Mauricio Andujar is Global Partner at Vivaldi, the business transformation firm.
The financial services sector is at a tipping point with a clear choice for brands – either disrupt or get disrupted. With a rising number of startups and challenger brands pulling customers away from traditional banks, in today’s increasingly competitive business landscape, how can established FS companies ultimately drive profitability and brand growth?
The answer lies in Venture Building – a new way to think about developing value, creation and innovation. At its core, it’s a way for established businesses to create, promote and foster an entrepreneurial mindset, and when done well, it brings to bear the strengths of the existing company, combining it with new, disruptive thinking.
Venture Building is the process an established business takes to innovate and create a new venture, which in many ways can be considered an internal startup. And in the Financial Services industry, never has there been a greater imperative for disruption.
Take ING Labs – one example of successful Venture Building, which uses ING’s knowledge and network to bring products and businesses to market, creating viable businesses that, once ready to scale, are spun out either as standalone companies supported by ING or as businesses that continue to develop within the bank.
In recent years, the rise in the number of challenger brands has shaken up the banking sector like never before, forcing more traditional banks to respond and embrace disruptive thinking in order to stay relevant and retain customers. The harsh reality is, those that don’t are at real risk of failure. To put this into context, according to Gartner, 33 per cent of global consumers are considering a new financial organisation when considering a new service by 2030. What’s more, 80 per cent of heritage financial services firms will go out of business, become commoditised or exist in name only by 2030.
Venture Building is a valuable strategic approach for established companies to remain on the cutting edge. As disruptive ventures threaten the market share and even the existence of established FS companies, Venture Building is a way to bring to bear the full capabilities of a seasoned organisation to drive change. An example of this is Nequi – a venture that was designed, launched and accelerated by Bancolombia (one of the most important banks in Colombia). Bancolombia created this new “digital only” bank, which is now an entirely separate entity.
For sustained business growth, the need for Venture Building is critical. Many companies think about innovation as simply optimising a product or service or creating a portfolio extension as part of their already-existing business. But when you want to create disruptive innovation, the truth is you have to have an independent space for it. Space that’s not about the physical, but the mindset.
The reality is that conventional models for innovation in old, established companies are often bogged down in bureaucracy and standardised processes. If they want to avoid being disrupted by a nimble startup, they need to create a new way of driving and sustaining innovation. It is for this reason that a number of independent venture studios have sprung up, such as High Alfa, which provides Venture Building services to corporations for both a fee and equity, and Rainmaking, which is a co-investor of the corporation in the venture creation. It doesn’t charge fees, but becomes an equity partner from the start, with a clear route to exit.
Creating Venture Building Infrastructure
FS companies need to do more than just put budget towards innovation. They need a sustained, organised and ongoing approach to Venture Building that becomes, in itself, a part of the business fabric, and they need to commit to it long-term. In a sense, the business needs to develop its own Venture Building skills so that when the opportunity presents itself, the company can make rapid advances with additional ventures.
Don’t forget – people are a core element of successful Venture Building. Organisations need to embrace the idea that creative, disruptive and surprising people are essential to building an entrepreneurial venture internally. Hiring approaches may be counter to the conventional tactics used, especially in traditional companies. And what’s more, successful Venture Building sometimes means hiring people who would not normally be considered “a good fit.”
Established FS companies often have a considerable advantage over startups as they can do so much more than merely providing space and opportunity. These companies need to bring to bear their core capabilities — sales, distribution, logistics, and storage — to the new business as it grows. The new venture should be confident in tapping into and leveraging the existing infrastructure.
Partnerships are Critical
Outside partnerships are critical, particularly when it comes to raising funds. Don’t forget that a venture that is “born” from a corporation can also receive funding from other investors, such as VC firms. According to the CB Insights Report, Corporate Venture Capital (CVC) reached an all-time high in 2021 of $169.3bn, with a number of factors fuelling this rapid growth, including a 39 per cent increase in CVC-backed deals, a modest increase in late-stage deals and a significant jump in $100m+ mega-rounds. Don’t be afraid of looking for investors outside of the corporation or holding group, especially when you consider that VC money can also bring with it other connections and value-add.
Venture capital also provides an entrepreneurial approach to building ideas and companies. They have the skills and expertise in growing small businesses, and they also have a different management approach, one that relies on speed, reaching milestones and driving results. A VC company can help a new business evolve from hitting milestones to gaining access to capital, and from using KPIs to gauge progress to ultimately achieving growth.
So as we embark on a new Financial Year, FS businesses should embrace Venture Building as a way to create, promote and foster an entrepreneurial mindset, in order to drive innovation and growth, and ultimately to survive.
