Why Strategic Alignment Alone Is Not Enough for Venture Success

Venture Investment for Growth:
Why Strategic Alignment Is Not Enough
Stephen Rich, Jim Bodio
WWW.BRI-ASSOCIATES.COM
Nov. 2018 © Copyright 2018, BRI, LLC 1

Who is BRI?
Instructor-led & Online
Applied Innovation™ Training
New Business Opportunity
Management Software
All based on our Applied Innovation™ Framework
New Business, Strategy, & Innovation
Consulting Services
34 years @ Intel
 Corporate Innovation
 Platform Strategies
 Business Model Innovation
 Software & Service Strategies
 Business General ManagementJim Bodio
22 years @ Intel, 5 years @ IBM
 Corporate Innovation
 New Venture Governance
 Business Operations
 Business Model Innovation
 User ExperienceStephen Rich

The Spectrum of New Business Development Options
INTERNAL
INCUBATION
SPIN-ALONG
STRATEGIC
INVESTMENT
EXTERNAL
INCUBATION
JOINT VENTURES
MERGERS &
ACQUISTIONS

We were working in
the new business
incubator
for a large, silicon
valley-based
hardware company.
Image credit – “Silicon Valley” TV Series – Home Box Office
A Cautionary Tale…

Initial Concept
developed within
the incubator

The Opportunity
 Digital Transformation in IoT
 Complementary to core
hardware business
 Market timing was good
 Opportunity to participate in
data services business growth

We recognized the
skillset and domain
expertise gap.

Our Recommendation:
Work with an external startup to address the gaps and
move with more agility and autonomy.

The Startup Venture
VENTURE FUNDAMENTALS
 Market Opportunity & Timing
 Competitive Differentiation
 Experienced & Qualified Team
 Business Model Financials
 Investment Financials

INVESTOR COHORT
 Syndication of Risk
 Experienced Investors
 Aligned Incentives
 Reasonable Valuation

STRATEGIC ALIGNMENT
 Service complementary to our
existing hardware business
 Business model aligned to
where we saw the greatest
long-term opportunity
 Willing to optimize their service
for our hardware
 Located close to corporate HQ

The Strategic
Investment
 Venture delivered first product
and getting good traction
 As part of deal, the Venture
optimized their services for
Company’s hardware…
 Venture valuation was growing
steadily in follow-on rounds

Acquisition Day
 Good deal for Company based
on projected “synergies”
 Good deal for Venture and
other investors
 Good integration plan to
leverage Company strengths
 Venture to become new
Services Division within IoT
hardware business unit

“We’re here to help.”
Legal Team

“Do you want fries with that?”
Sales Team

“Have you tried turning it off and back on again?”
IT Team

“So, where are those synergies you promised?"
Finance Team

About two years later…
The cumulative delays had added up.
Revenues were now slower than projected and
the technology was falling behind
The entire program was eventually shutdown
Worse yet, this experience started to soured the
appetite to expand beyond the core.
Nov. 2018 18© Copyright 2018, BRI, LLC

What happened?
We followed all
the best
practices.

We had done a great job evaluating Strategic-Fit & Market-Fit
But we missed what we now call “Company-Fit”
#1 Killer of innovation in large corporations

Company-Fit is simply how well a new venture’s operational needs
align with the company’s operational norms.

Company Fit can be broken down into RPPs
HBR: “Assessing Your Company’s Capabilities:
Resources, Processes and Priorities”
R
P
P
RESOURCES
Include budget, people, equipment, technology, product designs,
brands, information, and relationships with suppliers, distributors,
and customers.
PROCESSES
The patterns of interaction, coordination, communication, and
decision making through which they accomplish these
transformations are processes.
PRIORITIES
Priorities from the business model of the company's core business.
Applied and relevant at all levels within a company.
Nov. 2018 © Copyright 2018, BRI, LLC

RPP Differences between Innovation & OpEx Activities
Exploitation Work
(Traditional Business)
Exploration Work
(New Business & Innovation)
Objective: Maximize ROI Find Opportunities (innovate)
Visibility: Predictive - Lower Risk
• The future is a reliable continuation of past.
• Accurate prediction is possible and useful.
High Uncertainty - High Risk
• The future is shaped by actions of all players.
• Prediction is neither easy nor useful.
Strategic Approach: Exploit Corporate Position with Big Bets
• Leverage your existing skills & organization
Explore with Small Bets
• Fast – Lean Startup
• Co-create to get to early “yes’s”
Financial Approach: Calculate Expected Return – P&L
• Maximize upside potential
Set Affordable Loss – Create Option Value
• Set limit on downside potential
Mindset: Avoid Contingencies
• Surprises are bad.
• Contingencies are managed by careful
planning and focus on targets.
Leverage Contingencies
• Surprises are insight.
• New developments encourage new thinking
and continual transformation of targets.

At BRI we designed a tool to assess Company Fit issues
 Evaluate Venture’s required
RPPs against Company’s
existing RPPs
 Explicit & Implicit Priorities
 Explicit & Implicit Operational Capabilities
 Evaluate at each major
decision milestone
CompaniesPriorities(ExplicitPriorities&Resources)
The Parent Companies Capabilities (implicit and explicit)
POOR FIT – HIGHEST RISK
HIGH POTENTIAL – BUILD
SUPPORT
MOST DANGEROUS
WELL ALIGNED

Company-Fit impacts all innovation vehicles
INTERNAL
INCUBATION
SPIN-ALONG
STRATEGIC
INVESTMENT
EXTERNAL
INCUBATION
JOINT VENTURES
MERGERS &
ACQUISTIONS

Thank You
How Can we Help You Grow Your Business?
WWW.BRI-ASSOCIATES.COM

Why Strategic Alignment Alone Is Not Enough for Venture Success

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