There are two ways companies react to unprecedented events like the COVID-19 pandemic:
- They stick with the status quo. However, doing so often puts their business at the mercy of market fluctuations and other ripple effects of those occurrences.
- They strategically leverage insights from these events and think outside the box — for instance, by building new companies and future-proofing the core business.
‘Black-swan’ events like the global pandemic offer large-scale organizations a silver lining:
The chance to create startups that solve big problems
By doing so — and, ideally, with an external venture-building partner, not by creating companies on their own in-house — they can establish another, entirely new revenue stream.
This ‘bonus’ revenue can help them withstand the next down period(s) caused by these kinds of fluky events — and even enable them to thrive during these uncertain times.
The boom-and-bust cycle: Lessons learned from COVID-19 and other black-swan events
The COVID-19 pandemic obviously caused a lot of instability for many businesses. The abrupt surge in demand for specific products and services created a phase of rapid expansion.
However, as the crisis stabilized, this intense consumer demand also subsided, leading to a steep decline.
COVID-19 “shattered the demand forecasts that guide retailers and suppliers of consumer goods and services in figuring out how much to order or manufacture, where to stock inventory, and how much to advertise or discount,” Bain & Co. analysts wrote in late 2020.
In turn, these companies didn’t know how to effectively modify their go-to-market strategies, manage their supply chains, and accurately forecast demand for their offerings.
This boom-and-bust cycle vividly exemplifies how black-swan events can affect companies.
Corporations that depend exclusively on responding to external disruptions (as opposed to proactively planning for their potential arrival) expose themselves to market fluctuations.
Amid the global pandemic, many firms adapted effectively to increased demand for their products and services. But, when conditions normalized, a lack of a proactive strategy led to issues in managing a swift decline in demand.
This reactive philosophy revealed these organizations' susceptibility to the cyclical traits of such crises.
It also emphasized their need for a more robust and forward-looking strategy.
Look no further than the below, fairly recent black-swan events for prime examples of how external market forces can disrupt operations and put corporate C-suites on their heels.
Fukushima Nuclear Disaster (2011)
Triggered by a massive earthquake and tsunami, the Fukushima Daiichi nuclear disaster in Japan had wide-ranging effects on the global energy market and supply chains.
The incident prompted a big shift in energy policies worldwide, with many countries reevaluating their nuclear energy programs and increasing investments in renewable energy sources.
Oil Price Crash (2014)
The dramatic decline in oil prices in 2014 (dropping 60% in a seven-month period) was driven by oversupply and reduced demand, and had a huge impact on the global energy sector.
Oil-dependent economies and companies experienced major financial issues. These problems led to layoffs, bankruptcies, and a reevaluation of energy-investment strategies.
Brexit (2016)
The UK's unexpected decision to leave the EU in 2016 sent ripples through global markets. Companies across industries, from finance to manufacturing, faced uncertainty, and had to navigate new trade regulations and economic conditions.
This particular event highlighted the need for large-scaled businesses to develop more-flexible and -adaptive strategies to cope with unprecedented geopolitical changes.
U.S.-China Trade War (2018-20)
The trade tensions between the U.S. and China resulted in tariffs on billions of dollars worth of goods. They ultimately disrupted global supply chains and affected many industries, including tech, agriculture, and manufacturing.
Companies had to quickly adapt to the changing trade environment, underscoring the need for proactive strategies that could help them deal with economic and political uncertainties.
COVID-19 (2020-23)
A report by McKinsey & Company revealed that the pandemic triggered the deepest global recession since World War II, with global GDP contracting by 3.5% in 2020. This economic downturn was met with a never-before-seen fiscal stimulus, as governments worldwide deployed roughly $10 trillion in measures to mitigate the impact.
To exemplify the effects of unforeseen events such as COVID-19, in particular, it’s worth looking at the stock performance of well-known corporations that prospered at the time but are now encountering difficulties.
Peloton, Zoom, DocuSign, Teladoc, Shopify, and Wayfair are just a small sample of large-scale businesses that all saw remarkable growth, as demand for their offerings skyrocketed during the pandemic.
However, as the pandemic waned so too did their stock prices.
In hindsight, leaders at these organizations likely would’ve done a lot of things differently, like innovate more outside the core business. That’s where venture building could have helped (and can still help) corporations like these.
Some large companies may think it’s best to have their internal corporate venturing teams tackle startup creation.
The reality is “an external crisis can unsettle CV units’ internal legitimacy” and leave them scrambling for resources to build in-house, as a recent study published in the Review of Managerial Science found.
The better option (and one that will prevent corporations from engaging in an Illusion of Innovation)?
Work with a venture builder who has the necessary resources and blueprint to facilitate company creation.
The strategic necessity of corporate venture building to thrive amid uncertainty
Instead of simply reacting to market changes and focusing on core product enhancements, it’s becoming increasingly important for corporations to take proactive measures to ensure their survival and success.
And one of the best ways these companies can do just that is to build new startups that can augment their primary business model and revenue stream.
By pursuing corporate venture building, large organizations can utilize their distinct insights, strengths, and market knowledge to create new startups that address gaps and opportunities.
“Whereas incubators, accelerators, and venture funds tend to be reactive — waiting for somebody else to come up with an idea and launch a company — our view is that corporations know where the problems are,” High Alpha Innovation CEO Elliott Parker shared in a recent interview with InnoLead.
“Why wait for others to go build the company for you?"
This forward-thinking strategy reduces the risks linked to unpredictable setbacks.
What’s more, it enables companies to take advantage of new trends and market dynamics.
By embracing startup creation — and, more specifically, working with a venture builder with to build new companies in a structured and streamlined manner at scale through a venture studio — leaders at large enterprises can:
- Harness unique insights. As an executive, you have unmatched access to market data, customer feedback, and industry trends. These valuable insights play a vital role in uncovering new avenues for innovation and growth.
- Foster innovation. Venture building nurtures a culture of innovation. By consistently exploring and developing fresh business ideas, you cultivate an atmosphere that promotes creativity and progressive thinking.
- Reduce risks. Engaging in venture building enables you to broaden your business portfolio. This diversification acts as a safeguard against market fluctuations, minimizing the effects of any single occurrence on your enterprise.
- Capture opportunities. Actively pursuing the development of new ventures allows you to take advantage of emerging trends and technologies. This positions your company at the forefront of your industry, prepared to adapt to evolving customer demands and regulatory changes.
- Enhance your agility. Venture building creates a learning organization that captures insights not found anywhere else in the world by world-class entrepreneurs. By regularly experimenting with new ideas and business models, your company becomes more adaptable to change, better prepared to respond to future disruptions.
At High Alpha Innovation, we collaborate with scaled organizations, including but not limited to corporations (universities, states, and non-profits as well), to build companies that solve big problems of interest to our partners.
Our established approach involves problem-led ideation, market research, customer validation, strategic funding, and the hiring of qualified executives to take on founding roles to turn groundbreaking concepts into thriving enterprises.
We engage closely with CEOs, Directors of Innovation, VPs of Strategy, and the like at our corporate partners to understand their venture-building ambitions.
Through this collaboration, we pinpoint opportunities, devise practical strategies, and implement venture-building initiatives that foster growth and sustainability and lead to the launch of scalable and venture-backable businesses.
Businesses' experience throughout the pandemic underscore the necessity to adopt proactive strategies rather than merely responding to challenges as they arise. By embracing venture building, your organization can explore new business avenues, spur innovation, and foster a more resilient and adaptable enterprise.
All that’s required to get going is a dedicated venture builder who’s ready to assist you on this journey to transform your visionary concepts into achievable and tangible realities.
