Corporate innovation Innovation - 5 min
Breeding Corporate Unicorns
The rise of corporate unicorns: Alex Mahr explains which values and principles are fundamental for shaping a company's future.
Corporations are masters of their core business, that is their hallmark. But times are changing for them too. Globalized competition and the increased pace of innovation mean that they cannot keep up with the changes. As a result, their life cycles are shortening. For large companies, there are two sole solutions to this: Buy the competition at a high price or breed your own corporate unicorns - companies with a potential market capitalization of more than one billion euros.
Companies are disappearing from the Fortune 500 list
Markets no longer behave in a linear fashion. Business has become volatile, uncertain, complex and ambiguous. The effects are serious. Between 2000 and 2015, nearly half (52%) of the TOP 500 corporations in the U.S. failed to transform their business model and disappeared from the Fortune 500 index. Within the following ten years - and we are in the middle of it right now - the existence of 40% of Fortune 500 companies is said to be at risk. So the trend is accelerating as well. Large companies are obviously denied the ability to turn the rudder, to create innovation that will ensure their future economic survival.
In the past, innovation that could harm a company's own business was created directly in the competitive environment, which made it more predictable for corporations. That is no longer the case. Today, innovation arises in a completely different market segment than the company's own. Just one example: For centuries, publishing houses could rely on their customers to place advertisements. Within less than ten years, this continuity was broken for all time to come: In 1998, „Google” was founded - which itself did not come from the advertising market. In 2000, two years later, they created „Google Ads” - a digital advertising platform. Suddenly, without having to pay the media horrendous sums for advertising, business customers were able to place their ads in a targeted and cheap way via Google's new platform. Just one comparison: The German newspaper „Süddeutsche Zeitung” reaches 1.27 million readers per issue. A full-page standard ad costs around €80,000. On Facebook, the same amount can generate 30 million impressions. On „Google” it is about 3-4 million. The numbers speak for themselves. Digital advertising has much higher result rates. In one fell swoop, the advertising trade was revolutionized by a search engine – and as a result, the big media groups are still suffering from it. Corporations will have to adapt to this volatility, or they will disappear.
The lesson: Either you work to disrupt yourself and profit from it, or you will be disrupted by others. There is no guarantee that you can buy up an innovative competitor on the open market. And yet the risk to your own business is enormous. Because by the time it spreads in the market, it is usually too late. Therefore, there is no way around the group's own unicorns - innovative companies with a valuation of over €1 billion. The intention is to diversify the group portfolio and breed up unicorns that will contribute to cash flow in the medium and long term and ensure the group's economic survival. But how does this work? Breeding involves crossing special characteristics of animals or plants to create something new that is an improvement on the previous one. It's no different with corporations and their unicorns. The only thing it takes: Will, resources and cash flow.
The first step is for a CEO and his or her board to want innovation so badly that they won't hesitate to rationalize away their products and themselves to replace them with something better. It takes courage to identify opportunities, diversify and manage risks because success cannot be calculated to the last decimal place.
In the second step, content-related and financial goals are clarified in a strategy and vision phase.
The end result is a concrete plan for the successful cultivation of a new company that opens up new business areas. This involves the young unicorn being in the corporate portfolio of the large company but developing independently of it. For this, entrepreneurial minds, away from the corporation, must be brought in. Because all unicorns have several characteristics in common. They are creative and playful, make mistakes, but at the same time have a clear governance structure.
Which concrete product will emerge in the end is open at the beginning of the breeding process. Market potentials are explored, and product ideas are sifted and evaluated. In my experience, about three out of ten ideas make it to the market. Only one of these has what it takes to make it to the growth phase. In any case, the method is promising.
Every large corporation has started as a startup
Today, the corporate world has forgotten that large companies also grew out of other large companies. „Comdirect”, „Vodafone” and „Bluewin” were all corporate unicorns that were bred out of corporations. Current examples such as „WatchNow” or „Netflix” or „Tinder”, which was founded by „match.com”, are witnesses to the fact that breeding works economically. If Tinder made just $50 million in revenue in 2015, five years later it was more than $1 billion. Right now, the unicorn is a key contributor to the group's cash flow. These phenomena all have in common to have emerged from large tectonic movements inside the market. People, like corporations, are too comfortable. If nothing moves, you don't change anything about yourself. But when markets move, people become more alert and creative. Today's market earthquake is the fourth industrial revolution. With this increased pressure, the usual corporate comfort is a thing of the past. Shareholders desire more than mere preservation, precisely because increases in shareholder value today arise from the diversification of corporate portfolios. Growing corporate unicorns is the most predictable and secure thing that large companies can do to secure their economic existence. Everything they need for this, they hold in their hands with their sheer resources. All they have to do is act themselves. Or others, as history shows, will do it to their disadvantage.