Many companies are exploring external venture investments for growth beyond their core business and focus primarily on financial and strategic alignment as the most significant investment criteria, but just like internal innovation projects, translating external investments into business growth or value is fraught with unexpected challenges. One of the biggest challenges is the misalignment between the Strategic Priorities and Operational Norms of their core business and those required for the new opportunity. In this session, we'll share a systematic approach to assessing alignment challenges as well as practical steps to mitigate them.

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

2. Who is BRI?
Nov. 2018 © Copyright 2018, BRI, LLC 2
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

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

4. We were working in
the new business
incubator
for a large, silicon
valley-based
hardware company.
Nov. 2018 © Copyright 2018, BRI, LLC 4
Image credit – “Silicon Valley” TV Series – Home Box Office
A Cautionary Tale…

5. Initial Concept
developed within
the incubator
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6. The Opportunity
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 Digital Transformation in IoT
 Complementary to core
hardware business
 Market timing was good
 Opportunity to participate in
data services business growth

7. We recognized the
skillset and domain
expertise gap.
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8. Our Recommendation:
Work with an external startup to address the gaps and
move with more agility and autonomy.
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The Startup Venture
VENTURE FUNDAMENTALS
 Market Opportunity & Timing
 Competitive Differentiation
 Experienced & Qualified Team
 Business Model Financials
 Investment Financials

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

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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

12. The Strategic
Investment
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 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

13. Acquisition Day
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 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

14. “We’re here to help.”
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Legal Team

15. “Do you want fries with that?”
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Sales Team

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

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

18. 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.
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19. What happened?
We followed all
the best
practices.
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20. Nov. 2018 © Copyright 2018, BRI, LLC 20

21. Nov. 2018 © Copyright 2018, BRI, LLC 21

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

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

24. 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

25. RPP Differences between Innovation & OpEx Activities
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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.

26. 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
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CompaniesPriorities(ExplicitPriorities&Resources)
The Parent Companies Capabilities (implicit and explicit)
POOR FIT – HIGHEST RISK
HIGH POTENTIAL – BUILD
SUPPORT
MOST DANGEROUS
WELL ALIGNED

27. Company-Fit impacts all innovation vehicles
Nov. 2018 © Copyright 2018, BRI, LLC 27
INTERNAL
INCUBATION
SPIN-ALONG
STRATEGIC
INVESTMENT
EXTERNAL
INCUBATION
JOINT VENTURES
MERGERS &
ACQUISTIONS

28. Thank You
How Can we Help You Grow Your Business?
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Nov. 2018 © Copyright 2018, BRI, LLC 28