What is Venture Clienting?

The venture client model is a corporate-startup engagement approach where corporations become early clients of external startups, purchasing and using their products or services without taking equity. This model provides startups with revenue, market validation, and feedback while the corporations gain early access to cutting-edge technologies, driving innovation, and competitive advantage with lower financial risk. In order to work, Venture Clienting requires the corporate to adapt procurement and cooperation policies and to have an effective management of the engagement in place. The approach has been around for quite a while under different names, then fallen out of fashion and just recently re-surfaced as Venture Clienting. In the following paragraphs, we argue that Venture Clienting can have to very different purposes: 1) solving internal problems or 2) developing new customer offerings.

1) Venture Clienting to Solve Internal Problems

Venture Clienting as a means to address internal problems involves using external solutions to enhance organizational efficiency. This approach focuses on leveraging external startups' innovative solutions to solve existing challenges within the company. While this method can lead to cost savings and operational improvements, it has little to do with Venture Building. Venture Building is inherently about creating new business ventures, not solving internal “problems”.

The primary objective in venture clienting’s first potential aim is to make the organization better by adopting advanced technologies or processes developed externally. For instance, a company might partner with a startup that offers a cutting-edge project management tool to streamline its internal processes. The difference to traditional purchasing is, that in Venture Clienting, the corporate deliberately becomes a customer of a startup, and thus waives some of its normal purchasing policies. While this can significantly enhance efficiency, it doesn't align with the core essence of venturing, which involves creating and scaling new businesses.

2) Venture Clienting to Develop New Customer Offerings

On the other hand, Venture Clienting can also help in establishing new customer offerings. When a company identifies a market need or an opportunity, instead of developing an entire solution in-house, a corporate could partner with a startup that already has a relevant offering. Hence the corporate would become a customer of the startup, then create new products or services for the market, by building something around or on top of the startup technology in order to make it “theirs”. This approach could be framed as a buy/partner strategy for venturing rather than building everything from scratch.

This method can expedite the development process, reduce risks, and leverage the startup's expertise. For example, a corporate venturing unit might partner with a fintech startup to develop a new digital banking service by integrating the startup's technology with the corporation's existing customer offerings.

Why This Approach Makes Sense, Especially for the MVP Phase

‍Adopting Venture Clienting for developing new customer offerings can be particularly beneficial during the MVP (Minimum Viable Product) phase. By leveraging existing solutions, companies can quickly bring products to market, test their viability, and make necessary adjustments based on real-world feedback. This approach minimizes the time and resources required for initial development, allowing for faster iteration and improvement.

Key Considerations for Effective Venture Clienting

‍While Venture Clienting offers numerous advantages, several critical factors must be considered to ensure success:

1. Keeping in Mind What the Startup Wants: Startups usually want customers for their existing products. They have little interests in doing POCs with corporates that distract them from their main mission. So think twice whether what the startup has to offer is actually what you want - or whether it just serves as inspiration for something else.
2. Value Capture: It's crucial to ensure that the collaboration benefits the corporation sufficiently. This includes negotiating favourable terms and ensuring that the corporation retains significant value from the partnership.
3. Scaling Potential: The chosen solution should have the potential to scale effectively. This means that the startup's technology or service must be robust enough to handle increased demand and integrate seamlessly with the venture’s operations.

What Does Venture Building Do in Comparison?

‍Venture Building, on the other hand, focuses solely on growing the revenue streams of tomorrow outside of the current core business. Venture Building identifies customer needs and market gaps, drafts, tests, develops and launches new solutions. It usually follows a lean startup approach and thus moves forward as customer-centric as possible. It does all that outside of corporate structures in order to have the flexibility of a startup, while also leveraging the corporate’s unfair advantage. Said differently, Venture Building means “building the startup you can’t buy”.

The Verdict: It Depends ;-)

‍Venture Clienting for internal problems is an excellent tool for enhancing organizational efficiency, but doesn't constitute true business building. Venture Clienting for developing additional business can be a great approach. However, we argue that the decision of whether Venture Clienting is the right tool or not, can only be decided case by case.

Here is how we usually approach it:

1. Identify the Problem: Understand the target group, customer journey, and the specific problem to be solved.
2. Draft a Potential Solution: Conceptualize a solution that addresses the identified problem and validate your assumptions
3. Build vs. Partner vs. Buy: Decide whether to develop the solution in-house, partner with an existing solution provider, or purchase a solution.

A thorough screening of potential baseline technologies and existing startups should always be part of a well-executed venture-building strategy. Most ventures build on some form of baseline technology, such as a content management system or a development framework.

Whether you frame your decision as "Build, Partner, or Buy" or as Venture Building versus Venture Clienting, the fundamental approach remains the same. The key is to make informed decisions based on a clear understanding of the problem and the available solutions.

‍An Innovation Strategy Helps in Making Those Decisions

‍A robust innovation strategy is crucial for navigating the complexities of Venture Clienting and Venture Building. It should outline whether the focus is on improving existing business operations or developing new revenue streams. Additionally, it should define the preconditions for venturing vehicles and simplify the decision-making process between building, partnering, or buying solutions.

By following a strategic approach, companies can effectively leverage Venture Clienting as part of Venture Building to drive innovation and growth, ensuring that they remain competitive in an ever-evolving market landscape. Happy venturing!