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Innovation is more in demand than ever before in order to keep medium-sized companies in the market beyond the crisis. And yet incubators that were set up for this purpose are currently being scaled back or sold, such as the OGDS of the OTTO Group or Daimler's Lab1886. While their innovative strength is urgently needed right now, incubators are coming under even more pressure due to the current situation. The breeding grounds for startups have long had a reputation for being too expensive and not producing enough specific business cases. It is important to find solutions that on the one hand meet the need for innovations and at the same time are economically profitable. But how?
Company building instead of the classic incubator
Medium-sized companies that want to develop new business models through spin-offs independently of their existing business should initially not rely on traditional incubators. The latter are mostly integrated into the core organization and linked to its grown processes. Classic company structures make the core organization more like a tanker that moves calmly and at a constant speed in one direction, whereas startups act more like independent speedboats that can quickly and agile in new directions. Investment processes in corporates are much more protracted, which means that startups would miss the time window for innovations and thus the “First Mover Advantage”. In addition, if the ties to the core organization were too close, the young companies would probably not have the freedom they need to start working on business models
For these reasons, a clear separation of the units by “Chinese walls” should be sought. Company Builders meet this requirement by representing the link between the core organization and the startups. In this way, company builders create a high degree of freedom and independence that startups need in this early phase. In addition, the Company Builder Team mediates between startup and
Company, as it can understand both worlds and evaluate which infrastructural support and competencies of the parent company are helpful in the development of the start-up.
Learning from the mistakes of others
A common cardinal error in spin-offs is ownership structures that are too rigid. If the parent company holds 100% of the shares in a company and the founders are only incentivized through salary structures and not through shares, there is no important incentive to commit to the measurable success of the start-up in the long term. At the same time, external financial investors are excluded from the inside. But opening up to external capital creates completely new growth opportunities. Very few companies can financially equip all of their startups to achieve their full scaling potential. The motto is simple: Better a small portion of a large cake than a large portion of a very small cake. At the same time, there must always be the option of dissolving a startup if it becomes apparent that a business model does not promise success. One should never fall into a “sunk cost fallacy” and hold on to a startup just because one has already invested the sum X.
All too often, the experiments with spin-offs fail, not least due to a lack of tolerance between the mother ship and startups. Above all, an open mindset and the promotion of mutual understanding are important. Anyone who thinks they can run a young company like a medium-sized company is condemning themselves to failure. However, the mutual exchange of knowledge and assets is also what makes the company building model so successful.
How medium-sized companies can be successful with company building
Company Builders create the necessary environment for the success of the startups by building an experienced and well-networked management team and creating a clear separation between startups and the core organization. Transferring the main responsibility to a corporate manager who has little credibility towards founders or the VC scene due to his lack of experience with startups makes little sense and invites questions about the seriousness of the project. For the selection of the
The Company Builder's management staff are primarily people who are familiar with the corporate as well as the startup side and can moderate between the two. There are many ways to build this bridge, such as complementary teams coming together to further educate each other.
Another important factor is the clear separation of startups from specific business units of the parent company and the targets set by its management. Understandably, the goal of the management is always a positive annual turnover. However, anyone who embarks on the experiment with spin-offs has to accept that the development of new business models and the leap into profitability take several years and investments are tied for a relatively long time.
Conclusion: Company Builders can make companies “disruption-proof”
What is certain is that no company can afford stagnation. Grown corporate structures are optimized to drive the existing business forward. They are often too rigid and too slow for existing innovations. That is why well-managed company builders are an important opportunity to position yourself for the long term and to shape the future of your own industry before others do.
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