→  You Can Unleash the Unicorns Within

Silicon Valley doesn’t run on some arcane alchemy; rather, it operates on a few simple rules repeated thousands of times each day. Understand customer pain, marry that with the art of the possible—the technology and trends currently available to solve that pain—and place a series of small bets. It’s not wizardry. Put it all together and you’ll find a handful of basic, easily replicable activities that, yes, mere mortals can accomplish.

In this book, we’ll offer a learnable, repeatable, scalable process for disrupting from the inside out—helping you create, build, and launch a pipeline and portfolio of new ventures generated from within to drive meaningful growth. And just like a real Silicon Valley venture capital portfolio, some of those ventures you will kill, some will be singles, some doubles, others triples, and yes, you, too, will produce Unicorns. As the well-regarded founder of Cowboy Ventures, Aileen Lee, noted when she coined the term in 2013, and Dan Primack and Erin Griffith further defined in a Fortune cover story in 2015, “A Unicorn is a privately-held startup valued at $1 billion or more.”⁵

Imagine what a valuation like that would do to your market capitalization. It’s time to embrace your internal entrepreneurs. It is time to leverage your core competencies, assets, and customers. It’s time to believe in your ability to launch new ventures, as they represent your best chance of beating the disruptors knocking down your walls.

We’ve proven that great companies from all over the world in all industry sectors—from banking to energy, consumer packaged goods, industrial, insurance, consulting, engineering, media, health care, and more—with all kinds of competitive challenges can create, build, and launch new ventures.

Whether you are the CEO, a member of the C-suite, or an internal entrepreneur, this book is meant to create a virtual immersion into Venture Building, striving to get as close as we can to simulating the actual experience between two covers.

Of course, it won’t have all our on-site, personal interaction and day-to-day guidance and mentoring from our experienced team of successful operating executives, venture capitalists (VCs), serial entrepreneurs, and specialists, but it will give you an overview of the whole process.^* If nothing else, it will show you the best path to escaping your doldrums and getting back into the fight, to once again become the opponent your competitors—and startups—most fear.

→  What Will You Get Out of Reading This Book?

First, we will provide you with a systematic process for generating new business initiatives and new ventures with the greatest chance of success, all while preparing the parent company—the Mothership—to deal with the presence of these new enterprises within its operations.

We will include insights and activities related to the full spectrum of venture creation, including:

1.  Ideate. Generating, prioritizing, and winnowing out good ideas for potential ventures.

2.  Incubate. Finding customer pain, developing product or service solutions to solve that pain, and exploring business models able to generate significant growth (viable ventures with prepared teams and actionable business and operating plans).

3.  Accelerate. Launching new enterprises with a series of pilots and small bets to reduce risk, find ultimate product-market fit, and generate revenue (scalable businesses).

4.  Scale. Seizing the Mothership Advantage to ensure the ventures can reach escape velocity and outrun their startup or peer company competitors. Leveraging the Mothership’s assets and overcoming its inertia will ensure your ventures can beat even the most well-funded startups.

Ultimately, the goal is for Venture Building to become a repeatable, scalable activity for your company so that you can establish a pipeline and portfolio of new ventures to drive growth—and recruit and retain talented employees who will be eager to populate these new enterprises—for years to come. Building a perpetual Growth Engine in the form of a Venture Factory to launch multiple ventures is far less expensive than getting disrupted and going out of business, and far more effective than having to buy that pesky startup competitor at a ridiculous valuation and deal with all the headaches that come with acquisitions and post-merger integrations.

Repeat after me: you can without a doubt incubate growth. With a team of employees and just three months of dedicated work, that team can create a new business initiative—including a robust operating and execution plan to run it—as innovative and customer driven as anything seen in Silicon Valley. And at the end of twelve weeks, you can have a new venture ready to launch, with:

• A passionate set of founders
• A powerful product or service solving real customer pain—including a minimum viable product (MVP) and a product road map to roll out the much larger opportunity
• Customers excited to be part of the first pilots
• An initial go-to-market plan to test
• Identified risks and a series of experiments and small bets to launch to mitigate those risks, including a set of metrics and milestones that ensure the removal of the greatest risk on the least amount of capital
• A parent company that has been trained to support the new venture
• Champions at the executive level of the parent company to protect the new venture

Silicon Valley will not eat your lunch. Your company has built-in advantages in terms of ideas, capital, intellectual property, customers, brand, goodwill, global reach, and homegrown talent. You just need to unleash those advantages.

→  It’s Not That Hard— It’s Also Not Fairy Dust

We know what we say is true because of years and years of experience and evidence.

First, we live and work in Silicon Valley; many of us grew up here. For example, I am a Silicon Valley native. I was born in San Francisco and was lucky enough to grow up with the people who founded the venture capital industry. Those pioneers were all friends of my family, so I have been deeply rooted and connected in Silicon Valley my entire life. I am even married to my best friend and thirty-year veteran of Silicon Valley Paul Holland—a twice successful entrepreneur with two IPOs in his operating career (Pure Software founded by Reed Hastings, and Kana Communications founded by Mark Gainey and Michael Horvath) and a top-tier venture capitalist with the extremely successful Silicon Valley venture firm Foundation Capital for twenty years.

However, much of my professional career has been in the boardrooms and C-suites of the Global 500, so I am blessed to be truly bilingual in these two worlds. I have worked in global strategy, driving innovation for almost thirty years. I was the cofounder and CEO of Strategos with Gary Hamel, who, with C. K. Prahalad, wrote the first game-changing business book ever written on corporate innovation, Competing for the Future—giving me a front-row seat to the dawning paradigm shift in the focus of global corporations from generic strategy and operations improvement to innovation. In addition, I sat on the board of directors of Sybase, a New York Stock Exchange, Fortune 500 company, for ten years until it was sold to SAP, and I have been doing private investing and board work for startups for years. Meanwhile, most of my friends, neighbors, and Mach49 teammates are fellow Silicon Valley entrepreneurs. Our three daughters are entrepreneurs, each starting companies or major projects by the time they were fifteen. In other words, Silicon Valley entrepreneurialism and risk taking flow in our blood. We know how this place really works—truly better than any outsider ever could—and we know what works.

In their careers, the team at Mach49 has worked with, and frankly been, those entrepreneurs and venture capitalists that keep the titans of industry sleepless at night. We know how smart these entrepreneurs are, but we also know that they aren’t as prescient as the popular press makes them out to be. And they certainly aren’t invincible. On the contrary, every day we see the mistakes they make and their vulnerabilities. We know the statistics; each year, the average VC hears about two thousand new companies, may investigate about two hundred, will invest in twenty, and perhaps two will really make those big returns you hear about. (What happens to the rest of them? Shhh, don’t ask.)

We understand that many successful companies are so only because their established competitors let them succeed. Agility, speed, a relentless focus on customer pain, and a sense of urgency are why startups win and become Unicorns. The “Dinosaurs,” as people who don’t know better like to call our beloved global enterprises, cede the game even before it begins.

Second, as much as we love Silicon Valley and startups, we have an objective view of the Valley myth. We know that the process may look like magic, but I’ll say it again, it isn’t that hard.

→  Why Your Unicorns Should Win

If done properly, corporate ventures should have a higher success rate than their independent counterparts. Their destiny is to succeed, not fail—and the only reason for their high mortality rate is a failure of execution.

Independent startup teams typically don’t have a robust mechanism to ideate—their ventures are already the result of someone’s or some team’s preexisting idea. Often, one or more of the founders independently comes up with a clever idea and then recruits others to join the venture by selling them on the dream. They haven’t the money, the experience, or the bandwidth to come up with a dozen new venture ideas to sort through and test to see which ones will work. As a result, the actual sifting process that a corporate Venture Factory can go through to assess which ventures solve real customer pain, which solutions can actually be built, and which ideas are likely to make a lot of money with little sacrifice is instead a life-or-death event for a startup team: if its idea isn’t workable or fails to find product-market fit, it burns through cash and shuts down. Hence, the mortality rate of startups of 90 percent or more, even in a supporting environment like Silicon Valley.

Here are some of the latest statistics:⁶

• Ninety percent of new startups fail.
• Seventy-five percent of venture-backed startups fail.
• Under 50 percent of businesses make it to their fifth year.
• Thirty-three percent of startups make it to the ten-year mark.
• Only 40 percent of startups actually turn a profit.
• Eighty-two percent of businesses that fail do so because of cash flow problems, which means they didn’t find product-market fit fast enough.
• The highest failure rate occurs in the information industry (63 percent).

A second advantage is that most independent startups are unable or unwilling to do much market and customer testing, and if they do, they have no rigorous and robust model for conducting those interviews to ensure their findings are accurate. One reason is that they are often engineers with a technology-first mindset versus a customer pain–first mindset, so they end up being a technology in search of a market. The other issue is that they have no customers yet to query, whereas big companies often have millions of them.

Too often, startups build the product first, at which point, the entrepreneurs aren’t really interested in whether customers have pain; they just want to know what you like or don’t like about the product. The problem is, research demonstrates that once you have a product that looks anywhere near complete, your interviewees feel sorry for you and won’t tell you the truth. They might tell you what they like or don’t like but are frankly too polite to admit that they didn’t want the product in the first place, so as good as it looks, they’ll never buy it.

Finally, startups have neither the years of experience nor the data every corporation is sitting on. So, instead, they rely on gut feel. Sometimes they get it right (Steve Jobs’s realization that people wanted personal computers), but most of the time, judging by the statistics, they get it wrong. Fatally so. The advantage of an internal startup is that the parent company already has a customer base that, if leveraged well, can provide the fledgling venture with a base of people to interview and a great way to look for pain.

As for accelerating and scaling, the differences here are even more obvious. The independent startup has to find enough capital to underwrite going to full scale—fast. How fast? In the modern digital economy, it means reaching millions of customers in a matter of months (particularly so with a software app or service), and funding that can consume vast sums of capital for customer acquisition, production, sales, staffing, and so on. That’s why only two or three emerge at the other end of the venture investment process as Unicorn companies with tens of millions in investment and a valuation of a billion dollars or more.

By comparison, internal ventures can develop inside enterprises that are already at scale—that have long since implemented the tools and processes related to marketing, production, manufacturing, distribution, service, support, and so on to deal with a giant customer base. And if they can’t build, they can often also use the cash on their balance sheets to buy, partner, or invest, which enables them to grow without impacting their expenses.

The worst part of being in an independent startup is having to regularly go hat in hand to beg for money from investors, nearly all of which will turn you down. The company is perpetually at risk because each step requires an even greater commitment from those investors. If you don’t meet your targets, that money source can dry up overnight—or you will find yourself as the founder but no longer the CEO. That’s why so many interesting startups disappear. By comparison, an internal startup, if it has the full commitment of senior management, can devote its efforts to actually building the enterprise and meeting its goals, with the knowledge that the next round of funding is waiting, assuming it hits its metrics and milestones.

Ultimately, the independent startup process is incredibly wasteful. And a lot of man-years of talented work by all those teams of ardent entrepreneurs are tossed away, not because VCs don’t care about entrepreneurs—most of the good ones indeed have been entrepreneurs—but because their job is to return three to ten times the funds to their Limited Partners (LPs). So they need to focus on those with the most potential. Also, while many VCs have experience and networks to share with their startups, they don’t have a methodology, so most entrepreneurs just wing it.

By comparison, large companies are disciplined enough to implement a repeatable, scalable model to incubate their ventures. They are also incentivized to kill ideas early, whereas a VC may prefer to keep any one venture alive—often longer than it makes sense—as that may provide enough time for another venture to have a positive return to offset the potential loss. The VCs succeed or fail in raising subsequent funds by having enough startups with positive results that they can minimize their limited partners’ focus on the walking dead or failed. By implementing methodology and metrics from the start that may scream “this venture has no future,” large companies will find they are killing off ideas, rather than companies. As a result, the corporations can conserve capital and talent. And we can avoid the human damage as team members aren’t thrown out on the street but can remain valued employees of the company, often even more prepared and experienced to incubate the next venture or drive customer-driven change in the core business.

Put this way, internal entrepreneurship and new venture creation, rather than being a poor shadow of its garage startup counterpart, actually presents a much more appealing business strategy. And that is exactly what we have found through our decades of experience. It is that understanding—along with a detailed road map focused on execution—that we are offering to you in this playbook.

Done right, that is, following the opportunity pipeline from identifying customer pain to marrying that pain with the art of the possible in terms of the technology and trends available to solve that pain, then testing the reality of the solution in the marketplace by making small bets on the best opportunities—rigorously selecting the winners along the way—it is possible to achieve far greater odds of success than is ever found in the world of independent startups. (We know this is true because even our VC friends are beginning to come and ask us for help.) And then, as the best candidates for growth are found, the parent company can bring to bear all of its unique advantages, from capital to infrastructure to customers to, perhaps most important of all, patience (though not too much of that) to create an environment for success that can never be matched in the world of venture capital.

In other words, given all the factors at work, there is a better chance for an internally generated and incubated new startup to succeed than an independent one.

→  Managing the Mothership

So, why isn’t more internal incubation occurring? Or rather, why do big companies believe that internal ventures are doomed to fail? Because the statistics aren’t so great. Sifted, the new innovation media platform for the Financial Times, recently reported statistics from Alex Mahr of Stryber that “traditional startups have an 11% success rate, that increases to 12% if the venture had been part of a Silicon-Valley-like accelerator (think Y Combinator, Techstars, or 500 startups) but the number decreases to 8% if the venture was part of a corporate incubator/accelerator.”⁷

Sifted asked me to explain why those statistics were so bad, and I highlighted three main reasons.⁸

→  Your Road Map

In the pages that follow, we are going to give you a step-by-step guide for disrupting inside out and unleashing the Unicorns within—including a repeatable, scalable process for incubating those ventures in just twelve weeks, which includes more than managing the Mothership. It includes seizing the Mothership advantage.

In part 1, “Getting Started,” we walk you through everything you need in advance of actually beginning to incubate your new ventures with a focus on preconditions for success, people, and preparation. We will include tips for recruiting and assessing New Venture Team members and New Venture Board members, and others who you may need to rely on in your Venture Building activities. We will also provide you with a Preparing to Incubate guide that will include ideas for setting up your space (whether physical or virtual), acquiring the necessary materials, and implementing the technology tools you need to make the twelve weeks work efficiently and effectively.

Part 2, “Building Ventures,” gives you options for generating great ideas you can start to incubate and a step-by-step guide to incubating your new ventures. Part 2 covers the spectrum of new venture creation, including Ideate, Incubate, and Accelerate. We will break down the twelve weeks of incubation into three very practical phases: Customer, Product, and Business, providing methodology, templates, and tools throughout. And we will break the Accelerate phase into its three stages as well: Build to Validate, Build to Automate, and Build to Grow.

In part 3, “Institutionalizing Growth,” we want to speak directly to the C-suite and senior executives who need to drive these ventures and help them reach escape velocity as members of the New Venture Board. We will provide explicit processes and practices to protect and nurture new ventures to enable them to succeed. We teach senior executives and the Mothership to do the hard work right alongside the internal entrepreneurs—to remove the behaviors and orthodoxies that typically starve new ideas of oxygen, at best, and at worst, kill them. When we are talking to the C-suite executives, we discuss New Venture Advocates and the need to build the internal ecosystem that will help your ventures seize the Mothership advantage—all those things that create the competitive advantage over even the most well-funded startups.

We will also provide you with our client-tested and -validated framework for building your own Venture Factory, including key questions you need to answer as part of the design work. Organic Venture Building through your own incubator and accelerator—your own Venture Factory—is critical to developing a thriving Growth Engine; corporate venture investing, strategic partnering, and tactical M&A are the other three arrows you need in your Growth Engine quiver, but we will leave those topics for another day (or the next book).

You won’t need to break the bank to do any of the activities we lay out in the book. You won’t have to gut your company, though you will likely have to change some attitudes. You won’t have to do some massive innovation transformation, though there may be some investments you will want to make to create that group of New Venture Advocates who become innovators inside the company’s core functions. And you won’t have to rob your company of its key talent; on the contrary, you’ll increase your chances of keeping those people and recruiting a new class of disruptors.

We promise you the worst that can happen is that your New Venture Team members and New Venture Board will have learned valuable lessons about finding customer pain that you can use in your core and legacy businesses. At best, you will create, build, and launch not just one new venture, but a pipeline and portfolio of new ventures—generated from within, ultimately in your own Venture Factory and founded by your own talent—that will restore your company to a level of competitiveness it hasn’t known in years, one that will provide a powerful source of new revenue and will defend against outside disruption. That will transform the market’s perception of your company as a value stock to a growth stock. And it will enjoy a native advantage in future competition with disruptors. Indeed, your company will become the disruptor; you will build the Unicorns.

→  We Need You; Get to Work

Large corporations must develop an autonomic, repeatable, scalable ability to create and innovate, not least because many of the large, complex problems the world faces—poverty, disease, climate change, water, racism, education, and others—cannot be solved by dysfunctional governments. Nor can they be solved by nongovernmental organizations (NGOs) on their own, because as wonderful, well meaning, and dedicated as NGOs are, they don’t have the experience or resources to solve problems at global scale. Large companies do; and if they lean in and believe they can change themselves, they can also change the world for the better.

That’s why we wrote this book; we want to share what we have learned helping established companies become young and disruptive again. We want to give people in those companies meaningful, purposeful, creative work. And we don’t just mean the millennials: disruptors come in every age, gender, race, sexual orientation, geography, learning difference, or any other category you want to define. We want to foster as much positive innovation and growth as possible. And to do that, we are hoping to share our playbook in as portable and cogent a way as possible.

If you can tap into and cultivate your advantages, if you can become more agile and innovative, not only can big companies survive, but the impact on society overall will be historic—in a positive way. There is no reason why the next generation of Unicorn companies must come out of Silicon Valley; they should come from everywhere. They can come from your organization. Indeed, we promise you do have Unicorns within. There is no inherent upper limit on how many multibillion-dollar companies there can be in the world, nor on the potential amount of human creativity and innovation that they can unleash.

Are you up for the journey? Good. Let’s begin.

1. * Though I’m the sole author of this book, the methodologies, activities, templates, and tools have been collaboratively developed and forged by a wonderful team of extraordinary colleagues at my company, Mach49. To honor the spirit of our work together, I’ll be using “we” throughout the book.