Corporate leaders today have a difficult task in trying to achieve growth within their large organizations. Global competition has increased, risk capital providers have reduced their investments, and organizational motivations/incentives tend to work against effective long-term growth and survival. Large companies continue to pursue growth, but they tend to focus on “big bets” or major investments/ acquisitions. The rationale for this approach is that only a large investment can make a difference to large, publicly traded organizations. Consequently, senior management tends to spend its time on large strategic projects or acquisitions—not small-scale entrepreneurial initiatives, when exploring growth initiatives. This book suggests that management can do both. In fact, to the extent that management pursues lots of small initiatives (with external parties overseeing the time consuming tasks of deal filtering and analysis), the large organization can leverage its research and development without incurring additional investment. Moreover, pursuing many small, entrepreneurial projects helps diversify the portfolio of risk investments and reduces the risk associated with any major project failing.

This book introduces a new concept referred to as a Strategic Entrepreneurial Unit (SEU). Properly set up and managed, the SEU not only offers many corporations a mechanism for continual renewal, it also alters the structure of corporate incentives, giving senior executives, middle managers, and line employees strong inducement to create lasting corporate value. The model focuses on enhancing the long-term health of the enterprise through strategic affiliations with many small companies. Essentially, the SEU template provides an opportunity for entrepreneurs either internal or external to the large organization, to partner with the big company. This facility creates high potential growth ventures leveraging the brand, intellectual property and infrastructure of the parent without burdening the new SEU venture with the cost structure, corporate culture or politicking of the large company. But this format is not for all companies, and it is not a panacea for poor management, institutional malaise, or an industrial decline.

The concept of the Strategic Entrepreneurial Unit (SEU) emerged from conversations with Corporate Venture Capitalists in the mid 1990s. During this period, Corporate Venturing, or venture capital in the large corporation, was just beginning to emerge as a new model of growth. Corporate executives observed venture capital firms investing in technological advances using risk capital and intellectual property in high technology fields. In many cases, they noticed members of their own firm leave the large company and create a new high potential venture, sometimes in competition with the parent. These new companies competed in the same space and pursued the same customers as the large company. In a few extreme cases the newly created public offerings had a market value that was greater than the parent from which they left just a few years earlier. Clearly, executives at large companies need to do something to help stem this departure of growth. We believe the SEU can assist.

There are a few large companies that have already experimented with an SEU template, and many more that have utilized some aspects of this model. It is really not a radical departure of existing growth templates, but rather a compilation of successful attributes borrowed from prior models from the past. However, the successful implementation of the SEU depends on a number of factors including: corporate culture, market conditions and other existing growth models. It is not a model to be used by every major public company, but could provide some benefit to many.

Executives at large public organizations need a new model of growth and should be interested in this book. Entrepreneurial employees and potential partners outside the organization can also receive benefit. Indeed, anyone who either works at a large company, does business with a large company, or would like to someday partner with a large company might potentially benefit from issues discussed in this book. Again, the limitations of implementation are largely a function of the corporate culture and the perceived need to adapt a new methodology of growth. Most organizations will likely encounter enormous resistance to change given existing incentives to continue on the same predictable path.

The new model rewards risk-taking and provides incentives to those who develop and expand upon the firm’s intellectual capital. Ideally, the new growth template leverages the intellectual capital, distribution networks and cheap access made available by the parent organization yet is not encumbered by self-dealing or bureaucracy lingering in the parent culture. The SEU model is flexible enough so that growth opportunities can come from outside the large firm, or be generated from members within. Further, it enables middle managers to take advantage of small deals so that senior officers are not distracted with minutia from relatively insignificant issues.

Individuals within the organization should be attracted to the concept of the SEU since it gives them a convenient opportunity to live out an entrepreneurial dream without assuming all of the burdens of establishing an entirely new venture (i.e., raising risk capital and creating new intellectual property). Entrepreneurs running businesses external to the large, public organization will find the SEU template a simple method for establishing new business partnerships and extending their strategic direction. In both situations the risk of the new venture should be lower than the risk in developing a venture independent of the parent. Since the new venture will be associated with a parent organization that already has a business presence and infrastructure, without incorporating the high corporate over-head, the potential return should also be higher. Consequently, the SEU concept should create value for both the members of the venture as well as the parent organization.

Although it is likely that no single (small) SEU will, by itself, result in a measurable impact to the large, publicly traded parent organization, the growth of a portfolio of numerous, small and diversified SEU ventures could easily surpass the net contributions of a few enormous (non SEU) projects. As part of a diversified approach, the large organization should pursue growth both from traditional research and development and venture initiatives as well as SEU ventures. With respect to the latter, it is important that the SEU structure be established by senior management to allow independence and the opportunity to grow without undue influence from external parties.

Our research began in the mid 1990s when we first initiated interviews with Corporate Venture capitalists (we had interviews over three years) and then developed into a theoretical model in the late 1990s. We refined this concept while engaged in full time research at Harvard (at the Harvard Business School as well as the John F. Kennedy School of Government and Harvard Law Schools) and have since developed this concept. There were a number of faculty at Harvard that provided insight to this book, though they are, of course, absolved from any blame or errors included within. These include: Professor Hall and Professor Sebenius (both from Harvard Business School), Professor Mnookin (Harvard Law School), and Professor Gergen (Kennedy School of Government). Each of them provided insights that were very beneficial in developing our models. In addition to our empirical analysis at Harvard we gained additional insight in this subject from many research projects that we assigned as faculty at Babson College. In total, we received input generated from over 100 projects including more than three hundred Babson Graduate and Undergraduate students.

This project began in 1995 and ended in 2003. Corporate venturing has changed appreciably during this time period along with other models of corporate growth. The impetus for organizations to grow will continue irrespective of time period. However, methodologies will vary depending on market dynamics and opportunity availability. Applications suggested in the following pages have been primarily designed for individuals conducting business with large, publicly traded companies. It is possible, perhaps even likely, that extensions or derivations of these models might also apply to governmental bodies and private companies. Ultimately the successful approach to corporate venturing requires a careful blend of talent, financing and opportunity. The key is to ensure that value is being created in the marketplace and that the rewards are being fairly allocated to the satisfaction of all stakeholders involved. This book has been prepared with the spirit of these principles in mind.