Ventures are defined as ‘a new activity, usually in business, that involves risk or uncertainty; a risky or daring journey or undertaking’. This means that, by their very nature, they are exposed to new risk. Ventures are supposed to be a journey into uncharted territory in search of value, where the prize is only available after risks are overcome. Indeed, much of humanity’s scientific, technological and economic progress has been propelled by our ability to take risks. In fact, the world would be quite a different place if some of those risks hadn’t been taken to push the boundaries of existing possibilities.
So, why are large multinational corporations, with an abundance of talented and dedicated professionals, unable to do much better than the ‘garage’ startups? Some of the challenges we identified that impact a corporation’s ability to succeed include:
Failure to recognise biases: Institutional memory and its inherent biases can become the hallmark of a large corporation’s activities and also create blind spots. Conversely, new entrants may not have had the experience to identify risks that those who have been in a large organisation can foresee. The key is recognising that we each have our inherent blind spots.
Inability to scale flexible, risk-based approaches: Given large corporations’ predilection to build fail-safe and consistent approaches, their ability to see risk-based approaches that can flex and be strong enough to meet the needs of multiple parties (ventures, the wider corporation and regulators) is often reduced to process improvements, rather than definitive new principal-led models.
Low incentives for Business and Risk teams to cooperate with adequate independence: In a system of checks and balances strongly based on separation and independence, an appropriate level of collaboration of Business and Risk teams can become an anathema.
Politics: This often arose from a human desire to maintain acquired territories, including the methods, governance structures and reporting lines that underpinned them – even if these should be fundamentally changed to compete effectively with the outside world.
How did we build an innovative approach to risk and compliance for ventures that prioritises freedom and growth while also creating control and the ability to pivot?
- We worked together and assumed the best intentions of our peers when co-creating new approaches. We found that we had the most impact and accountability when the Business, Risk and Governance teams from both the ventures and the wider corporation (i.e. the head office) co-develop approaches, policies and risk software for the venture together. This type of collaboration had each other’s interests at the forefront. However, for this approach to operate effectively we needed to make sure we worked with the right stakeholders within these teams. Stakeholders that had insight into the venture and what might be around the corner. Without this accountability, the risk approach could become meaningless.
How do you design tools for speed?
- Racing a Formula One car requires a different level of control than taking the family car to the supermarket. Similarly, the frameworks, policies and tools built for scalable, efficient and highly regulated corporations don’t necessarily make sense for a five- to 20-person business with a lower risk level. This doesn’t mean that these frameworks aren’t vital to success, but that they need to be purposefully built. This is no simple task. Over the past year, we have spent – and continue to spend – time challenging and revising our existing policies, procedures and tools so that they are clear, simple and appropriate for the size and nature of the venture. This takes time but it’s worth it. We have seen first-hand how a strong risk programme can add direct value to our ventures in the kind of external investment they attract.
If a corporate venture wants to go as fast as it possibly can, as safely as possible, what do you need? Answer: Business, Risk, Governance, Ventures and head office working together in the ‘pit’ to co-create effective risk and governance programs that allow the venture to accelerate at speed in a controlled manner and to drive up enterprise value. When the Business team engages Risk right from the beginning, and then along the journey at each key milestone, the process of analysing and managing the risk and governance for a venture becomes faster, smoother and more efficient. Importantly, this level of cooperation doesn’t get in the way of independence but allows for greater transparency, safety and speed. Cooperation with independence can be achieved.
The earlier risk programmes are embedded, the more value they can add for investors.