Jochen Wolf, why is corporate innovation building so incredibly difficult?

If you look at the German startup landscape, there are only a few successful startups which emerged from large corporations. So, why are there just a few, despite the massive activities driven by the large corporations, to promote innovation?

Jochen: The problem is often not so much the ventures, but the unwillingness of corporations to finance a project over a longer period of time. In corporations, you are often dependent on the politics of the day. There is often a lack of patience to actually implement an idea end to end. 

Another reason is to have the right mindset. Getting involved in the startup world when it comes to share distribution and not keeping the majority requires courage.

Furthermore there is an insane amount of money to be spent in those ventures, to make it work.

A startup needs 5 – 10 years until success is visible. Hardly any traditional German company has the patience to finance a project continuously for such a long time.

What leads startups carved out of corporates to success? Is there a general recipe for success?

Jochen: Well, I see three main points. 

First: Articulate your expectation – What is the goal? Are we  able to hold a minority shares, keep the venture on a long leash and open up to external investors, or do we need to stay in control of everything? 

Second: An excellent founding team is essential.

Third: Consider your strategic goal. Is it necessary to control the project and thus finance it yourself entirely, or are you willing to give up control and also let external investors participate in financing?

Hardly any German company really manages to implement innovation in such a way that they achieve great market relevance. 

Is that really the case, and if so, what is the reason?

Jochen: There are a few positive examples. However, a startup needs 5 – 10 years until success is visible. Hardly any traditional German company has the courage and patience to finance a project for such a long time.

Many projects are stopped already at an early stage – in the corporate environment often projects in which a lot of money has already been invested and which are already showing traction. In some cases, it is not worthwhile for board members to push projects for which they will never receive any benefits during the timespan of their professional career, since the compensation process is relatively focused on saving money and immediate results.

In such context, a start-up driven strategy and development is almost impossible.  

Jochen: Yes, clearly, that’s the issue. Startups become profitable after they developed to a scalable model, absorbing many resources on the growth path.

Aggressive investments are important. Being able and willing to invest aggrisevely in those projects is almost non-existent in corporate environment. Most corporations avoid to include external capital provider. People often say, “Okay well, we’d better end the project before we continue to invest even more money with an uncertain outcome.”

The first wave is over. But there will be a second and third wave. Simply because there is no alternative for many corporations.

Do you see the trend towards corporate venture building and incubators, innovation units leveling off yet?

Jochen: The first wave is over.

But there will be a second and third wave. Simply because there is no alternative for many corporations. For many it is the last possibility as something has to happen in order to survive. It’s difficult to turn your own ship around within your core business. Therefore it’s easier to move to an external environment. Potentially it will look very different from what we see today. More numbers driven and pressure to succeed on those innovation units and generally it will be more strategy-driven than it is today.

Right now, we see a lot of trial and error. In the second wave, people will know what works and what doesn’t work, and they will learn from their mistakes.

There are large companies that succeed in systematically innovating and occupying new business areas. Why do Apple, Amazon and Co. manage to succeed compared to German corporations?

Jochen: I believe it is easier for technology firms to innovate than for traditional companies. For example, if the core business has hardly changed in the  last 60 years, they are stuck in revisiting their structures. 

American technology firms often stand out because of their more aggressive and riskier business models. Their mindset promotes the will to make major investments.

Large investments need a certain trust by investors. But to gain this trust you obviously need a track record. 

So our final question:  What is your best take away from venture building?

Jochen: It is incredibly great to see that people from a corporate environment who take the risk of building a startup, completely transform in the process and become real entrepreneurs.