Tomasz Rudolf is a serial entrepreneur and corporate innovator from Poland. He’s currently focused on growing The Heart, founded 5 years ago to help corporations bring new ventures to life. The Heart is a corporate center for digital ventures, joining forces with leading multinationals to build digital startups – future suppliers, partners, distributors and disruptors- and unleashing value added services for big companies.
By working with management boards and internal innovation teams, he saw the increasing need to support disruptive new models through partnerships and investment in ready to scale startups. He’s writing on this topic, and he kindly accepted to disclose purpose and selected insights from the future book.
I was growing up in a time of transformation. I was 12 when the freedom & market economy came to communist Poland. I was fascinated how quickly everything around us was changing – almost all industries were being recreated within a few years.
I ended up becoming an entrepreneur myself. Since I set up my first business being 19, I have been passionate about discovery and creation of new businesses and ventures, especially within large companies. For many years I believed that with the right process – from idea management, stage gate, design thinking to blue ocean strategy, you can incubate new ventures inside corporations. I worked with companies worldwide, in USA India or Saudi Arabia, helping them create new business models. And I hit the wall many times. The more successful we were with designing something really breakthrough, the harder it was to launch it within existing corporate structures. Many of the barriers reminded me of the centralization and 5-year planning I knew from the Soviet administrative-command system.
I knew there must be a better way for incumbents to innovate, and co-founded The Heart as a center where we co-create future businesses without the limitations that slow down the process. As a corporate venture studio, we build future suppliers, partners, distributors or disruptors of leading multinationals. Finally, we are in the driver’s seat and can take full responsibility for the process. And the fact that we are headquartered in the heart of Europe’s growing hub of corporate IT & R&D shared service centers, is actually helping us a lot.
2. How did the idea of a book on corporate venture building & studios came up to you? What problem is it solving for corporations?
I see the ability to imagine and co-create future value chains critical for so many industries. It’s obvious, especially now during COVID-19 pandemic, that companies need the ability to reinvent themselves. At the same time, corporate muscles for building new businesses are often not well developed or covered by organizational fat and politics.
The book is a bridge between two worlds. First, it analyzes lessons learned from global pioneers building new businesses within large companies. After all, there is a lot to be learned from good and bad examples. Second, it compares those findings with principles used by professional venture studios to manufacture portfolios of new companies every year. I think there are many unexpected lessons to be learned from startup studios. “Companies that build companies” like Flagship Pioneering or Rocket Internet had to find solutions that reduce the risk of failure, otherwise they would not be able to build portfolios of over 100 companies worth billions of dollars. Clayton Christensen has taught us to study anomalies, and I believe that we can learn a lot about innovation and entrepreneurship from such professional venture builders (Editors’note: learn here how to distinguish accelerator / incubator from startups studio and ventures builder).
3. Who are the exemplary pioneers of corporate venture building that you portray in your book? Coca-Cola Founders?
When we started venture building at The Heart, Coca-Cola Founders platform was definitely a huge inspiration. We invited one of the leaders, Marius Swart, to one of our first corporate roundtables, and were totally blown away by the approach. Inspiring entrepreneurs to solve industry’s billions dollar problems and supporting them with seed capital, relationships and reach of a large corporation seemed like a perfect win-win. Thanks to our strategic partnership with Mastercard, whose global CEO Ajay Banga opened our hub in Warsaw, we could bring that model to over a dozen other corporations already. In the book, I am sharing lessons learned from that journey, with all the ups and downs. I have also spent the last year interviewing other corporate venture building leaders from companies like BBVA, Standard Chartered or Swisscom.
4. Would you describe the ‘venture builder model’ that you designed? What are the inputs and outputs or deliverables for a partnering corporation?
There are many forms of venture builders – some like Rocket Internet often building companies inspired by proven models and scaling them fast internationally. Others work as an agency that charges corporations for the incubation and hands over the venture after the first year or two. What is common in each of them is that you think of portfolios, not individual ventures. You act like a VC, investing in multiple ideas, knowing from the beginning that not all of them will be successful. And you build resources to support that process at every stage – from idea to exit.
The Heart’s model is built on a deep understanding of corporate needs and strategies. Many of our partners have been working with us for years, and we have helped them scout solutions to their business problems. Whenever we identify an area that hasn’t been properly addressed by existing players, we analyze the concept for co-creating a new market player together. But we are not just waiting to build “startups on demand”. As entrepreneurs, we increasingly initiate this process and take full responsibility for bringing the right partners and investors together around a concept we believe in. Our growing shared service center (soon approaching 100 people) supports the validation of new concepts and builds best ideas as independent spin-offs.
5. Let’s dig in the exit scenarios for the new ventures issued from your model. What are they? Are we speaking of independent start-up / spin-off (“suppliers, VAS, distributors, disruptors”), as well as spin-in as a new business line or business unit, subsidiary, etc?
Not all of the ventures need to be integrated into corporations as business units, at least initially. The exploration of new business models is probably easier, cheaper and faster when done without the corporation as a majority shareholder. The risk for the brand is eliminated if you test a new disruptive model in a separate company. It’s also healthy if the founders building the business can pivot without waiting for a decision by a committee. And anyone who has built businesses knows that startups rarely end up to be exactly what was promised in the initial PowerPoint. Corporations do not like that unpredictability. But a company that co-creates a new venture always has an option to integrate it in the future, once a certain scale & maturity has been achieved. Recently, we have built a fully digital insurance broker that was acquired and integrated by its corporate sponsor during COVID-19. We could build it faster without the legacy systems or political anti-bodies.
Another common pattern is corporations co-creating their future suppliers. Recently, we have helped a global FMCG giant build a talent marketplace app, connecting employees to projects and opportunities inside the company. Such a solution can be further developed as an HR Tech supplier and be applied by other corporations. Companies spend billions on software procurement and internal IT development – venture building a supplier is an interesting alternative, creating a strong product owner, motivated to grow the solution and share the costs with other enterprises.
6. How do you facilitate the transitioning from exploration to exploitation?
Our whole company is built to facilitate that process. When running a venture studio with a company like Mastercard, we can use our regular meetings and investment committees to review opportunities and launch quick Concept Unboxing projects. Whenever the validation is positive, we can quickly turn it into a project. Once an MVP checks all the required boxes, we launch a new company to support its further scaling. This process of creation is gradually being standardized with tools and templates, and supported by our growing pool of experts in the shared service center. We act as entrepreneurs and co-founders and identify the best person to lead the company after we know better the skills and experience necessary.
7. Is The Heart investing, i.e taking shares, in the ventures built?
Yes, we take full responsibility for the ventures we build and have shares in them. The actual cap table depends on the contributions & role of the parties involved. We do have ventures where we are the majority owner and main driver of the business, and some in which we support the business in selected areas and therefore own a lesser share.
I can see a growing blend of early stage VC and venture building activities. Company builders like Atomic or Merantix have successfully raised their funds to invest in the whole portfolio of companies they create.
8. Can you share a few success stories that prove your model works? What is your current flow of venture building (portfolio)?
We have a vision of building a portfolio of 100 ventures with corporate partners in the coming years. Over a dozen are already being built and many more being validated in our labs.
A recent success story has been Digital Gateways, a company we built in collaboration with Mastercard. It provides banks like Credit Agricole with capability to onboard customers remotely, which is key right now during the pandemic. Within 6 months after the concept for this company was created, we were already onboarding first bank’s customers. What I am really proud of is that such ventures require enterprise-ready technology and highest security and compliance standards. Without a team that spent years within leading banks or insurance companies we would not be able to pull it off.
Another example is Mobility Benefit – a new service for employers, allowing them to give all of their employees the option of a private car lease using corporate fleet discounts. This digital platform, built with Auto Fus Group, one of the leading BMW’s dealers in Poland, is creating a brand new digital channel for selling & financing cars.
9. Reversely, what have you learned from failures?
We do not have failures yet, though at some point they will come with longer maturity of our portfolio. We have multiple experiments where the idea lacked business viability, customer desirability or technical feasibility. In some cases, we put the concept on a shelf to restart when the environment changes, ie. thanks to more friendly regulation.
We are learning how to keep our ventures safe and protected from organizational politics. We know well that large corporate “parent” can help a lot, but also unintentionally stifle the development of a startup. We once built a startup for a regional HQ of an insurance company, helping it to respond to an opportunity caused by a local change of regulation. The company was ready to launch within months, but we lacked the global approval to launch it. Finally, the company decided not to enter this market and sold the new venture to another corporation.
Corporations are complex living organisms, with a constant powerplay of sometimes conflicting interests. It’s healthier if the daily decision-making is not affected by that, and the startup CEO can act as an independent entrepreneur, not waiting to have every decision approved.
10. You are building a portfolio of ventures with Mastercard. What is the sectorial focus of this collaboration?
Mastercard is a fascinating company, with a broad range of services for banks, retailers and consumers. Working together, we try to co-create the future of payments, commerce and data.
11. Last but not least, when will the book be available?
The book will be available by the end of 2021, but I am already sharing some of the content & models with interested corporations. It’s a new area – we are all still learning how to make venture studios work best and how to leverage them for corporate innovation.