Apr 20, 2010
Harnessing the Power of Proven Entrepreneurial Techniques to Drive Innovation in a Large Company.
By William K. Aulet (MIT Entrepreneurship Center), Ricardo dos Santos (Qualcomm, MIT Sloan MBA’97), Stig Poulsen (Danfoss Ventures) and William R. Wagner (Hewlett Packard, MIT PhD’83 Course V).
The following table summarizes the three corporate business plans we will review. Each competition was independently created to uniquely reflect the goals and culture of their respective host companies.
Danfoss has become a mature company operating in mature markets. Entrepreneurship and radical innovation, formerly hallmarks of the company, have been on the wane. In an attempt to change this trend, the company’s CEO sponsored a number of initiatives before the idea of an internal business plan competition emerged. “Man on the Moon”, inspired by MIT’s $50K competition5, was started in 2004 and has since become an annual event.
The original objectives of the competition were to stimulate cultural change that embraced entrepreneurial skills and behaviors. It was eventually discovered that great business ideas were emerging from the competition, which now includes radical business innovation as a goal. The competition has created additional deal flow for the corporate venturing unit and has helped to identify employees with entrepreneurial talents for their most promising new ventures. Man on the Moon and related activities are coordinated and sponsored by the Danfoss Ventures department. Danfoss Ventures reports directly to a group of the Danfoss C-level executives and is led by the CEO.
The competition is open to all Danfoss employees. Competitors retain the responsibilities of their normal jobs while competing on a spare time basis. The competition seeks proposals of three types: (1) those that create an entirely new line of business; (2) those creating new businesses adjacent to current lines; and (3) improvements to existing business with either a 5-10X improvement in features and performance or cost reductions of >50%. Each year a specific theme is chosen based on challenges the company is expected to face in the coming years. For example, the 2008 competition theme was “Buildings of the future.” The theme in 2004 was “Oil at $100 per barrel.” These themes are only suggestions, and any proposal consistent with company strategy is invited.
Employees compete in teams of 4-5 people created during an initial selection period. Functional and personal diversity within the teams is strongly encouraged. Teams apply for participation by submitting a summary of their business proposal and a description of each team member’s skills and anticipated contributions. Based on a one-page summary, about 12 teams are chosen to compete in the first round. During this phase, the focus is on strengthening the ability of the teams to articulate their value proposition through a strong one-minute elevator pitch. A one-day networking, training, and team building event kicks off this first phase. After a six-week development period, a two-page executive summary and a ten-minute pitch are presented to a jury of Danfoss senior executives and external judges, who choose the five teams that advance to the competition’s second phase.
During this next six-week phase, the focus shifts to business concept development. The teams work to build a strong business model, incorporating customer insights and commitment, financial forecasts, and a solid understanding of the resources required for execution. Instruction in entrepreneurship and business acumen is provided as the competing teams finalize their entries through a mix of live training classes and online courses, as well as coaching from Danfoss Ventures.
The second round culminates in a ten-minute presentation to Danfoss Ventures’ Investment Committee (the CEO, COO, CFO and divisional presidents), which selects two proposals based on the criteria of market potential, market entry strategy, value proposition sustainability, and the quality of the presentation. A winner and runner up are chosen. Both teams are awarded the opportunity to attend the MIT’s one-week Entrepreneurship Development Program at MIT.
The participants receive development resources for needed travel, market analysis, demos, patents, and consultants. In the initial stages, the costs for these services average $10-12K per team. In latter stages of development, this can increase to over $100K. Teams are allowed to use internal and external resources. Possibly the most valuable resource arises from leveraging the global resources of the Danfoss Group and its 23K employees. The competition has minimal formal rules to allow for creativity and to encourage initiative.
One incentive to participate is increased visibility among company executives. The competition is a valuable career development opportunity. At the conclusion of the competiton, participants can choose to pursue a more entrepreneurial path within Danfoss. Approximately 10% of participants shift their career focus in the company and embark on a new path within venturing or new business creation. For many other participants, the commercialization of their idea is the most important reward.
Danfoss Ventures accepts the most promising of the competition’s business proposals for further investigation towards the ultimate goal of launching them as new businesses. Team members have the option of participation in this incubation phase. Each proposal is developed using established corporate venturing processes, which ultimately lead to a decision to either incubate as stand-alone businesses, integrate into existing businesses, spin out, or reject. To date, two ventures have been funded in incubation, three have been funded and formally launched as new businesses inside existing businesses, and on average one proposal is spun out after every other year of the competition.
Man on the Moon Participation
HP’s Flashpoint business plan competition began as a grass roots initiative from the inspiration of a member of the company’s new business creation team. Inspired by the MIT $50K competition, he set out to create a corporate business plan competition that could deliver the business and organizational benefits of those commonly held in academic programs. The competitions are run entirely by volunteers under the sponsorship of the Chief Technology Officer and a senior executive responsible for technology and product development.
The competition has been held twice. It seeks to teach and promote entrepreneurial behaviors such as passion, resourcefulness, flexibility, and skillful promotion. It also aims to improve overall business acumen and presentation skills, particularly among the scientific and engineering community. The first competition, Flashpoint 2006, offered an opportunity to benefit from that competition experience but made no advance commitment to the incubation of winning proposals. The second competition, Flashpoint 2.0, focused on a specific business area of strategic importance to HP. Teams were challenged to develop business proposals targeting that area of business. $200K in incubation funding was offered as the top prize. This proved to be a far more attractive competition structure, and participation doubled as teams found the lure of seed funding a compelling attraction.
HP employees compete in Flashpoint in teams of 3-5 people. After registering, the teams create two-page executive summaries, a simple format that presents a low barrier to entry. Since it is a primary goal of Flashpoint to teach business planning skills, it is important to attract potential competitors who do not already possess those skills. The executive summaries are distributed to an internal network of business planners and managers for judging, using a template that grades on a variety of criteria.6 Each summary is graded by multiple judges, whose scores are averaged to select 10-15 proposals which advance to the next stage of the competition, during which full business plans are developed.
A Flashpoint web portal was created, through which employees can access information about the competition as well as a variety of resources on innovation, entrepreneurship, business planning, presentation skills, and company strategy. Competitors who progress to the second (semifinal) round are provided with a coach, typically a business manager with experience in business plan writing. Teams are provided with a business plan template describing each required section of their submission. Business plans must be no longer than ten pages including all text, graphics, and supporting materials. The plan must be accompanied by a brief PowerPoint pitch of no more than seven slides. Three months are allotted for business plan writing. Brevity in the plan and presentation are required as a way to encourage clarity and focus. Teams learn that they must be able to present a compelling picture in just a few minutes, and they are encouraged to develop a strong elevator statement as a means of distilling their messages.
Three finalist teams are selected by a panel of judges including company executives, venture capitalists, and business school professors, who meet to review all of the business plans. The judging criteria employed in the semi-final round include the overall quality of the business plan document, business attractiveness, addressability by HP, technical feasibility, and the perceived ability of the team to successfully incubate and launch the proposed business. To address this last criterion, teams are interviewed by at least one of the judges, who then presents her findings to the rest of the panel. The three finalist teams are given one month to hone their plans and presentations in advance of the final judging, which takes place at a formal banquet. Each team presents a ten minute pitch, followed by a Q&A session with the judging panel of senior executives who select the winning entry.
A variety of incentives is offered to participants. Volunteers receive certificates and trophies acknowledging their service. The banquet event held at the end of the competition offers competitors and participants an opportunity to be recognized by senior executives in a lively social atmosphere. In addition to the incubation funding, members attend MIT’s one-week Entrepreneurship Development Program at MIT.
Flashpoint has proven to be a widely popular event that attracts participants from every part of HP’s business and geographic locations. Through the competition’s web portal and the competing team’s own websites, blogs, and wiki pages, all behind HP’s firewall, employees follow the progress of the competitors and access the professional development materials provided. During the final stages of the competition, the Flashpoint webpage is routinely in the top ten internal websites in terms of daily visitors. Team blogs have proven to be an effective way of engaging direct participation by employees as they offer suggestions and volunteer assistance. Surveys show a high level of enthusiasm for the competition and a strong desire to participate in future rounds.
Qualcomm: Venture Fest
Qualcomm created its internal business plan competition, Qualcomm Venture Fest (QVF), in 2006 to add a formal selection mechanism to its online idea management system, the Qualcomm Innovation Network (QIN). There are four main objectives behind QVF:
- Develop entrepreneurial leaders (most important) who can articulate ideas into plans, build a coalition of support, and execute expediently and frugally
- Promote the company’s culture of shared responsibility for innovation
- Discover potential breakthrough opportunities for the company
- Experiment with management innovation practices (e.g. collective intelligence, self-forming teams, and internal markets).
QVF is managed by a small team of experienced new business development professionals housed in corporate R&D. The QVF management team reports on a dotted-line basis to the company’s CEO, who champions the program.
QVF is a yearly competition open to all full-time employees. Each competition has either an internal or external “opportunity identification” theme. For example, QVF’09 had an internal “Fusion” theme, seeking new combinations of existing products and capabilities while QVF’10 has an “Out Sight” theme, seeking external innovations that can be enhanced by Qualcomm.
To compete in QVF, an employee submits a short business plan summary into a section of the company’s QIN web tool. The submission period is open for approximately six months. The down-selection process for the 10-15 finalists consists of two rounds of ”collective intelligence” mechanisms lasting four to six weeks.7
When an employee’s business plan summary is selected to be a finalist, he or she must recruit a diverse team of 3–10 volunteers. The teams undergo a three month “Boot Camp” on a spare-time basis. The Boot Camp includes a series of core and elective courses (~40 hours over three months) in corporate entrepreneurship and innovation. The core courses are taught by specialist consultants and university professors. The elective courses are taught by internal subject matter experts in fields such as financial analysis and intellectual property. The teams entering the QVF Boot Camp are provided with a micro-fund, which can be used for internal or external expenses such as demo equipment, market research, and expert consulting. Teams also recruit a VP-level mentor and expert advisors, similar to the process followed by a start-up company.
Teams prepare a full business plan for 20-minute presentations, including Q&A, to the judges, who include the CEO, President, CFO, COO and CTO. The judges select the top three prizes among the finalist teams and announce the winners at an all-employee finale event.
The key incentive for participants in QVF is the opportunity to work on real business plans. The program offers a uniquely contextual educational, networking, and mentorship opportunity in the key principles of corporate entrepreneurship, including the art of discovering breakthrough concepts, and moving them forward through internal and external networking and early-stage bootstrapping. QVF also offers competitors unique visibility in the company and official recognition for their efforts. Finally, there is a genuine chance that the proposed venture will become a reality in some form, and that selected team members will continue to work on their project after the competition’s conclusion. This has been the case with several QVF concepts.
The top three teams are granted a second round of modest seed funding to take them through a more in-depth proof-of-concept or diligence phase. The remaining teams do not have this guarantee of seed funding but many have been successful in securing funding through existing departmental innovation budgets. Executive judges are kept abreast of developments and receive periodic updates so they can determine the ultimate home for the various teams, whether inside an existing business unit or in a temporary incubator like corporate R&D. Expectations are set that not all teams will succeed in securing funding or reaching market launch.
Results of the QVF have been promising. Participation has increased 50% y/y. The number of team members in the finalist teams in nearly 100. The QVF Boot Camp is producing high quality business plans and well trained future corporate entrepreneurial leaders. About 75% of the business plans receive funding for proof-of-concept activities. Ultimately, about 20% are implemented as new businesses with continued involvement from their original champions. Some plans also become incorporated into existing projects or result in the filing of significant IP for future use. The most prominent success to date is the Zeebo wireless gaming console – a disruptive gaming solution targeting emerging markets recently launched in Brazil and Mexico.8
Venture Fest Participation
This article has been written jointly by William Aulet (MIT Entrepreneurship Center), Ricardo dos Santos (Qualcomm), Stig Poulsen (Danfoss Ventures) and William R. Wagner (Hewlett Packard). It belongs to a series of 3 articles on the subject of Driving Innovation In Large Corporations.
- William K. Aulet is the Managing Director of the MIT Entrepreneurship Center.
- Ricardo dos Santos (MIT Sloan MBA’97) is the Sr. Director of Business Creation & Development, Qualcomm Innovation Network / Qualcomm Ventures / Corporate R&D.
- Stig Poulsen is the Vice President, Danfoss A/S, & General Manager of Danfoss Ventures A/S.
- Dr. William R. Wagner (MIT PhD’83 Course V) is the New Business Program Manager, HP Imaging and Printing Group.
- Entrepreneurship Development Program, MIT-Sloan (http://entrepreneurship.mit.edu/edp.php)
- Now the $100K Business Plan Competition.
- Criteria incude the clear identification of a target customer set, a quantified value proposition, preliminary financial assumptions, and clarity of presentation.
- Mechanisms include peer and expert ratings and a decision market game.
- Zeebo (http://zeeboinc.com/)