact it. This approach involves a high degree of leadership on the part of the CVC, whose function is to connect the different parts of the organization with the outside world in order to increase the perception of reality, identifying areas of opportunity and defining long-term solutions.
José Madariaga, director of the Bolivar Group’s CSV, agrees with visualizing the problems in relation to future changes. To this end, it is important that the company’s senior management meets to identify the context, risks, competitors and define the company’s vision for the next 10 years. All areas of the business must be involved in the construction of the long-term vision that includes exposure to external events and, above all, in the definition of the company’s objectives and strategic approach.
According to Rose Chen, Head of Innovation and Partnerships at Wesco, it is also important to keep in mind the expanded vision of stakeholders who will complement the external landscape that could affect the organization today or in the future. Companies must be integrated into an extended ecosystem, such as connecting with startups, accelerators, universities, etc., to identify market trends, disruptive technologies, and business models. This allows organizations to avoid being isolated with unilateral or outdated thinking and worldviews. Partnerships with participants in the innovation ecosystem will generate knowledge for the organization, which must always be humble and willing to always learn.
Once the company knows its problems and areas of opportunity, it then must look for innovative solutions. This is done in two ways, on the one hand by being exposed to these solutions that could generate a Wow effect within the organization, where internal and external experts could validate the added value. The other way is by having direct feedback from customers who have been exposed to these solutions and are willing to continue using and paying for them.
At this point the company could make the decision to invest in the startup or just use the technology. Sometimes the use case within the organization is very evident and can also be supported by a business case that leads to savings or increase in sales or cash flow. When this is the case, the company should validate the solution and apply it to its processes. However, sometimes it is difficult to identify a use case within the organization, although if the technology and the business have a strategic component for the organization, then the decision may be to invest in such a solution.
An example is Grupo Bolivar, who invested in Rappi in 2016 and it was not until 2019 when their commercial relationship began. Having invested strategically without testing the business case, allowed them to take the investment opportunity and benefit from it, while involving an ally with whom today they have developed new business solutions.
If the corporate takes the decision to participate, then it must propose an investment thesis consistent with the strategy and capabilities that the startup seeks to acquire or develop. In addition, it is important to have a dynamic and flexible investment process that can be adapted to the situation of the capitalization round of each venture. It is important to remember that Venture Capital investment processes can take as little as a couple of days and this is something that corporations are not used to.
If the organization decides to invest consistently in Venture Capital, then it could consider having a CVC- Corporate Venture Capital. This should not be considered as a business unit, but as a strategic area that will support the transformation and generation of capabilities. The CVC becomes the Sherpa of the organization that will take it to the top of Everest.
Regardless of investing or not, it is important that organizations recognize the relevance of collaboration in this digital, disruptive, and dynamic world. In addition, organizations must insert themselves into innovation ecosystems, being humble and learning from the participants. It is enough to remember cases such as Kodak, Tower Records or Toys r Us, whose inability to adapt to change led them to lose their market share and leadership position.
“We Can Learn From Mistakes, Not From Fairy Tales”- Gregg Sattel
Hector Shibata. Director of Investments & Portfolio at ACV a global Corporate Venture Capital (CVC) fund and Adjunct Professor for Entrepreneurial Finance.
Ana Maury Aguilar, VC Investor at AC Ventures
ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.
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