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When and why is Company Building a good strategic option?
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When and why is Company Building a good strategic option?

This article focusses on the identification of different types of Company Builders, what they have in common, where they differ and how corporates can best make use of them.

Company Building seems to be the newest hot shit in town. After accelerators, incubators and labs the rise of the Company Builder has begun.

In general you have to differentiate between a startup studio focussing to bring venture ideas into a state of fundability and the corporate innovation focussed type of Company Builders.

What they have in common:

  • Company Builders are in general a "factory" for early stage venture development offering all relevant skills and infrastructure to a venture
  • They follow a standard ruleset or process to iterate a venture through a development funnel
  • Their exit points are clearly defined (but differ from model to model)
  • They "get paid" for their services from the funding a venture receives but their real incentive is venture growth and therefore the value increase of their own shares
  • They "box" risks into a certain legal entity in the early stages of venture development

Where they're different:

  • The startup studio approach is clearly venture capital driven whilst corporate innovation focussed Company Builders are (at least in the beginning) building strategic assets of one corporate.
  • Therefore the latter are more connected to a corporate strategy and are most times less greenfield.
  • The capital and share structure is often very different as a startup studio allocates most shares for a founder team (that might be founded whilst or during validation of a venture idea) and corporate focussed models tend to have a policy of granting a majority of shares to the funding corporate.
  • A lot of corporate focussed models are "consultancy with benefits models" offering an interesting consulting fee as compensation for shares.

Let's get a bit more into detail focussing on the corporate innovation focussed Company Builders. There's a very nice study by Dr. Tobias Gutmann (https://www.linkedin.com/in/tobigutmann/) that places the Company Builder within a corporate innovation strategy framework.

In this study the Company Builder is the balanced approach between strategic and financial interest of so-called inside-out innovation.

Inside-out innovation

Inside-out innovation doesn't necessarily mean that the idea for the Company Building endeavor has been born somewhere deep within the corporate without external influence. In our opinion it means, that the corporate is strongly involved into the ideation process by either taking an active part in it or framing it by adopting corporate strategy and target markets that are relevant.

Balanced approach

By integrating the corporate into the ideation process, the strategic component kicks in. You can say that the main idea behind using a Company Builder model for a corporate is to build one's own future M&A target. A corporate would never acquire another company without seeing a strategic asset in it, whether it is to broaden the own offering or to improve the current market position.

Actually the more interesting thing is that since it is not solely financially motivated the approach is very different from running a (corporate) venture capital fund.

So, what sort of topics are often seen in Company Builder models:

  • Business models that are close to the corporate's value chain / its offerings but not exactly within the core business (e.g. mobility services for car manufacturers)
  • Business models of which the corporate and its competitors are customers of
  • Business models that change or influence existing customer or supplier relationships in the overall market ("platforms")
  • Business models that might benefit from a cross-industry shareholder structure to grow
  • Business models that generate relevant data to improve the core business

So, whenever you as a corporate are interested in addressing topics within the space above, having both, a strategic and financial motivation, and wanting to be part of the ideation process - go ahead and chose a (good) Company Builder.

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