Corporations are designed for scale, efficiency, and predictability.

Strategy leaders and CEOs run a tight ship today. Their goal is simple:

‍Ensure their companies achieve near-term revenue targets and routinely improve operational efficiency to make steady progress toward their North Star strategic business goals.

This makes sense. They need to appease board members and investors by focusing primarily on their P&L.

The qualities of top leaders (relentless pursuit of capital efficiency, optimization for safety and predictability) are what helps them turn their businesses into market leaders (or puts them on a path to becoming such).

However, they also create big barriers to exploring transformative innovation opportunities away from the core, like building new startups that address business, strategy, market, and/or partner problems.

‍The internal systems that drive operational excellence — long decision cycles, risk aversion, rigid structures — stifle the agility and experimentation needed for external venture-building success.

This paradox explains why so many corporate innovation programs fail to deliver meaningful results.

But there’s a solution: partnering with a dedicated venture builder with a proven track record of building companies that address unmet audience needs, attract early-stage investment from VCs, and enable corporations to diversify their own portfolio of companies beyond early-stage startups they already back.

Why Corporations Struggle to Build Startups

Before explaining the value of a venture builder, it's worth understanding why corporations fail to build startups on their own — the systemic issues regarding their innovation infrastructure and approaches that prevent them from building their own sustainable, startup-creation engine in-house. 

The options available to scaled companies in their corporate innovation toolkit are many. Each one provides some tangible form of ROI. Consider the R&D and M&A functions at any scaled company today.

Today, R&D and M&A are primary tools for driving innovation and growth. Investments made by both business units rise annually like clockwork. That said, these departments aren’t as capable of breakthrough growth as they used to be, thanks largely to the democratization and ubiquity of AI.

Building new products is more difficult to execute and less financially lucrative than in previous years.

That doesn’t mean R&D and M&A aren’t still essential. They absolutely are and will remain vital. It just means they shouldn't be the only tools corporations use to drive and accelerate growth — and that  startup creation should get more attention.

The issue lies in the challenges large corporations face with executing on external venture building.

Facing the Innovator’s Dilemma

Corporations face what Clayton Christensen famously called the Innovator’s Dilemma. They are incentivized to focus on incremental improvements that serve existing customers and protect core revenue streams.

But disruptive innovation often requires betting on unproven markets or business models — moves that can feel too risky for organizations beholden to shareholders and quarterly earnings reports.

"The Innovator's Dilemma is a very tricky problem to solve," our CEO, Elliott Parker, wrote in "The Illusion of Innovation." "To address it, companies must choose to accept some capital inefficiency in their operations."

Dealing with Legacy Business Constraints

Corporate startups are often hampered by legacy systems, policies, and cultures that prioritize consistency over creativity. Decision-making processes are slow, and leaders are rarely empowered to take bold risks.

"Change is coming, whether corporations want it or not,” according to Elliott.

“The future is approaching very quickly, and it’s going to be much weirder than we can imagine," he continued. "We need our scaled institutions to be better at solving big problems again.”

They can only do so, though, when operational barriers that prevent corporations from pivoting to venture building (i.e., allocating resources to explore new business models and act on top ideas quickly and efficiently) and on-the-ground innovators from executing on those ideas are removed.

Misaligning on Timelines and Metrics

Startups thrive on rapid iteration and pivoting until they find product-market fit.

Corporations, however, operate on longer timelines with strict ROI expectations.

This misalignment often leads to premature shutdowns of promising ventures, or the illusion of innovation, where resources are spent on flashy initiatives that fail to generate real impact.

"There is a tremendous amount of innovation theater that, quite frankly, wastes both the corporate innovation team's time and the startups time," Morgan Berman said on a recent episode of our Advantaged podcast.

"There's a lot of things that have been done just in the name of innovation that don't yield any results."

Balancing Speed and Governance

Corporate bureaucracy can slow down startup-creation momentum. While startups themselves thrive on quick iterations and pivots, corporate governance often requires multiple approvals and extensive documentation.

This mismatch in operational speed and requirements to get sign-off at various stages of the venture-building process can greatly impede a corporation’s ability to respond to market changes or seize opportunities.

The trick to set the stage for working with a venture builder is to "properly structure and manage the incentives and governance, appropriately matching them to the needs of the new ventures," said Elliott.

What a Venture Builder Brings to the Table

Dedicated venture builders solve these issues by operating outside corporate constraints while leveraging corporate resources. Here’s how they do it.

Adopting a Problem-First Approach

Venture builders start by identifying unmet needs or market gaps rather than jumping straight into solutions. Their problem-led startup ideation approach ensures that new ventures address real customer pain points rather than chasing trends or creating solutions in search of problems. By unearthing anomalies and new insights, venture builders help corporations future-proof their innovation strategy.

Breaking Free from Bureaucracy

Operating outside the core business allows external venture builders to move quickly and take risks without being bogged down by internal politics, multiple stakeholders, and slow decision-making processes. Yet they remain strategically aligned with corporate goals, ensuring each venture contributes to long-term growth.

"If a primary product of a company is bureaucratic deadlock, we should wonder whether such stasis is a feature or a bug of the organizational design and objectives," said Elliott.

Providing End-to-End Support

Venture builders provide comprehensive support throughout the startup lifecycle:

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• Market research. Speak with customers who fit the ICP for a proposed business idea.
• Assumption testing. Aim to validate and down-select concepts rapidly and efficiently.
• Business modeling. Craft business models to discern a potential startup's feasibility.
• Product development. Find strong-fit tech hires to own and drive the product roadmap.
• Go-to-market strategy. Put initial sales motions and marketing strategies in place.
• Fundraising. Help secure pre-seed funding for founders to provide day-zero advantage.

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This holistic approach greatly increases the likelihood of success with building new, advantaged companies quickly and efficiently compared to traditional innovation management methods employed by enterprises.

Partnering with a Proven Venture Builder

Executives often expect quick wins from innovation initiatives. But real transformation takes time. As Elliott said, "Optimism bestows resilience and adaptability. ... Be non-consensus and right in the long term."

‍Translation? External venture building is a long game that requires patience, persistence, and a willingness to place several bets on the future.

One way corporations can scale their startup creation efforts is by establishing a corporate venture studio: a repeatable framework for launching multiple startups over time, enabling corporations to generate new insights while maintaining strategic alignment with their core business.

This model not only de-risks individual ventures but also creates a pipeline of innovation capable of driving sustained growth and, in turn, making the core business more resilient and able to withstand growing competition and the eventuality of black-swan events disrupting operations.

By combining entrepreneurial agility with corporate resources, venture studios allow corporations to solve really hard, intractable problems at scale and future-proof their organizations against uncertainty and volatility.

Bottom line: Most corporations aren’t built for the messy process of creating startups from scratch. That’s why external venture builders have become indispensable partners for CEOs, CIOs, CFOs, and strategy leaders looking to unlock growth and transformation through startup creation.

The question isn’t whether corporations should embrace this model.

Rather, it’s how soon they’ll start reaping its benefits.

After all, as Elliott reminds us, “Change is hard. But leaders’ willingness to reinvent and humility about the future are what help long-lived institutions endure by pivoting into new spaces when required.”