Startups are not cookie cutter. They are not all the same. Each has its unique characteristics. Many startups emerge from a garage, a basement, or some scribbles on the back of an envelope - you’ve heard the endless stories! But, venture building isn’t limited to that. Another type is the corporate startup.
What is a corporate startup?
A corporate startup refers to a venture that is launched by a large corporation or an established business. Just like down in the basement, a corporate startup is composed of driven venture builders, innovators, and in-house and external entrepreneurs who want to validate and solve real customer problems. Unlike other types of startups, though, corporate startups face a different set of opportunities and challenges, as well as ties to its mother company and synergies it can leverage. And in both cases, success comes out of hard work and dedication!
Look no further as we’ll explore 5 ways corporate startups are different than other types of startups, including:
- Access to resources
- Legacy constraints
- Customer base
- Brand recognition
- Goals and objectives
Corporate startups have access to resources
Corporate startups have the advantage of access to resources that other types of startups do not. As a part of an established corporation, they have access to the resources of the parent company. This can include funds, technology, processes, and talent. This may lead to saving time and money on recruitment processes, funding hunts, and research into venture building tools.
An example of access to resources
Google's corporate startup, Waymo, leveraged the parent company's expertise in artificial intelligence and machine learning to develop self-driving technology. Similarly, Amazon's Amazon Web Services leveraged the parent company's cloud computing infrastructure to provide cloud computing services that would benefit other businesses.
Corporate startups are affected by legacy constraints
While access to resources is an advantage, being born out of an already-existing business can have a disadvantage. Corporate startups have to navigate the legacy constraints of their parent company. They have to comply with the policies, procedures, and culture of the parent company. This can slow down the decision-making process. It can also limit the creativity, flexibility, and innovation opportunities of the startup. But it also means free access to legal support, brand marketing and business analysts.
An example of legacy constraints
Microsoft's Surface faced challenges in creating a product that was distinct from the company's existing offerings. The company had to balance the need to innovate with the need to maintain the consistency of the Windows ecosystem.
Corporate startups can jumpstart their customer base
Corporate startups have an existing customer base from their parent company. This can be an advantage as it provides a ready market for their products and services. Specifically validation to de-risk your venture, as the customer base of the parent company can also provide valuable feedback and insights into the needs and preferences of the target audience. This is crucial and provides a trustworthy head start in the validation process that a startup must go through.
An example of making use of an existing customer base
Walmart's defunct Jet leveraged the parent company's existing customer base to launch an e-commerce platform that catered to younger, urban customers. The startup used the feedback and data from Walmart's existing customers to create a more personalised and targeted shopping experience. In the end, Walmart discontinued Jet, but corporate startups may have an advantage by drawing on the parent company’s existing customer base.
Corporate startups benefit from brand recognition
Corporate startups benefit from the brand recognition and reputation of their parent company. This can help them gain credibility and trust in the market, which can be critical in the early stages of the startup. The reputation of the parent company can also help the startup attract investors, partners, and customers. A little ‘powered by’ in the footer of a website can go a long way toward quick credibility! It also allows for plenty of room to decide whether a corporate start-up is a spin-in, spin-out or even both at different times.
An example of benefiting from brand recognition
Alphabet's corporate startup, Verily Life Sciences, leveraged the parent company's reputation of success and around data management to develop innovative and personalised healthcare solutions for managing chronic diseases. The company's brand recognition helped it attract partnerships with leading healthcare providers and investors.
That said, sometimes for strategic reasons, the parent company and the corporate startup want to create the illusion (or perhaps reflect the reality) of separation. They may choose a path that avoids outwardly or overtly linking the new venture with the parent company.
What are the goals and objectives of corporate startups?
Corporate startups may have different goals and objectives than other types of startups. While other startups focus on growth, profitability, and market share, corporate startups can also be launched to achieve strategic goals. For example, entering new markets, diversifying the product portfolio, or exploring new technologies. This can impact the decision-making process of the startup, as its activities need to align with the overall strategy of the parent company.
Corporate startups are also in pole position to access and leverage corporate synergies and identify the mother company's customer of tomorrow.
An example of parent company goals and objectives influencing a corporate startup
Coca-Cola's Honest Tea was launched to diversify the company's product portfolio and cater to changing consumer preferences. But, what about the bubbles? Well, Honest Tea had to align its strategy with Coca-Cola's overall goal of expanding its offerings beyond carbonated soft drinks. Did we mention startups don’t always continue on a successful path? Honest Tea was discontinued in 2022, after an 11-year run.
TL;DR - What are the key takeaways about corporate startups?
You can see that corporate startups are different from other types of startups because of how they are born out of a parent corporation.
- Although they have access to resources that other startups do not, they face legacy constraints that may be obstacles to success.
- There may be a wealth of knowledge, experience and resources to draw on from the parent corporation.
- While they benefit from an existing customer base and brand recognition, these may also limit the corporate startup’s reach, or influence customer perceptions.
- The types of goals and objectives they have may impact their decision-making process if linked too overtly or strongly to those of the parent company.
Understanding these differences is crucial for entrepreneurs, innovators, and investors who are considering launching or getting involved in a corporate startup. By recognising these characteristics, they can better evaluate the opportunities and challenges of building a corporate startup and develop strategies to navigate them effectively.
Corporate startups can drive innovation and growth
What is clear, though, is that corporate startups can be a powerful force for innovation and growth. They can drive their established parent companies in new directions while providing unique and novel value propositions for customers in the market.
MISSION42 is a venture building studio
Here at MISSION42, we are venture builders creating new corporate startups in the TradeTech space. Our objectives are to fulfil AREA42’s mission of making trade future-proof and risk savvy by disrupting B2B trade and commerce. We’re especially interested in finding TradeTech solutions to the needs and challenges of SMEs who trade with each other.
If you’re an entrepreneur and want to accelerate your startup dreams, we have an always on recruitment. Have a look at the benefits of joining a venture building studio like MISSION42, and maybe you’ll help us build our next venture!