Author: Martin Kelly, CEO INNOVO
The Tech giants are disrupting industry after industry because incumbent traditional corporates have not understood the full range of powerful business drivers that the Techs deploy so swiftly and fatally against them. How could fiercely competitive, global car makers suddenly face existential threats from Tech companies from outside the automotive industry who have developed driverless electric cars in a few years? Ask most senior executive what powers the Tech companies and the response would be “technology”. This is like the Titanic’s view of the fatal iceberg: true but only the tip of the iceberg.
Access to $ billions of Venture Capital
The Tech companies have developed technologies like algorithms, artificial intelligence and big data. Technologies like these confer substantial competitive advantage but they have been developed by new businesses that didn’t exist just 20 years ago. Why didn’t the aerospace and defence companies lead these technologies? Indeed, how did the aerospace industry lose the race to commercialise space to a Tech company founded with no idea about rocket science? The Tech companies can access vast amounts of venture capital to invest in new technologies. Their investors look for very high returns and accept high risk. Traditional corporates answer to stock markets and shareholders seeking dividends and steady predictable growth. Intrinsic corporate risk aversion denies them access to venture capital. It is extraordinary that even loss-making Tech companies burning through cash find it easy to raise much more venture capital than a traditional corporate which has been profitable for years. How can this be?
Founders and VC Shareholders Drive Innovative Growth Strategy
Different shareholders in turn drive very different behaviours in companies. For a traditional corporate, it’s like playing chess when you can only think about the next move – next quarter’s financial results. Tech companies assisted by artificial intelligence and big data have extraordinarily ambitious strategic plans spanning future decades.
The need for predictable financial performance makes traditional corporates exceptionally risk averse. This permeates every layer of corporate management who must relentlessly drive their staff to achieve quarterly performance targets. This stifles innovation and slows the adoption of new technologies. Tech founders and venture capital shareholders on the other hand crave innovation. They enthusiastically encourage their staff to be creative and share the immense rewards of being a Tech tornado.
Attracting the Best Global Talent
Attracting and developing the very best talent is without doubt the most powerful weapon in the Tech armoury. The industries that they disrupt and then dominate have management and staff shackled to the endless corporate treadmill of quarterly financials. Bureaucracy is more important than creativity. Corporate pay rates are flat. Career progress and increased income depend on committing more and more time to the organisation. If the organisation is successful next quarter, you might keep your job. This precarious existence is exceptionally stressful. Most Tech companies however, nurture creativity and inspire their talent with bold visions of the future and how the individual can make a difference. Rapid company growth presents fast career development. High salaries and generous stock options ensure that individuals in Tech companies really share in the organisation’s financial success.
Tech Tornado Drivers:
- Passion for innovation
- Long-term strategy
- $ billions of venture capital
- Best technologies
- Best global talent
A virtuous circle is created where these drivers reinforce one another. The traditional corporate, however, can face a vicious spiral downwards as Tech tornadoes enter their industry. They lose their best talent, access to capital shrinks and so their technology becomes outdated.
The scale of these profound strategic challenges facing a traditional corporate at every level seem insurmountable. It would require a complete re-invention of the corporate organisation for it to become a Tech tornado itself. In any case, corporates have shareholders, customers, infrastructure and supply chains that seek stability. Most critical of all, the Board and each level of corporate management would not know how to set up and then run a Tech tornado anyway.
The new corporate equivalent of a Tech tornado is a ‘corporate cyclone’. This is created when a corporate forms a joint venture (JV) with the cyclone partner that has the expertise to provide the corporate with all the forces used by Tech tornadoes. These include a passion for innovation, the capabilities to execute a long term strategy, $ billions of external venture capital and the best technologies. Above all, a corporate cyclone JV can attract the very best global talent.
The JV can be initiated by a Founder/CEO with a passion for innovation and the corporate experience to leverage the cyclone partner’s extensive capabilities within an industry. The Founder/CEO brings the corporate to the JV. Alternatively, a corporate can initiate a JV with the cyclone partner and appoint or recruit its own Founder/CEO. Once formed the JV can raise very large scale venture capital because it has the capabilities to execute an ambitious long term strategy.
The JV simply connects the large corporate to all the capabilities of the cyclone JV partner. For example, the cyclone partner knows how to recruit experienced corporate entrepreneurs for the JV. These are ambitious, driven, experienced corporate executives with an absolute passion for innovation. They commit to the JV for high deferred pay and stock options because they believe in it – they are not salaried. Everyone who works in the JV is protected by governance based on retrospective fairness enforced by independent arbitration. They get a fair, uncapped share of the audited value that they create with the corporate. The level of potential rewards for the JV’s corporate entrepreneurs are similar to executives in Tech. tornadoes.
A corporate cyclone JV is a limited company which can raise $ billions of venture capital. Unlike a Tech tornado developing its own technologies however, the cyclone partner can provide the best technologies from its external partners. The cyclone partner knows how to screen millions of external innovations and technologies to find the most promising for the corporate. JV executives can then work with the corporate to rapidly test and then deploy the ones that generate the most added value.
Above all, the best global talent is attracted to the JV. They are excited by the freedom to leverage their expertise to create the maximum new value for the corporate assured that they will earn a fair share of it. Earning tradeable share options in the cyclone JV can offer them the life changing financial returns enjoyed by executives in Tech tornadoes. The cyclone partner gives 10% of its own JV income to good causes further attracting the best talent committed to making a difference.
The cyclone partner knows how to set up lasting JVs in weeks. The existing corporate’s structure is unchanged and it remains committed to serving its customers. Its shareholders see no change in the corporate Board’s commitment to reliable quarterly financial growth. As corporate shareholders, they automatically share in corporate’s substantial stake in the cyclone JV. More importantly, they can see that the corporate now has access to $ billions of new venture capital, the latest technologies and the best global talent through the cyclone JV. Not only can these new cyclone forces be used defensively, they also enable the corporate to swiftly benefit from being the disruptor in its own industry. The corporate’s own quarterly financial performance benefits from the additional, rapid and substantial input from the JV. The corporate can enjoy much higher returns than normal because the high risks and associated very high returns are contained within the cyclone JV which is externally financed.