Two cultures, one roof: the corporate venturing problem

Early-stage technology venture businesses are characterised by a few things: uncertainty in the markets they operate in (or want to be in), high technical risks, and unpredictable deal flow. They also iterate quickly within new markets (at least the good ones do), make rapid decisions with imperfect information, and change strategies over a weekend of email exchanges between the founding team. By contrast, corporates succeed when they eliminate uncertainty, remove known risks, and progress incrementally.

Big corporates are aware of the benefits of this approach, and there is hardly a corporate out there without a “venture” or “new business unit.” The theory is that the unit operates independently, with its own rules and structures, capitalising on its newfound independence. It’s a nice idea, but in reality, when the quarterly report comes around, the new unit is subject to the same narrow set of success metrics as every other part of the business. The high-risk venture mentality is quickly viewed as renegade and not in tune with the body politic: “it’s just not serious,” “it doesn’t move the needle,” “it doesn’t align with core activities.” In response, the corporate decides to divest from these enterprises, often at woeful valuations, leaving enormous value on the table and an unloved unit frustrated and stuck.

I’ve recently spent the last few months working with a unit in a European corporate going through this divestment process, and the main challenge I’ve noticed related to cultural divergences. Even though the intentions of those who established the unit were noble (who wouldn’t want faster, more nimble decision-making), the unit was set to struggle from the start, coming up against ingrained institutional memory and cultural forces that are simply immovable. No matter how hard you try, we are shaped by the culture we opt into, and if your culture is one of conservatism and risk aversion, no amount of venture units is going to break the zeitgeist. Corporates are better off acquiring an independent business doing something new and innovative, and then, most critically, leaving it alone. You can come up with some sort of preferential agreement for access or collaboration, but what made the venture unique in the first place needs to be left alone and respected outside the larger corporate.

One approach is not better than the other, venture or corporate, but culturally they are fundamentally different, and will attract completely different leadership and capabilities. Not acknowledging and respecting the differences is a completely delusional fallacy.