Tapping the Venture Ecosystem to Accelerate Growth and Competitiveness

Bill Reichert is a Partner at Pegasus Tech Ventures, entrepreneur, venture capitalist, and mentor with decades of experience building innovative companies. He specializes in emerging technologies including AI, quantum computing, healthtech, and fintech, helping visionary founders turn bold ideas into commercial success.

The corporate innovation strategy – known as “Open Innovation” – is becoming a critical element in every large company’s long-term strategy. But few corporations know how to implement it effectively. Here’s an abbreviated playbook to help corporate innovators tap the venture ecosystem of emerging technologies to accelerate growth and enhance competitive advantage.

Open Innovation

Open Innovation evolved in Silicon Valley as startup companies grew into leading global corporations. Their management teams understood first-hand the importance of staying on top of emerging technologies that could blindside them or become key components of their future success. The concept was a break from the standard approach to research and development, which focused on hiring PhDs and instructing them to invent new products.

John Chambers, former CEO of Cisco, said, “We have some of the smartest people on the planet here at Cisco, but we don’t have all the smart people on the planet.” Then he slashed the R&D budget and put that money toward investing in and acquiring emerging technology companies to integrate into Cisco’s product line.

The idea behind Open Innovation is to think outside the box – the box that defines the current corporate product line, target market, and growth strategy. Every product space and every market sector is now subject to disruption by emerging technologies and new business models. By reaching into the ecosystem of new ventures and novel technologies, corporations can leapfrog their competition by catching the next wave of innovation.

The New Venture Ecosystem

The high-tech venture ecosystem used to be a narrow world that fit under the label of “Information Technology” Since information technology was not your core business, you could wait for new technologies to mature before you had to start spending money on them. But now, new technologies are emerging in every sector, and they are disrupting traditional businesses faster than ever. Most media and entertainment companies got blindsided by the internet and streaming media. Most telecommunications companies got blindsided by the smartphone and the cloud. Most retailers got disrupted by the emergence of e-commerce. Most financial institutions are struggling to keep up with emerging fintech services. We are anticipating that rapid advances in AI will disrupt almost every business sector.

 The idea behind Open Innovation is to think outside the box – the box that defines the current corporate product line, target market, and growth strategy. 

If you operate in the corporate world, if you are not already struggling with the threat of competition from the venture startup ecosystem, you will be soon.

Innovation Strategy

The old corporate strategy model of “Plan the work, and work the plan” isn’t good enough anymore. The world is changing too rapidly. The traditional corporate mindset stifles innovation with a “not invented here” bias, or a “this is how we do things here” frame. Forward-thinking companies are shifting their corporate culture to an innovation mindset. Rather than focusing narrowly on this year’s operating plan and budget, or even the current five-year plan, and relying on established practices and processes, Open innovation companies encourage their teams always to be open to finding better ways to get things done.

That includes looking outside the company for new technologies and business models that might be of value today, tomorrow, or in the future. In the past, companies focused on monitoring their direct competition for potential competitive threats. That’s not enough anymore. The best way to scan the world for valuable innovation is to plug into the startup ecosystem.

One way to do so is to have your corporate M&A group, or an investment bank on retainer, look for acquisitions. Many big corporations think that’s open innovation. But M&A is only one tool in the open innovation toolkit, and it is a minimal tool at that.

Corporate Venturing

The best way to get the most bang for your innovation buck is to use a corporate venture model to engage with startups that have the potential to be strategically important in the future. Engaging with startups does not always mean investing in the company. It can start with a pilot or proof of concept and evolve into a joint development agreement or distribution agreement. Eventually, it might even become an acquisition. Along the way, a minority investment might strengthen the relationship and establish an alignment of interests, but corporate venturing does not always have to mean venture capital investing.

Setting up a corporate venture model is hard for most companies. The capabilities and processes for scanning, qualifying, conducting due diligence, engaging, and investing in emerging technology companies are not standard in most enterprises. It takes time and effort to develop talent internally and muscles across the organization. I recommend implementing a phased approach with target milestones and checkpoints along the way, understanding that you will need to adjust as you grow and learn. A good way to start is to connect with others plugged into the innovation ecosystem, including established venture capital firms and experienced accelerator programs.

Pegasus Tech Ventures has over a decade of experience working with scores of multinational corporations to help them implement their open innovation strategies. As it turns out, there is no single recipe that works for all companies. Each company tends to implement processes in its own unique way, fitting its operational model, its global footprint, and its corporate culture. But some crucial lessons and frameworks apply broadly. In a future article, I will expand on the many years of lessons learned around open innovation.