Introducing Venture Management

Getting out of the “Valley of Death”

Many involved in large corporations with big R&D spends talk about the “Valley of Death”, the place where good ideas languish and millions of pounds and man-hours are wasted.  We want to discuss a new management discipline called Venture Management which is designed to get innovations – and those responsible for them – over or out of this Valley.  If you are involved in taking innovations to market or are uncomfortably aware of the number of stranded assets in your company, then we hope what we have to say of interest.

A systematic Venture Management approach in an R&D heavy corporate environment could reduce the costs and returns of innovation by millions of dollars; and more successful commercialisation and leverage of IP portfolios could improve a company’s share price by an average of 3-5% per annum.  How?

1. Properly validating potential and returns at the outset and permanently grounding up to 50% of proposed innovation launches would release far greater resources to be focused on fewer successes, thereby reducing the risk of changes in capital allocations;

2. By improving commercialisation rates onto the runway over the” Valley of Death” by a factor of 10 with a strong focus on implementation and accelerating market launch.  The right mix of talent, with deep corporate experience, a dose of management consulting, and the experience of having launched successful businesses in market, are essential to delivering these capabilities to clients and actually commercialising the business on their behalf;

3. Combining a systemic Venture Management programme to new innovation development and very active capital allocation to business units that are performing best can deliver dramatic results.  McKinsey research shows that those companies that reallocated more resources – the top third of the sample, shifing an average of 56% of capital across business units over the entire 15 year period – earned on average 30% higher total returns to shareholders annually than companies in the bottom third of the sample.  In addition, variance in returns diminished and active capital allocators were far less prone to takeover or bankruptcy.  It also appears that more “static” CEOs who allocated less capital, less aggressively in the first three years of their tenure, were significantly more likely to be removed from post in years four to six!

So what is Venture Management?

1.  Venture Management accelerates and de-risks the process of bringing companies’ new innovations or stranded assets to market.  It is based on hard-won experience in the field and an acute understanding of the internal challenges that companies face in creating maximum value from their innovations and assets.

2.  It is the art of disciplined, systemic, team entrepreneurship (as opposed to solo entrepreneurship).  It is about the willingness to seek out the new and the “difficult but valuable.”  Venture Management means the sharing of risk by the corporation and the Venture Management firm.  The latter does not get paid unless targets are met.

3.  It validates, launches, manages and accelerates ventures for major corporates through the use of specialist teams comprising individuals with over 20 years’ experience each.

4.  The Venture Management approach relies on “boots up” (ie. real) not desktop data, resulting in better decisions on whether to allocate capital or halt activity.

5.  Venture Management is about delivering outcomes not reports; it starts where management consultancy ends.

At Pilot Lite Ventures we have been pioneering Venture Management for over six years and in that time have worked for many global brands in the FTSE100 and Fortune 500.  Our success rate in bringing innovations successfully to market is ten times that of corporates going solo and two and a half times better than leading investment firms (success means meeting,, exceeding or tracking against client success the KPIs established at the start of the process).  With portfolio projects we forecast IRR and investment expectations of between 20% and 25% over a five year period for projects in the health, pharmaceutical and oil & gas sectors.  For single product projects covering sectors as diverse as diabetes management and powered winch and cable technology, IRR forecasts are between 50% and 70%.

Some of our insights

In our six years we have proved that a systematic Venture Management approach in an R&D-heavy corporate environment can reduce the costs and returns of innovation by millions of dollars.  And in that time we have gleaned a number of key insights:

  • Over 80% of our clients tell us they do not believe they start from investment-grade information and material.  (Why should executive boards be expected to invest in new things based on sub-standard material?)
  • Properly validating potential returns at the outset and permanently grounding up to 50% of proposed innovation launches would release far greater resources to be focused on fewer successes, thereby reducing the risk of changes in capital allocations.
  • Knowing what to stop is essential in effectively managing a portfolio of innovation.The criteria for effectively launching new innovations should be anchored in three words – Valuable, Viable and Financeable.  If a new initiative does not meet one of these three criteria we say, “Stop, it may be clever but it is not valuable.” This ensures that the innovation budget is focused on the concepts that can deliver commercial success and not diluted across a sea of speculative initiatives.  Delivery with impact requires focus – and this means focusing resources to make it happen.
  • “Disciplined entrepreneurialism” is not an oxymoron but the missing ingredient in bringing innovations successfully to market.  Corporates have discipline, risk management, procedure and governance.  Entrepreneurs have energy, creativity, freedom to adapt and operate.  What delivers is the proven blend of both – turning a good idea into a real business.
  • Corporates need to allocate money more aggressively to genuine growth parts of their business.  Combining a systemic Venture Management programme to new innovations development and very active capital allocation to business units that are performing best can deliver dramatic results.
  • Successfully delivering innovations to market requires the right mix of talent, deep corporate experience, a dose of management consulting and the experience of having launched successful businesses in market.

We hope it is apparent that we are clear about what we think and the approach we take – all based on our six years of Venture Management and before that on our firsthand experience and knowledge of how corprates, consultancies and entrepreneurs think.  We have been described as “refreshingly honest” which we like to think means we speak to the point in our commitment to helping our clients navigate and escape the “Valley of Death”.  For example, we think that just because something is clever does not mean it is right.  We would like creativity to be defined in terms of output and change, not unworkable ideas created by jumping around in dungarees and spraying Post-It notes.  We think that many corporates do not “do” Venture Management very well and that management consultancies do not do it at all.  And most people in R&D cannot write a business plan.

Regarding the people we hire, we do not want entrepreneurs or seasoned executives going into consultancies.  We require someone who has the approach of a disciplined entrepreneur, who understands the consultancy models and the client (corporate) mind-set.  These individuals are quite rare.

In summary

Our vision is for a world where the maximum possible value from investment in corporate innovation and R&D is realised regardless of changes in corporate objectives, strategy and markets.  We believe far more value – for companies, their shareholders, customers and societies at large – can be identified as viable, valuable and financeable, and then realised, if we change the way we all work.

Of course, we recognise that in the typical corporate mind-set we do not exist and that Venture Management is a new space.  It is not a widely used or understood term.  However, we think that this is about to change and that you will start to hear more about Venture Management.  The appetite among companies to manage and deliver innovation is growing.  We hope this has whetted yours.

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