Corporate Venturing into the Unknown Problem Statement
Before an entrepreneur enters a partnership discussion with a corporate, she has already developed a clear idea of the problem that her startup intends to solve. Unfortunately for the potential partnership, that problem rarely maps cleanly to the technical challenges faced by the corporate.
By prioritizing the development of crystal clear problem statements and initiating an effort to solicit ideas from those most likely to solve that problem, corporates increase the likelihood that partnerships with new ventures will deliver an order of magnitude improvement in financial results.
Entrepreneurial Solutions in Search of a Problem
Corporate leaders responsible for identifying new ventures to fold into a legacy sector company operate similarly to venture capitalists. They start by conducting a broad scan to identify established startups to fill the top of their funnel, and then run the startups through a commercial and technical evaluation process. An equity investment is typically the reward for the ventures that make it through the root canal, er, due diligence process.
While most of these broad scans are influenced by an understanding of strategic fit with the mother ship, the startups are rarely required to meet specific, quantitative technical criteria. Any startup with the right keywords in the right areas is a candidate to be thrown in the top of the funnel.
Entrepreneurs that find themselves on the other end of this corporate venture process are typically well along their product and commercial development path. While effective entrepreneurs are building their companies to solve validated customer problems, there is a relatively low chance that the problem they are trying to solve is a precise match for the legacy sector company’s challenges in particular.
Given that the startup’s product was not designed specifically to resolve the corporate’s challenge, justifications for the fit can appear forced (see the concept of post-rationalization). Once this proposed partnership is presented to leadership, it can easily get stalled because it didn’t necessarily address a clear problem of the corporate in the first place. This risk of stalling is only amplified at risk averse, legacy sector companies.
Clear Problem Statements Create Champions
What is needed to get these deals over the finish line internally? A fanatical executive champion.
How do you win a fanatical executive champion for a deal? You know, the executive leader that says, “We identified a problem that, if solved, would earn us a gazillion dollars. This venture has the technology to directly solve this intractable problem.”
Inspired by Nolan Browne’s TedX Talk, @ADL Ventures takes an alternative approach to the traditional corporate venture process. By front-loading the work to define the problem statement, it becomes easier to build support for a solution that addresses that problem. The startup that can meet all required criteria is likely to have a built-in internal champion with a clearly defined need.
This is precisely the approach ADL took with Sto Corporation in defining four building materials challenges, each of which was meticulously crafted with specific technical requirements that would lead to an order of magnitude improvement over the state-of-the-art technologies. Moreover, if these requirements were met, Sto already had internal champions to deploy technologies that could solve these vexing challenges. It made it easier for this legacy sector corporate to select three winners and sign contingent purchase orders.
By starting with the problem statement, corporates like Sto increase the likelihood that an executive champion will successfully help shepherd the deal through the organization.
The Antidote to Pushing Solutions
A seller who leads with product features rather than by seeking to understand a customer’s problems is destined to miss his quota. Similarly, a corporate venture team will be far less effective in developing valuable partnerships if an opportunity scan is not rooted in a very specific problem that needs to be solved.
Admittedly, moonshot problems are unlikely to have been secretly solved already. They’re hard for a reason. That said, a clearly-defined challenge is more likely to attract solutions that strike at the heart of the need and is more likely to fit cleanly with corporate strategy.
By avoiding a “venture into the unknown problem statement,” legacy sector corporates are more likely to build successful, enduring partnerships with the entrepreneurial community.
Learn more about the process ADL Ventures developed for ProblemSpace with funding from the US Department of Energy: http://problemspace.io