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Random Thoughts

So for at least the next couple of days, we’re in that weird time period between reflection and anticipation, closing out last year’s unfinished business and preparing for the next year’s challenges.

As I reflect and anticipate, a few random thoughts come to mind I thought would be fun to share.

Some phrases I collected in 2016 are:

The highly alliterative “Cultured poultry”, which is growing meat in machines – it’s not a new idea, nor does it sound particularly appetizing IMHO, but it’s an idea that has certainly been gaining momentum.

“Battle of the Buzz” – In 2016, more than half the states have legalized marijuana for certain medical conditions, and more than half a dozen states legalized recreational use. With craft breweries and craft spirits already disrupting the landscape, the alcohol (and pharmaceutical) companies, are terrified they may lose more market share and have bankrolled the fight against legalization.

And then there are established companies like Constellation Brands considering embracing the weed.

“Aging in place” –  By 2050, I will have joined the more than quarter of the US population who will be 60 and older. For several years now Venadar has observed emerging companies innovating products to enable a higher quality of life for aging adults. The rationalism is that seniors will be more active by addressing everything from mobility, nutrition, safety, home environment and social aspects. Move over Clapper and Life Call, CES 2017 boasts the following, many of whom are addressing the needs of older adults:

  • Health & Biotech – 510 exhibitors
  • Wearables – 881 exhibitors
  • Smart home/Appliances – 1108 listings
  • Personal Privacy and Cyber Security – 108 exhibitors
  • Robotics – includes 341 exhibitors

Asset light – To be a manufacturer, you don’t need machines, or HR, or an office… or employees for that matter. Companies that employ nobody, yet the owner soars – however, some worry it won’t help job growth.

What other things did I find scribbled in my notes that clients and prospects talked about…?

2016 Driveway moment – Favorite story on Marketplace:

Cottage cheese wants to be the new Greek yogurt

Ellen Byron was interviewed about her article “Could Cottage Cheese Ever Be Cool?” wherein cottage cheese manufacturers are hoping that new flavors like cucumber & dill, or maple & vanilla, as well as lower sugar and high protein will bring cottage cheese the same level of attention as Greek yogurt.

Several years ago, we recommended that a client invest in Greek yogurt.  We observed an emerging trend of high in protein, on-the-go snacks and meal replacements, etc.  As of 2014, Greek yogurt  accounted for over 50% of the U.S. yogurt market, compared to about 4 percent in 2008. Our client passed on the opportunity, and has since told us they regretted the decision, never wanting to be “greeked” again.

Based on our work, we know entrepreneurs are typically 3-5 years ahead of major corporations in addressing new market opportunities. If you are only seeing the things investment bankers and VCs are shopping around, are you really seeing the right things? The best things?

What are we anticipating? Folks here at the office are looking forward to helping our current and future clients create venturing arms and connect with the entrepreneurial community, as well as the next season of Stranger Things, Luke Cage and Better Call Saul…

Marc DeSandre on LinkedinMarc DeSandre on Twitter
Marc DeSandre
VP, New Business Development @ Venadar
Marc DeSandre serves as the VP of New Business Development for Venadar. As a B2B sales veteran, he directs all new business activity and helps connect F500 companies with emerging brands and start-ups to drive revenue and growth. mdesandre@venadar.com

Let’s Be Friends – Relationship Advice from Venadar’s Mark Kaiser

uhohspoonIn my years of initiating relationships and negotiations with big companies and emerging companies, I’ve seen some incredible results from these partnerships. I am struck and sometimes amused, though, by stories entrepreneurs have told me about being approached by big companies, and by how big companies are often surprised by what entrepreneurs ask and do.  I‘d like to share some of my favorite anecdotes as a way to help both big companies and entrepreneurs have successful encounters.

Three’s… er, Seventeen’s a Crowd

As a favor, I was asked to tag along on a dinner a Fortune 500 company scheduled with a successful entrepreneur to discuss the potential for a partnership.  The dinner was hosted at the Ritz Carlton, and when I arrived I found that I wasn’t the only person invited – 17 people from the big company were also asked to “tag along”.  You can imagine how intimate a conversation of 17 on 1 felt.  Here are a couple of suggestions for the next meeting: 1) keep it small and don’t overwhelm the small company; and 2) choose a venue that is appropriate for someone who is trying to make payroll.  Entrepreneurs already think big companies have unlimited funds, so picking up the tab for 18 people at a Ritz Carlton for dinner only proves they are right!

#I’mGoingToDisneyland!

After they scheduled a first meeting and met with an entrepreneur, another client called me to complain that the entrepreneur posted on Facebook and Twitter he just met with “ABC Corporation” and they agreed to do a deal together.  A lot of entrepreneurs are into shameless promotion because “buzz” is important.  That doesn’t excuse the behavior, but care should be taken to not say or do anything that you wouldn’t want broadcast far and wide before a confidentiality agreement is in place.  Until the NDA, nothing is “off the record”.  Talking out of school or sharing confidential information (whether an NDA has been signed or not) is not a good way to advance your cause if you have any genuine interest in working with a particular big company.

Practical Advice for Entrepreneurs and Big Companies

I could go on and on… but here is some practical advice for both big company folks and entrepreneurs:

Big company: Entrepreneurs have a love/hate relationship with you. On one hand, they admire what you have accomplished and would like to be a billion dollar company just like you – on the other, they fear you will “steal” their ideas.  Start with a “low risk” conversation about how you may be able to support the entrepreneur, and, if available, point to your track record of working well with partnering and investing in start-ups.

Big Company: Hard to believe, but It’s usually not about the Benjamins. While some entrepreneurs desire access to capital under reasonable terms, more often they are interested in access to your distribution/customers to grow their revenue. With some exceptions, they don’t necessarily want “help” with their supply chain, HR, your purchasing power, or advice on how to run their business.  Listen and offer to help with things the entrepreneur really might value.  You are starting a business friendship.  Be a friend.  You are not in a purchasing transaction.

Entrepreneurs: If I’ve said it once, I’ll say is a thousand times, avoid exaggeration like the plague.  Whether you have 23 customers or 12, you are still a small business.  Ditto for 43 employees or 27.   If the demo is just a prototype, say so.  The truth is always better than something you make up.  You might be surprised as the big company might just be able to help you with your real problems, not the ones a vaporware story might imply.

Big company: Entrepreneurs work in real-time.  Set realistic expectations and if things are going to move slowly, tell the entrepreneur why.  One deal we were working on recently needed the approval of the CMO.  He was on a three-week vacation and doesn’t work when he is on vacation.  It would have been better to say that upfront than “go dark” for four or five weeks, which is a lifetime for an entrepreneur.  To an entrepreneur, a vacation is special and to not work when away is unheard of.  Going dark for more than 24-48 hours without giving advance notice may cost you a relationship.

Entrepreneurs:  Don’t be afraid if a representative of a big company gets in touch.  Be guarded, but it’s probably a good thing.  And at first, don’t tell anyone anything you are uncomfortable sharing.  My rule of thumb is don’t share anything you wouldn’t share with a good, well-qualified customer or prospect in a sales call.  A confidentiality agreement is just like a fishing license, but a fishing license doesn’t guarantee you will catch a fish.  It protects confidential information that is shared, but it doesn’t require you to share any information at all.  It is okay to say “I am not comfortable sharing that information at this time” or “before I answer, I am curious why you are interested”.

Proverbial Win-Win

Keep in mind there are many dialects in almost every modern language – in business partnerships, there is the dialect of the big company and the dialect of the entrepreneur.  Listen and learn how to understand what each other is saying (I still have a hard time understanding someone from the Bronx, or Alabama), it’s the key to starting a new friendship with someone who might help you create the next billion dollar business.

Mark Kaiser
Venadar’s Founder, President and CEO, Mark Kaiser, has led high-growth organizations as CEO in technology, telecommunications, logistics and healthcare where game-changing technologies were disrupting the status quo. Two of the businesses grew from start-up to $1 billion in revenue in five years or less. Mark has led public and private financing, including venture, mezzanine, IPO and secondary public offerings as a CEO. He has twice won the Forbes magazine Fast Tech 50 award which recognizes the fastest growing companies in the U.S. Mark has been involved in hundreds of acquisitions, implemented partnerships between numerous Fortune 500 companies and entrepreneurs, and is a recognized expert in corporate venturing models.

Brands Under Attack

McCormickUnderAttack

Your business is under attack – if you don’t think so, consider this. During a recent conversation, a colleague shared a quote he read from a Unilever VP who said, “I’m not losing share to P&G and other CPG companies.  I’m losing it to small players who are finding niche products.”

The VP has got it right.

Consumer goods companies are facing “death by a thousand cuts.” Brands are under attack. Market researcher Mintel says the number of new packaged goods introduced each year—everything from food to cosmetics—has grown more than 30-fold over the past 50 years. And IRI and Boston Consulting Group report that CPG sales grew to $670bn last year, except half of those sales were made by small to mid-sized companies.

The recent news about Unilever’s intended acquisition of The Honest Company could put Unilever in a pole position in the fast-growing “natural” or “green” cleaning products and diaper market. Honest was created to confront mainstream products that typically use harsh chemicals. More importantly The Honest Company’s Direct-to-Consumer business model with auto replenishment will allow Unilever to build a new platform, extend their existing brands into home delivery, and provide them valuable data to fuel new product development.

Someone is gunning for you

Entrepreneurs recognize unmet needs very early because they are often close to the problem – in the case of The Honest Company, founder Jessica Alba was inspired by the birth of her first child and her own experience with childhood illnesses to create a company that provided safe alternatives to the usual baby products. The current products or services not only work for these entrepreneurs personally, they see a way to make improvements to, or use an existing product in a different way. While they may dream of selling to a Fortune 500 company someday, most entrepreneurs have 2 aspirations:

  1. Become a $100 million company; or
  2. Become a $1BN company

The best entrepreneurs are too busy building their business to participate in competitions, exhibit at trade shows, or generally schmooze. For many successful entrepreneurs, partnering with any big company is not a priority. Recently, cofounder Nikhil Arora said of his start-up food company Back to the Roots, “How do we build in some way the next Kraft? How do we build a brand that outlives all of us, and how is that going to impact the food system that can last generations?”

And then there’s Maddy Hasulak, the Chief Love Officer of Love Grown, who made Forbes’ 30 under 30 by thinking outside of the cereal box – she makes breakfast cereal out of navy, lentil, and garbanzo beans. Maddy states in a recent interview, “We didn’t want to just be a Raisin Bran or a Cheerio; we want to innovate in a category that’s really been stagnant… And so we totally revolutionized breakfast by making the first wheat-free corn-free breakfast cereal, which has higher protein, higher fiber, and they totally taste !” While still working at Wells Fargo, she approached City Market, a subsidiary of Kroger, directly for advice on how to get on their shelves. Within 2 months her product was on an end cap in one of their stores, and within 6 months Love Grown’s products were in 80 stores.

It’s difficult to stay ahead of consumer preferences.

Due to consumers’ rapidly changing habits and evolving demands, consumer packaged goods companies are hard pressed to innovate and offer products that cater to specific tastes or a set of principles. Large CPG companies are hamstrung by their legacy systems and traditions, lacking the nimbleness to deliver quickly. Consumers want products that are authentic, focus on health, contain natural ingredients, sustainably sourced, easy to access and personalized. Deloitte’s American Pantry Study found that 81 percent of Americans will pay a premium for healthier products, and 55 percent are willing pay more for eco-friendly options. Unilever understands this, which is why they are talking to The Honest Company and have acquired Seventh Generation.

How do you anticipate an attack?

We recommend measuring entrepreneurial activity, particularly activity outside of measured channels such as Nielsen and Symphony IRI, while there is still time to do something about them. Where there is smoke, there is fire. For most client engagements, it is not unusual for us to discover hundreds of unique, emerging, independent brands working in the spaces occupied by our client’s brands. For a health & wellness client, Venadar curated a list of emerging and early stage brands across 6 categories who were focused on a common goal: products and services to enhance our aging population’s quality of life. Starting from over 635 companies, Venadar created product portfolios to address the transitions of aging.

Your next competitor will likely be an innovative entrepreneur creating solutions that are more relevant and more resonant with your consumers, and they are creating them more quickly than you. This has already lead those consumers to turn elsewhere. Small players will continue to find niche markets, so it’s important to figure out a way to discover what’s emerging, whether it’s information to fuel a CVC effort, drive strategy or to inspire internal innovation.

Marc DeSandre on LinkedinMarc DeSandre on Twitter
Marc DeSandre
VP, New Business Development @ Venadar
Marc DeSandre serves as the VP of New Business Development for Venadar. As a B2B sales veteran, he directs all new business activity and helps connect F500 companies with emerging brands and start-ups to drive revenue and growth. mdesandre@venadar.com

The Rapid Rise of Corporate Venture Investing: Will This Be the Answer to Large Company Growth?

The Rapid Rise of Corporate Venture Investing
Startups, Innovation, and Low Barriers to Entry

At the large corporate level there has been a lag in innovation.  At the same time, the marketplace has sped up. Consumers expect rapid innovation.  System re-engineering at scale can take a long time and big companies can’t move fast enough.  This conundrum forces large companies into a make or buy decision.  Do companies develop the product or service internally, should they buy an existing company or product (M&A), or do they partner with someone else to make the product?

Entrepreneurs often identify unmet needs long before big companies are aware that these needs exist. Their size allows for agile movement and rapid prototyping.  Technology has reduced entrepreneurial barriers to innovation and scaling across more and more business sectors.  Contracted manufacturing, distribution and sales forces have replaced the need to build these processes internally enabling production , sales and distribution to be done just-in-time and on-demand.  Small companies can now scale their business without needing to build out their infrastructure.  In addition, they can now join forces with a larger corporation and benefit from the scale, capital, synergies and other resources a big company partner can offer.  Entrepreneurs and large companies alike must continue to identify needs and provide products and services to match those needs.   Early success partnering with entrepreneurs is accelerating the pace of corporate venture investing across a number of sectors including consumer products, manufacturing, industrials and financial services, leveraging the long-standing success of corporate venture investing in the technology sectors.

Independent VC versus Corporate VC: What’s the Difference?

The US Small Business Association defines Venture Capital as “a type of equity financing that addresses the funding needs of entrepreneurial companies…generally made as cash in exchange for shares and an active role in the invested company. VC focuses on young, high-growth companies, takes big risks, and expects high returns.”  Traditionally, independent Venture Capital (VC) helps startups scale quickly and optimize profits.  However, VCs pressure and incentives for fast returns, can create a mismatch between longer term innovation expectations and the desire for financial return.  VC fund managers typically receive 2/20 terms, a powerful incentive that can drive a single-minded focus – maximizing financial returns – and cause strategy and mission to take a backseat.  Corporate VC can help circumvent these problems by designing an investment strategy, and a set of processes and structures designed to meet the larger corporate need for meaningful growth.

The Kaufman Foundation describes Corporate Venture Capital (CVC) as “an equity investment by an established corporation in entrepreneurial ventures. In contrast to individual venture capitalists, which are purely focused on financial returns, most corporations seek strategic benefits in addition to financial returns.”  While CVCs still need to focus on return on invested capital, it should not be their immediate metric of success.  CVCs need to foster innovation, keep up with markets and trends, grow products and services to scale, and integrate them into the core parent business to generate meaningful positive impact for the corporation.   CVCs can be more patient with their investments and need not be concerned with immediate return on invested capital.  Instead, CVCs can tap into their existing infrastructure and expertise (scaling, supply chain, marketing, sales, etc.) to bring new businesses along at an accelerated pace compared to the same business backed by a financial VC.

While Venture Capital (VC) and Corporate Venture Capital (CVC) may sound similar, a few key differences have developed between the two venture investing approaches.  In fact, some say that if CVC firms follow the VC playbook too closely, they could risk failing to deliver the required growth in spite of achieving results that most VCs would envy.   For example, if a VC fund invests $1 million in an early-stage company and turns that investment into $10 million in three-to-five years, that’s considered a huge success.  If a CVC invests $1 million and turns that investment into to $10 million in three-to-five years, they haven’t moved the needle in the context of impacting the large corporation’s revenue or profits in any meaningful way.

Successful CVC investments leverage the insights, creativity and speed of the entrepreneur while accessing corporate skill and capabilities to achieve scale.    For example, within about a year of acquiring the beverage company, Glaceau, The Coca-Cola Company was able to leverage its distribution power to enable Vitamin Water to quickly become a billion-dollar brand, something the younger company could not have done on its own.

From Pharmaceuticals and Technology to Consumer Products

Corporate VC isn’t new: CVC funds helped pharmaceutical companies catch up with rapid advances in bioscience in the 1990s.  CVCs have steadily invested in technology startups since the mid-1980s.  Tech investments, however, are relatively “safe”.   In contrast to consumer goods, tech requires comparably less up-front investment and promises substantial returns in very short periods of time.

Consumer goods have a longer product development cycle, as they need to be manufactured, and distribution is often based on retail “seasons” and buying cycles.   To make matters worse, it is also more difficult to tell if a consumer good is going to be a “fad” or a long-term success story.   As a result, venture firms have historically avoided early-stage investing in consumer goods staying on the sidelines until a consumer product or service reached $10 million in revenue or more (giving more confidence in the longer-term sustainability of the product or service).   With market pressures rising and cycle times speeding up over the last few years, Kellogg, Campbell Soup, Coca-Cola, and General Mills have all developed and enhanced CVC capabilities.  Why has the CVC trend caught fire?   Because consumers are changing how they buy and how they interact with companies, products, and services resulting in the big companies product portfolios coming under attack by a wide range of new, entreprenruial competitors.

Market Pressures Driving Corporate VC

The following three trends are reshaping the consumer marketplace and driving action and innovation by consumer goods based CVCs.

  1. The Rise of Natural, Organic and Sustainable Products.   Consumers want products and services that reflect their values.    They like locally produced products, products that are natural & organic, and they want the companies that produce what they consume to be socially responsible and authentic.
  2. The Changing Face of Retail.   The consumer’s decision journey has changed dramatically. Online offerings have disrupted retail and financial services and the act of purchasing itself has shifted to include far less interaction.   While customers are still willing to pay a premium for brand loyalty, their spending patterns are increasingly influenced by customer reviews rather than advertisements.  Preferences are also getting more sophisticated.  In the future if we want to buy a laundry detergent we may not select Tide or Arm & Hammer, but results oriented preferences such as “highest quality”, “whiteness”, “cheapest”.   Shopping automation will be the future of retail.
  3. Ease of Building Virtual Companies.   In the past, owning assets like big manufacturing plants was a huge advantage and the key to driving low cost, high margin products.   Today, any and all business capabilities from formulation and design to manufacturing and distribution can be outsourced easily and efficiently.    These new “asset lite” companies don’t have to wait months or years to reconfigure a manufacturing process so they can be agile and cost-effective competitors who can move fast to capitalize on changing consumer and customer preferences.   By CVC investing in start-ups and entrepreneurial companies, not only do corporations gain access to new products, services but new business models that can potentially revolutionize their core businesses.

CVC Will Be the Answer to Large Company Growth

Sooner or later, all businesses, even the most successful, run out of room to grow.   CVC when done right, will enable large companies to leverage their core capabilities (things like sales, marketing, manufacturing, supply chain, distribution, etc.) by partnering with innovative entrepreneurs who see the future and create products, services and solutions to meet tomorrow’s needs.    Pairing these two important sets of skills will enable forward-looking companies to periodically reinvent themselves.   The ability to pull off this difficult feat—to jump from the maturity stage of one business to the growth stage of the next—is what will separate high performers from those whose time at the top is all too brief.

Download a pdf of this article: The Rapid Rise of Corporate Venture Investing

Venadar
Venadar is an Atlanta-based venture development firm and innovation consultancy with a 10 year history of connecting corporations to entrepreneurs for investment and partnership opportunities. Since our founding in 2005, we have successfully delivered hundreds of assignments focused on corporate venturing/partnering for major corporations including assignments for 36 of the Fortune 500.

Clients hire Venadar to create growth and avoid disruption by speeding to market new products, services and business models to create meaningful new businesses with significant revenue & profit streams. We provide a fully outsourced corporate venturing start up service, or can support existing corporate venturing efforts by providing key elements of the "external innovation" execution efforts to fill gaps in the resources or capabilities of the internal venturing team.

Innovation’s Best Kept Secret

venadar dictionary

Venadar is a portmanteau of the words Venture and Radar: Venture because we live deep in the entrepreneurial ecosystem of corporate and venture capital investing and partnerships; and Radar because we have a process and track record for detecting the presence and direction of innovative product and service solutions before they come to the attention of the broader market.  In fact, the Venadar Radar is consistently discovering innovations 3-7 years ahead of the market. 

Search vs. Discovery

We are not a search firm with a tired database powered by a search engine, or a consulting firm with the same prediction of the future for everybody – we discover the emerging companies that have real solutions to the real challenges our clients are facing today. Seth Godin writes in his blog post Search vs. Discovery:

Search and Discovery are not the same; in fact, they couldn’t be much more different.

Search is what we call the action of knowing what you want and questing until you ultimately find it.

Discovery, on the other hand, is what happens when the universe (or an organization, or a friend) helps you encounter something you didn’t even know you were looking for.

The Value of Cross-Pollination

We’ve been told the real value we bring is the cross-pollination of ideas – that is, discovering something “over there”, and teaching and encouraging our clients to repurpose or use it “over here.”  Early on, we were asked to help create “Baby Monitors 2.0” for a client. We found the innovation that was key in the home security industry. In the rearview mirror, it was an obvious fit. We also bring value in the way we craft partnerships. When you create a new billion-dollar opportunity, there is plenty of room for everyone to win. We are skilled in designing corporate-entrepreneurial partnerships, enabling them to be wildly successful and making dreams come true.

Innovation Talent Scouts

We began business over 10 years ago as “innovation talent scouts” who assisted large companies looking to develop or launch fast-to-market products, services and new business models by discovering, recruiting and partnering with entrepreneurs with extraordinary product or service solutions.  As our Fortune 500 client base grew to include some of the world’s most innovative companies, we expanded our services to include the formation of corporate innovation centers, the creation and management of target acquisition pipelines, and the execution and ongoing management of client investments and partnerships. We are now in the business of accelerating corporate growth and addressing competitive threats and customer/consumer risk.   We love to fish and love teaching people how to fish.

At our core, we support corporate “external innovation” by discovering innovations created by emerging companies who would benefit from a relationship with a larger company.  We have over 100 “innovation scouts” in 65 countries (including people on the ground in each of the EU countries, India, Mexico, Brazil, Japan, China, Vietnam, South Korea and others) who fuel our clients’ innovation pipeline with discoveries, and our team has an unsurpassed record of executing successful corporate and business development activities on behalf of major corporations and clients.

Southeast Corporate Innovation Hub

While we have a global reach, we are fortunate to be headquartered in Tech Square, adjacent to The Georgia Institute of Technology in Midtown Atlanta.   Our neighborhood has the highest concentration of startups, venture capitalists, research labs and business incubators in the Southeast with over 2 million square feet of academic, research and innovation density.

The area has also become a destination for corporate innovation centers and R&D outposts, 14 are within walking distance of our office. Companies here include Google for Entrepreneurs, Microsoft, The AT&T Foundry, Stanley Black & Decker, Delta Air Lines, NCR Corp., The Home Depot, The Southern Company, Panasonic Automotive, ThyssenKrupp, Worldpay, Kaiser Permanente, GE, and The Coca-Cola Company.    

Equally important is the burgeoning number of incubators, accelerators and other resources for startups in Midtown Atlanta including TechSquare Labs (our home and one of 25 Google for Entrepreneurs campuses), ATDC, Flashpoint, Atlanta Tech Village, TechStars, Switchyards, Startup Chicks, Forge and more. If you want to know more about our friends in the ‘hood, we’d be happy to show you around.

As we embark on our next ten years, we are still excited by the way entrepreneurs and startups are transforming the way business gets done, how far ahead they see and continuing to craft successful partnerships between leading entrepreneurs and our corporate clients to fuel growth and enable the future.

Mark Kaiser
Venadar’s Founder, President and CEO, Mark Kaiser, has led high-growth organizations as CEO in technology, telecommunications, logistics and healthcare where game-changing technologies were disrupting the status quo. Two of the businesses grew from start-up to $1 billion in revenue in five years or less. Mark has led public and private financing, including venture, mezzanine, IPO and secondary public offerings as a CEO. He has twice won the Forbes magazine Fast Tech 50 award which recognizes the fastest growing companies in the U.S. Mark has been involved in hundreds of acquisitions, implemented partnerships between numerous Fortune 500 companies and entrepreneurs, and is a recognized expert in corporate venturing models.