Why firms are turning to venture building as a strategy for corporate growth

In response to ambitious growth objectives and the escalating demands of a rapidly evolving market, firms are turning to corporate venture building as a strategic solution. This approach combines the agility of startups with the unique assets of the corporation, offering a distinct formula for sustained growth. However, building new ventures inherently involves risks, so also for established firms. Despite this, an increasing number of companies are drawn to the venture model to drive corporate growth. This article delves into the reasons behind this growing trend.

Beyond the traditional paths to growth

Certainly, you’re acquainted with the classic growth strategies. Maybe you’ve experimented with them, or even mastered a few? The alternatives are many, ranging from product development and geographic expansion to strategic partnerships and M&As, as well as more modern tactics such as product-led growth and digital transformation.

In recent years, a not so traditional approach has been gaining momentum. Some refer to it as business building, but perhaps the most widely recognized term is corporate venture building. In essence, this strategy is about utilizing a firm’s existing resources to create new business initiatives within or outside of the existing organization. Typically, the new ventures are built from scratch as a separate startup entity drawing on the benefits of the startup world while leveraging assets of the corporation.

Three reasons why corporates are adopting a venture building strategy

Create something radically different

The transition to a venturing strategy often occurs when traditional business models are under pressure, and there’s a need for radical change to keep pace with evolving customer preferences. Adapting to rapidly changing market conditions may require moving into entirely new markets or launching substantially different products, something that can be particularly challenging in large corporations.

Consider, for instance, a global truck manufacturer facing disruptions from electrification and automation. Innovating within its traditional structure often leads to minor variations of the same product; another truck. However, adopting a venture building strategy, which operates in a distinct unit, provides an opportunity to distance new projects from the core business and develop truly innovative ventures that fosters long-term transformation and growth.

Explore new technologies with reduced risk

Secondly, venture building can be a way for large corporations to experiment with new technologies – cutting-edge, emerging technologies (such as AI) or technologies that simply may be new to the company – in a controlled environment. Limiting the exploration of novel technologies and untested concepts to a standalone venture reduces the risks associated with full-scale adoption. Furthermore, creating new ventures that operate with significant independence from the parent organization, thereby avoiding much of its bureaucratic processes, allows for speedy and efficient experimentation, which is of utmost importance when working with new technologies.

SEBx is the independent innovation studio of a large incumbent bank with a clearly stated mission: to explore new technologies and business models. Working outside conventional structures and legacy processes allowed SEBx to begin experimenting with large language models (e.g. ChatGPT) as soon as they were released, despite the inherent risks and accuracy issues associated with these technologies. A separate venture unit also gives the bank the opportunity to explore AI’s role first-hand in various ways, but without having to use it directly on customers or incorporating it into everyday operations.

Foster a culture of entrepreneurship and attract entrepreneurial talent

Finally, the venture model offers an alternative organizational structure that diverges substantially from the standard frameworks used in most corporations. It relies upon a dynamic, agile, and flexible approach, nurturing an entrepreneurial mindset that becomes essential for firms to effectively compete in times of rapid market changes. By adopting a venture building strategy, the corporation not only fosters a proactive problem-solving culture but also attracts individuals with entrepreneurial skills and innovative ideas. This influx enriches the corporation with fresh perspectives and new capabilities.

Corporates in the pharmaceutical industry have managed to embrace this aspect of venture building particularly well. Equity compensation is often offered to the founding team of a new corporate venture to attract entrepreneurial talent and incentivize the venture team. A prime example is AlzeCure, a spin-off from the global pharmaceutical giant AstraZeneca. Founded in 2012, AlzeCure is now listed on the Nasdaq First North Premier Growth Market and the founding members — all of whom are former AstraZeneca employees — remain active in the venture and continue to hold large shareholdings.

Accelerating corporate growth in an uncertain world

In an ever-evolving world, characterized by rapid changes and uncertain futures, a venture building strategy can generate new, exciting business opportunities and lay out alternative paths of growth for established firms. It serves as a catalyst for thinking outside of the box and exploring new business models. It allows for quick experimentation to validate untested technologies and concepts, and nurtures an entrepreneurial mindset that values innovation, agility, and proactive problem-solving. The venture model, designed to excel in the current dynamic and fast-moving business environment, is exactly the strategic approach that many corporations need to sustain and accelerate their growth.

Nonetheless, securing the desired outcomes with a venture building strategy requires thoughtful implementation, long-term persistence and portfolio thinking – because inevitably, some ventures will fail. Read more about how to succeed with the venture model in our quick-read series “How to build a successful venture studio”.