Mark Divine  0:02  

Coming up on the Mark Divine show,

Linda Yates  0:04  

Is there customer pain? What’s the desirability, right? Is it feasible to build a lot of opportunities? It’s great. You know, there might be tons of customer pain, but if it’s time travel that we need to solve that pain well guess what? We don’t have time travel yet so the product’s not feasible, so you gotta kill it.

Mark Divine  0:26  

Hi, I’m Mark Divine. And this is the Mark Divine Show. On the show, I explore what it means to be fearless through the lens of the world’s most inspirational, compassionate and resilient leaders. I have guests from all walks of life, martial arts grandmasters, military leaders, high powered CEOs, and transformative consultants helping build unicorns such as our guest today, Linda Yates. Linda is the author of The Unicorn Within: How Companies Can Create Game-Changing Ventures at Startup Speed. She’s the founder and CEO of Mach49, a leading growth incubator for global businesses. clients include Goodyear, Hitachi, Jet Blue, Intel, Prudential, Shell, and others. Linda’s a seasoned CEO, 25 years of experience creating global strategy and driving innovation for large multinationals. She’s a native of Silicon Valley. She spent a decade as a member of the Board of Sybase, now SAP, and has been a board member and advisor to many entrepreneurs and private companies. She was previously CEO of Strategos, pioneering the field of corporate innovation with co-founder and chairman, Professor Gary Hamel. Linda’s also a Henry Crown Fellow with the Aspen Institute. Linda, thanks so much for joining me today.

Linda Yates  1:38  

It is great to be here. And it’s nice to meet you, Mark. I’ve read so much about you. And you’ve got an incredible background. So I’m honored to be interviewed by you.

Mark Divine  1:44  

Oh, that’s great. Thank you. Appreciate that. And it was fun to learn about your greenest house in America up there, near Stanford. That’s pretty interesting story. You know, it takes a lot of effort, just where you’re describing that that must have been quite a project.

 

Linda Yates  1:57  

Yeah, it was pretty incredible. We were very blessed to have kind of 30 different green gurus working with us and having a team of people who were building from architects to our contractor who were really committed. So we actually built a document that had six themes. We didn’t build a program, we built themes. So a gathering place outside in environmentally regenerative global sensibility, multigenerational, and a sense of soul. And we basically gave people this little deck that had six themes. And if they really could feel the vibe of that, and willing to do the work, then they became part of the team. So it was this extraordinary effort. Because our realization was, listen, one house cannot make a difference. But it can be a pebble in a pond and have a reverberating effect. So we’ve done field trips and science classes and political events and lots of things to basically raise awareness about the importance of sustainability and climate change.

 

Mark Divine  2:53  

That house now provides kind of an epicenter for a whole ecosystem of learning, and you know, outreach, I think that’s really cool. I was curious, for anyone who’s interested, what was the financial additive, like, what was the per coss add to try to, you know, per square foot to build a house like that?

 

Linda Yates  3:12  

It’s basically almost zero. And I’ll tell you why. Yeah, this is the myth of green building, there were three things that we were trying to do with the house. One was to bust the myths about green building, which is number one, it’s ugly, you have to live in a concrete box with no windows. Two is that it’s twice as expensive and three is that you have to chnge your lifestyle, like never shower, you know, never flush your toilets, etc. And so on the, Amory Lovins, who founded the Rocky Mountain Institute, probably one of the world’s leading experts on climate change, sustainability and green building. He basically was a huge mentor of ours. And he said, listen, the myth about the financials are the following. Number one, yes, you are going to be paying for things that you wouldn’t be paying for because you’re building green. Solar panels. We have ground source heat exchange to geothermal. But then you have to subtract all the capital costs that you’re not spending, right? And so we have no HVAC in this house at all. So there’s a lot of capital costs. You don’t have to spend because you’re building green. The third thing is, yeah, there are some things that we were early. So for instance, our windows are totally green, but you’re putting windows in anyway. So there’s a little bit of an economies of scale issue that hasn’t occurred yet with windows, but that’s coming much faster, right? We were doing this 12 years ago. But the fourth is you have no operating costs, right? So we have a roof that’s 100 year roof. It’s 85% made of recycled materials, 100% recyclable coming off the roof, zero maintenance for 100 years. That’s fascinating. And so you have to actually add those four things together. And that’s what actually gets you to the point where you realize we have no heating costs, right? We have no air conditioning. So there’s a lot of things that people basically think, oh, green building is so expensive and most frankly, lazy contractors, unfortunately, don’t want to invest in learning how to build green. And so they value-engineer the green elements out of it, which are really unnecessary. Because if you actually just take the extra step. Now, 12 years later, it’s gotten a lot better. People are more engaged, climate change is a bigger deal. And so we’re finding fewer and fewer people value engineering it out. But we have 121 solar panels, we produce all electricity, we offset all the carbon that we use for travel or vacation. So it’s just about being intentional in building by design, not by default. Right?

 

Mark Divine  5:38  

How far away do you think we are from major developers, you know, who are building big projects from doing what you were doing at your individual scale?

 

Linda Yates  5:47  

I think we’re finding more and more developers, it depends on where the market is in demand. But honestly, especially now, in this current situation, where we’re seeing where people are burning up, or, you know, fighting cyclones and hurricanes, and, you know, we have the war in Europe, I think more and more people are far more engaged on kind of where their source of energy is coming from, and how you can really address this. The other thing that’s happening is that so many boards now are focused on ESG initiatives, one of which is obviously sustainability. So there’s pressure coming, especially for public companies that are home builders, that are public companies, the scale builders, they’re getting far more pressure from their shareholders, from their boards to basically making these moves. And they’re getting a premium for them. It’s also the, as I said, the economies of scale is helping us because now it’s driving the cost down to build green. So it’s becoming almost a wash. But it’s more around, unfortunately, in kind of the civic situation that we’re in, where there’s just so much divisiveness and it becomes this badge of honor to not build green. That’s a problem, right? And so what we really have to do is to get people to understand, look, we’re building for seven generations, we’re building for our children, our grandchildren, our great grandchildren. This is, as I said, will inspire you or shame you into building green, but really, it’s the right thing to do for the planet and for humanity.

 

Mark Divine  7:10  

Before I move on, I’m curious, how can you make the claim that the roof is a 100 year roof, like what is in your roof, that’s gonna make it last 100 years?

 

Linda Yates

It’s stainless steel.

 

Mark Divine

It’s stainless steel. Wow.

 

Linda Yates  7:22  

I’ll walk you around afterwards, I can literally show you the picture. But it’s a stainless steel roof. And we had a lot of people who were doing a lot of calculations. So if you look at the production of portland cement, is responsible for 8% of the carbon emissions in the world. And so we offset that portland cement with slag and fly ash, which is a byproduct right now that exists, and there’s no place for it to go. And so we can reduce the carbon by 300,000 pounds, just in the foundation that we built. And so the calculations are there, it’s fairly simple. Like for us, we had a challenge in California, because the goal is to get your supplies no more than 500 miles from where you are. But California is so big that it’s hard to get all your supplies from 500 miles. So you basically have to take the carbon emissions from the supply chain where you have to be environmentally regenerative, we have to accede to basically offset the carbon of shipping things here. So we basically did the calculations all along the way. But we have FSC certified wood, or recycled wood, or reclaimed wood, but we use that to teach people. So like reclaimed wood, we have no tropical hardwoods in the house, because a lot of other countries, they’ll take it out of forests, they’ll build some fake garage or storage thing, then they’ll take it down and count it as reclaimed. Okay, but it’s not really a claim. So you really have to understand the provenance of the supplies that you’re getting, and you need to have that chain. That’s the beauty of FSC certified wood is from forest to fixture, you have to have the paperwork all along the way that demonstrates that it’s green.

 

Mark Divine  8:56  

That is fascinating. Now your professional life is as a unicorn builder, or intrapreneur, grower of some sorts. So I’m really interested in that. And I know that your attention to detail, and what you’ve just described with the building this house is certainly important for what you do. And your book is called The Unicorn Within: How Companies Can Create Game-Changing Ventures at Startup Speed. This is a fascinating subject to me because I have some experience in venture capital. And I’m invested in like maybe 15 startups, but I’ve never really seen it done internally, whether an internal operation can create an organization that has kind of the same attributes and success as an entrepreneur-founded organization. So maybe just give us a sense for what is an internal unicorn or whatever you call it, you know, a spinoff or a spin up within the company and how does that work?

 

Linda Yates  9:48  

Yeah, let me just step back a little bit. I’m a native Californian, right. I grew up in California. It’s only interesting because I grew up with all the people who founded the venture capital industry. They’re all friends of my family’s.

 

Mark Divine  9:59  

You live right around them all, right? Up near Stanford and… 

 

Linda Yates  10:03  

Deeply rooted and connected with all these people, my entire existence, their friends, my parents. But then most of my professional career has been in boardrooms and C suites of Fortune 500. But I’m bilingual between those two worlds. And if you look at large companies, right, there are two really, really interesting statistics. If you look at the Fortune 500 list, 50 years ago, the average life of a company on the Fortune 500 list was 75 years, right? Today, it’s 15 years and declining. Of the companies on that Fortune 500 List 15 years ago, 50 years ago, 88% of them are out of business.

 

Mark Divine  10:37  

Right? I’ve heard those stats, it’s mind blowing. Yeah.

 

Linda Yates  10:41  

It’s crazy. And even if you don’t think they’re going out of business, today, there are something like 1,100 unicorns around the world, worth $3.1 trillion. So even if you don’t think they’re going out of business, they’re leaving a lot of money on the table. But there’s two altruistic reasons I founded the company and I really believe in helping create unicorns from within. Number one is people are living longer and longer because of healthcare and technology. And as a result, they’re going to be working 60, 70, 80 years, right. You are the king of human potential, you understand what that means. And as much as we love startups, most of those people are employed by large companies. And those people need meaningful purposeful work. So I believe most large companies need to look more like Berkshire Hathaway, where they’re a portfolio of companies, because it allows those people to be closer to the customer and have entrepreneurial opportunities, be more creative, you can kill things faster if they’re not working, you’re more agile. So that’s one reason. 

 

The second reason is that large companies, I believe most of the big hairy problems that are facing the world need our large companies able to lean in, build ventures around those problems, disrupt, move quickly. Because things like climate change, sustainability, disease, racism, poverty, water, education, they need our large companies focusing on them, because many of our governments are dysfunctional, or at best, they’re transitory. And most NGOs, as much as we love them, cannot solve problems at global scale. And so allowing our big companies to do that, and allowing them to drive growth through venture building, and venture investing is really good, not just for the companies and their shareholders, but for their people, their team members, for their communities and for the world. And so when I think about this internal entrepreneurship, you know, there are a lot of people who have the potential to be entrepreneurs. They don’t always have the risk profile that enable them to be entrepreneurs. And large companies have incredible ideas, they have talent, they have channels, they have customers. Not all of them will be unicorns, but singles, doubles, triples, unicorns, they absolutely have the ability to do it. And they have the ability to do it at scale, and they have the ability to do it with their own people.

 

Mark Divine  12:54  

That’s fascinating. You know, a lot of people listening might think it was the Industrial Age, large corporations that caused a lot of the problems we see in the world. Who are we to think that the conceptual or Information Age large companies are now going to solve them? But there has been a sea change, really, because culture is demanding and boards are now demanding the ESG and the more multi-stakeholder kind of capitalism

 

Linda Yates  13:16  

And their children. 

 

Mark Divine  13:20  

That’s right. That’s right. Their children are, that’s really well said. I agree with that. Many people think that ESG is just virtue signaling. What is your experience with that?

 

Linda Yates  13:29  

We have big, large industrial clients working on the new energy frontier, working on raising up the lowest rung of the socio-economic class by helping them change the way we think about temporary help. We have people building intelligent infrastructure, smart buildings to detect disease to basically make them more energy efficient. We have people who are looking at decarbonisation of the supply chain. So a lot of people contributed to kind of where we are today, whether they’re large companies, small companies, governments, individuals. But I actually believe that most large companies are led by more activist CEOs than we’ve seen ever before. Right? If you look at Tim Cook at Apple and LGBTQ rights. We’re seeing more and more CEOs really leaning in and really wanting to make a difference. Honestly, I think one of the biggest thing that holds up big company CEOs from doing this more at scale, is, frankly, the financial markets. I think the financial markets bear the blame, if you will, for how many companies are going out of business and how many companies are not able to make the investment in these longer term, deep science, tech based ventures that are going to be required because they require quarter to quarter earnings. 

 

And the thing that’s kind of a BS about that is that if you think about it, I’m a child of Silicon Valley. I love my startups, but every startup that goes public on NASDAQ, or on NYSE or on LSE gets a hall pass for what, three years, four years, five years, they don’t have to actually turn a profit. They judge them on revenue and customer acquisition. Well, guess what? They have the same ability to judge the unicorns within these large companies in the same way. They could be using a different set of metrics, which would enable our large companies to make the investment in the portfolio of growth opportunities that they have the capability to develop.

 

Mark Divine  15:23  

is there any movement within the SEC to change that reporting requirement for the unicorns?

 

Linda Yates  15:29  

We’re actually inviting a bunch of Wall Street analysts and other people in to, in essence, own a shift in this, where you can still judge the core and legacy business this way. But, hey, look at this portfolio of growth opportunities that they’re creating, that actually could become the next Airbnb, become the next Netflix, become the next Palantir, become the next unicorn. And the big companies have the ability to accelerate and augment those ventures much better than any well funded startup, because they have balance sheets they can work with. And they have these incredible people inside, these internal entrepreneurs, who have the capability to do it, they just don’t have the risk profile to spin out and do it on their own.

 

Mark Divine  16:14  

What we’re really talking about is creating a culture of innovation. And, you know, my experience is that it’s very, very difficult to change a culture. So if you have a big company, you know, like IBM, or anybody, it’s like trying to change that entire culture to a culture of innovation is a serious moonshot, it’s likely to fail. But if you can create kind of a black ops box within the company, or even outside the company that can attract some innovators, then you’ve got a much better chance of success. You know, how do we move into that kind of dialogue within a company that doesn’t have that culture?

 

Linda Yates  16:45  

I say this to CEOs all over the planet. I do not believe in innovation transformation. I do not think it works. But here’s what I believe. If you take the mothership, and you tether enough speedboats, in the form of new ventures to that mothership, and you basically start to see that that could be worth 100 million 200 million 300 million, whether it’s yen, euros or dollars, then all of a sudden, those senior executives are going wait a minute, whoa, that could be a billion dollars of market cap, that’s $2 billion of market cap. Wait a minute, what are those from-to shifts you told me that I have to make whether it’s around procurement, or politics or risk tolerance or governance to ensure that these ventures reach escape velocity? Then they’re paying attention. So you play small bets. And you basically tethered them to the mothership. That’s where the Mach49 name comes from. It’s all about how do you help these ventures reach escape velocity, escape velocity is actually Mach37, that name was taken so I needed that number bigger than 37. 

 

Mark Divine

I like it. (laughing)

 

Linda Yates

So we picked Mach 49. Because all these large companies have been flocking to Silicon Valley into California looking for that, you know, innovation, fairy dust, that gold, like the gold miners were doing in 1849. So the little California history in the name as well. Your point is extraordinarily correct, which is you’ve got to in essence, experiment, you got to do one, you got to do two, you got to do three, you got to do 10. And then once you get to a portfolio, then you can basically see the transformation. 

 

The thing that’s also important, though, is that there is a role for everyone in the company in this process, because the challenge that some people think is oh, it’s only the internal entrepreneurs. Well, no, there’s actually four types of people who get involved in venture building and venture investing. There are the new venture team members, those are the founding team. And they’re the ones who, like, have the idea and they’re really excited. And they’re basically working on the incubation or the acceleration of the venture. But then you need a new venture board. And those are the senior executives. One of the things that causes internal venture incubation to fail, are senior executives who failed to grow. They fail to learn how to become internal venture capitalists, they fail to move from net present value to option value from putting all their eggs in one basket to a portfolio model from really redefining the metrics by which they’re measuring success from the core legacy business metrics to these new metrics that are required. 

 

But that new venture board is very important. Those are the senior executives who can make a go/no-go decision they have access to funding, they have access to customers, often millions of them was what differentiates you from any well funded startup, they can give you access to the core competencies, assets and capabilities of the organization that can help the venture reach escape velocity, and they can remove the friction, which we can talk about because the friction is real, right? The orthodoxies, inertia, and the antibodies. So new venture chain, new venture board, there is the venture factory group or the corporate venture capital groups that are inside those are the ones facilitating the venture investing or the venture building. They become what we call the Mk 49. Inside when we’re working with a client because our goal is to build capability, not dependency work ourselves out of a job. And then the fourth group is what we call New Venture advocates. And these are really Wharton people, these are people who are entrepreneurial. They might be in legal, they’re the person who’s gonna write the one page term sheet, not the 40 page term sheet. The person who does procurement is going to get somebody on their pre approved vendor list in two weeks, not two months, when you’re a pet food company, you need to get a hardware vendor, they’re the people in HR who can spell growth hacker. So these new venture advocates are really important because it lets them be involved in the art of entrepreneurial and venture building and creation. But they don’t necessarily want to be the entrepreneur, right? They don’t like the pace. They don’t like the lack of structure or the ambiguity and those early stages, but they’re actually super valuable. And this is how the whole company can actually get involved.

 

Mark Divine  20:41  

Do you find these four types of players are already existent in most of the organizations that you begin to work with? Or do you have to attract and recruit them?

 

Linda Yates  20:48  

No 100%, there are people who can be in all four categories exist in every company. Now, there are times, for instance, we had a big, wonderful client of ours, big bank. And one of the things that they were talking about is a digital platform. And the people on the new venture team were all investment bankers, none of them had built a digital platform before. They could stay as founders. But we needed to bring in a CEO who had experience building a digital platform. So sometimes you will recruit from the outside or from other places if you need to, to augment skills or capabilities that the internal teams might have. But I promise you, every single large organization has representatives of those four categories inside their organization.

 

Mark Divine  21:37  

You know, a lot of unicorns tend to be very nimble in terms of staff size, right? They’re small, they move fast, they break things, all that kind of stuff. And then also their incentives are like they want to hit the homerun. So how do we set up an incentive structure for a unicorn within a larger company that may have a little bit more rigidity to it, so that you don’t kind of tick off all the other employees?

 

Linda Yates  22:00  

So we work on compensation issues all the time with people and there’s obviously the new venture board members, they’re getting compensated because you’re driving meaningful growth for the organizations. They have those incentives in place already to basically become growth stocks, not value stocks. So that’s most of the senior executives who come to us, that’s the shift they want to move. There’s two other players on the venture building side, there’s the Mach49, inside that venture factory team. For the new venture teams, we set them up just like a real startup. But we set them up with what we call phantom stock. So it’s basically performance shares, or performance bonuses based on hitting certain milestones. And often, what we’ll do is we’ll set up a really interesting compensation model where it’s like an abacus, you got two rows, right. And one row is your current base and salary. And one row is phantom equity. And so we’ll find people who might be in their mid 50s, who have kids in high school or college, they can’t afford the risk. They’re just so excited to be entrepreneurs, they just stay with their same base and bonus because they have that opportunity. But others who basically can take risks may scale their base and bonus way down. But they’ll scale the equity way up. So you might have somebody who’s younger, among the new venture team who has no risk, no debt, no anything else. So they can have more financial rewards than maybe somebody else because they can afford it. But they’re both getting to be entrepreneurs. And so these phantom shares work really well, because they’re performance based. So it’s not any different really than how you compensate salespeople, you compensate salespeople for performance, there’s already existing compensation models, typically in almost every organization that you can mimic. Because these are based on performance and metrics. 

 

The other team that we also want to compensate is that venture factory team that is enabling each of the venture teams to do the work right, to go through the methodology to ideate incubate to accelerate and they’re facilitating that work. Typically, they don’t share in the cap table, but what we will say okay, 1% of every venture goes into a pool. And then the venture factory team shares in that pool. Because if I’m somebody who got put on a venture that we decided to kill, because we want to make sure people are incentivized to kill ventures, not just keep them going, that was luck of the draw. And then this other person got put on a rocket ship, you want to make sure people are shared. So the incentives are aligned. And you want people to basically be just as motivated to kill an idea that has no legs than to continue with an idea that is going really, really well. And so the compensation piece, so you are correct, is a big deal. Also, for the new venture advocates. Often there’s like a certification for that, not unlike a certification they might do that would add a bump to their salary. So we try to make sure that it’s fair across all categories in terms of the opportunity to do well, should you hit your metrics.

 

Mark Divine  24:55  

Sounds to me like that. The goal with these unicorns is not to spin them out. But to kind of keep them as a portfolio or family of businesses so that the original entity, the legacy entity, you know, has a future. Is that correct?

 

Linda Yates  25:09  

Yeah. You know, most of our clients are multibillion dollar multinational public companies. As I said, their goal is to move from being perceived as a value stock to a growth stock, they want to build their growth engine through venture building and venture investing. And so they do want to retain them. But there are three options for people. Typically there one option is you basically spin it back into an existing business unit. That’s typically the last option we like to consider. And the reason why is…

 

Mark Divine

Sounds complicated (laughing)

 

Linda Yates

It’s not as complicated. It’s just that in fairness to those heads of those business divisions, they set their budgets a year ago. And now you hand them this fledgling thing that doesn’t even have any revenue yet, right? And you expect them to take care of it and invest in it. So that’s not really fair. So that’s why we say keep the venture, even if you do want to spin it in, keep it in the incubator long enough that it demonstrated product-market fit and early revenue, because now it’s a shiny object in somebody’s bag that they want to sell. Right. So that’s one option, the more popular option, if you want to keep it inside is to create a wholly owned subsidiary. And so that’s really good, because then they basically become their own lines of business with their own metrics, but they’re still part of the mothership. 

 

The third option is you can spin it out. The times when our clients choose to spin them out is usually twofold. One is that it requires a ton of capital, like it’s an infrastructure build, or it’s a long, you know, it’s an energy, it’s hydrogen, right. So it’s something that requires a lot of capital, that they want to share the risk with someone, either another corporate or a venture capitalist or private equity firm or something. The second reason they might spend them out is that it requires more superpowers than they bring to the table. And so they want to combine with another entity to basically pool the core competencies, assets, capabilities, the superpowers that they have to then bring this forward. And so we’ve done a lot of joint incubation among different companies. We’ve also been doing consortia. So there are some things like frankly, decarbonisation of the supply chain. A lot of companies are looking at doing that if they all build their own solution, they’re gonna whipsaw those members of the supply chain, all these small, medium sized businesses who can’t afford, frankly, to be giving you your scope three emissions report and your scope, emissions report, and your scope three emissions report, you can’t do it. So there are some things that like swift in the banking industry, that makes sense to basically be consortia based models of incubation. It’s very cool, because we’re getting to look at a lot of that as well.

 

Mark Divine  27:44  

That is very fascinating. I’d love to hear a couple of case studies of success stories. But are most of these companies are these unicorns… instead of just incrementally improving what the old company did? Are they going after like some of these big intractable problems? It sounds like they are. 

 

Linda Yates

They are.

 

Mark Divine

You know, leveraging new technologies, exploring new tech, you know, trying to solve the world type problems.

 

Linda Yates  28:04  

Totally. I mean, you know, we have one large industrial Japanese client who basically has created a venture around EV bus depots, right. So almost all charging depots, big major things that they can then go and do a big deal with a municipality to basically install these things. We’ve got another one that’s basically looking at the forever tire. Right? So looking at the sustainability around tires, we have another large company who was looking at the circular economy and remanufacturing. Right, remanufacturing’s a huge opportunity. We have another one that’s looking at a zero water home, right? 

 

The beauty of working with large companies is that they have incredible r&d groups, you know, they have lots of people, they have global reach and channels, they have customers who want to pilot with them, it doesn’t make sense for them to come to us for incremental kind of horizon one…

 

Mark Divine  29:03  

Yeah I was gonna say, you might be driving some of those guidelines, like you’re gonna work with someone…

 

Linda Yates  29:07  

They’re looking to make a big shift. They’re looking to build this growth engine. And I think it’s really important. A lot of these companies now they started doing one venture. Now they’re realizing they need to do those ventures at scale, right, like any venture capitalist learns, you don’t just have one in your portfolio. So they’re building venture factories. And now in many cases, we’re actually starting to talk to them about building growth divisions. Because if you build a whole growth division, it’s easier to keep it separate and have the metrics here for those ventures, separate from the core and legacy business. And so the analysts can then review them separately, and then they can meld it into a ratio that makes sense. But yeah, it’s getting to do this at scale that’s really helping them and the Chief Human Resources Officers that we’re dealing with love what we’re doing because it enables them to recruit and retain people across the board because now people are getting the opportunity to be creative, to be entrepreneurial, and actually have the assets available to them to augment and accelerate these ventures faster than, frankly, most startups can accelerate.

 

Mark Divine  30:12  

So I’m clear, what is the difference between a company that has a venture division like Google Ventures versus a growth division?

 

Linda Yates  30:20  

Oh, yeah, great question. So they’re the yin and the yang of each other, right? We talked about there is venture building. And there’s venture investing. And we believe that those actually go hand in hand. Right. So the venture building is when you’re creating a venture out of an idea that you generated yourself. And we talked about venture building across the spectrum of venture creation, from ideate, we can talk about how people are sourcing ideas, to incubate, to accelerate, and then to scale and all three of those stages are different. And they’re equally important. Most people, they garbage in garbage out on the ideation, so you got to be careful about that. The place where people forget is accelerate, but I’ll come back to that. That’s the venture building, then there’s the venture investing. And there’s three reasons why people will look externally. So one is to basically stay current on the art of the possible right? Venture investing allows you to place a whole bunch of small bets, and watch how things unfold over time, before you decide you want to invest. The other thing is, is that one option is to build but three other options are to buy, partner, and invest. If you have a CVC, a corporate venture capital group or law, a Google Ventures right, or a Sapphire or Toyota Ventures, those venture groups are really your sensor network to the external world. The venture building venture factory is focusing on bringing ideas to life from inside, these are the ones that are looking outside and saying, ooh, we want to do this. Could we buy something to augment or accelerate a venture faster? Could we partner so you know, AT&T was the best in the world, they never had a corporate venture capital fund. But they had an amazing strategic partnering service where they would in essence, identify startups who could solve a client problem or their own problem. And then rather than just drop them off a cliff inside of the massive AT&T they actually did a really good job of shepherding them. So there’s good ways to strategic partner and terrible ways. If you’re smart, and you’re a good strategic partner of the startups, then guess what the VCs will bring you their best startups, right? You are someone who basically wastes their time, they will bring you their dogs, right, that they hope you will keep alive long enough for them to raise their next fund. So the CVC, the external looking group inside is focused on investing in startups to stay current on the art of the possible. And to look at that, it’s helping to basically scan to see where there might be targeted M&A that they could do to accelerate the work they’re doing internally. And they can do really solid strategic partnering to be a layer in something or to test something, or to solve a problem internally that they don’t have an idea how to solve. So we really believe those things are the yin and the yang of each other. And so that’s why Google has Google X and it has Google Ventures, right. Google X would be basically their venture building, their new site and ventures, which is basically investing in the external world. TDK has TDK Kindergarten looking at internal stuff, and TDK Ventures, which is scanning the globe for external opportunities.

 

Mark Divine  33:20  

Thanks for that clarification. When it comes to generating ideas, again, I want to invoke Google because they have this policy that you can spend 20% of your time on something that you’re passionate about that may have nothing to do with your job. What are some of the other best practices for a larger organization to kind of kickstart ideation amongst the team that might lead to a viable project? Right?

 

Linda Yates  33:43  

Right. I remember 3M had that as a rule long before Google even existed, right? 

 

Mark Divine

Did they? 

 

Linda Yates

Yeah, 3M basically, your compensation was dependent upon you spending 20 to 30% of your time driving innovation. So they were way, way early on that front. So companies come to us typically, they’re in one of three stages when you think about ideate. Number one is some companies actually have tons of ideas, but they don’t know what to do with them. And a lot of them it’s garbage in garbage out. Like some people have a big giant suggestion box, that is like the wrong thing. You do not want that. You actually want it hard for people to submit ideas.

 

Mark Divine  34:19  

They have to do their homework, right and have a certain protocol to follow.

 

Linda Yates  34:23  

Exactly. So sometimes you have too many ideas. Basically, we have a tool, which is a new venture assessment tool that we give people, which is okay. Is there a customer pain? You know, so what’s the desirability part. Right? Is it feasible to build? A lot of opportunities, it’s great, you know, there might be tons of customer pain, but if it’s time travel that we need to solve that pain, well guess what? We don’t have time travel yet. So the product is not feasible, so you got to kill it. Right. So feasibility is another one, viability… Is there a business model? They’re like, can you make money on this thing? Suitability is another one. Does it make sense for this particular mothership to be launching that? And then the last is team. Can we basically recruit a team that can bring it. So we have a set of five things that we help people sort through and bucket those ideas and figure out how to prioritize. So that’s if they have too many ideas. 

 

Another way people come to us is that they have a domain that they are interested in, so that you can incubate so we had a client come to us, and they were interested in water, food and road safety, okay, you can’t incubate water. So when they have those domains, we teach them to do what we call ecosystem mapping, which is go out and look at the wind. But don’t just look at wind, if you’re an energy company. Look at all the segments that make up wind, then look at who’s playing in each of those segments, whether they are big companies, whether they are venture capitalists, whether they are startups, and start to look and overlay where your core competencies, assets, capabilities, strengths, and where’s their whitespace, because, you know, some people want to go after something. But if Blackrock is putting $9 billion in that particular space, you’re not going to put, invest $9 billion, so you should go either partner with them, or go look elsewhere. And so we teach them to do ecosystem mapping and domain exploration. 

 

A third way is we will do what we call venture competitions. Now, there’s really good ways to do venture competitions and really bad ways to do venture competition. You know, we had one financial services client who came to us and we’re so excited about their venture competition. And because they had 1,500 ideas submitted, I said, oh, horrific. So how many of those did you take forward? We took 70 forward to the second round. I said, okay, how many did you take forward to the last round 10? Okay, so that’s 1,490 teams worth of people that you made unhappy because you had so many, you couldn’t give them feedback, they didn’t get any learning along the way. So basically, you roll that forward three years, now you’ve got, you know, 4,500 sets of people unhappy, they start complaining that those incubator people don’t know what they’re doing, and you get shut down, right? Even if you’ve gotten three good ones. 

 

And so it’s really important that you’re very intentional about you do these venture competitions, where people, they get learning along the way you make it kind of hard for them to submit. So they self select out if they’re not truly passionate about the idea. And then you give them feedback as you weed it down, because you will, not everybody is going to win a venture competition. But they feel like they got a lot of value out of it so that the next time they can submit and they’ve learned something, or they can take it back to their job. So that’s another way people source ideas, and then suddenly, they just have an idea. And when they have an idea, we tell them, listen, all you need are two things to incubate a venture, you need a challenge statement, which is your hypothesis on the pain you’re trying to solve. And you need a stakeholder map. Who matters most, whether it’s your direct potential customers, or it is regulators or its potential partners, or supply chain members, etc. And then that gives you who you’re going to interview. And from there, you go from ideate, you go straight into incubate and incubate is you start with customer development, we say, look, when you’re building a venture, it’s pretty straightforward. Understand customer pain. I say to CEOs all over the world. Surveys are statistically significant and strategically irrelevant. Because all you want is to outsource your visceral understanding and empathy for the customer to somebody else who’s going to repackage it and sell it. So you know, no one in the world knew they wanted a microwave oven, a minivan or a DVR, right? But what they could tell you was they weren’t getting home to cook a healthy meal. They couldn’t watch their favorite show. And they were having to cart an ever increasing number of kids, dogs, and sporting equipment to myriad places, they could tell you their pain. So you understand your customer pain, and then you marry it with the art of the possible. What are the current trends in technology that you can use to solve it? Uber doesn’t exist if we don’t have real time payments, mobile phones, GPS, right? So that’s where the CVC or the external scouts become important because they’re keeping their eye on what’s current, what’s the art of the possible. 

 

And then you place a series of small bets. When we look at funding in Silicon Valley, we look at funding like an onion, every layer of onion is a layer of risk, can be financial, can be technical, can be market in the case of a large company could be governance, you love it to death, but you starve it of oxygen. And so the goal of the best entrepreneurs is how do you remove the greatest amount of risk on the least amount of capital. We really are helping to do this. They move into incubate where they’re doing customer development product, and then building a business plan. And then they move into accelerate. and accelerate is where they’ve been funded. Now they’re launching and there’s kind of three phases. There’s a build to validate, a build to automate, and then a built to scale phase. And what most people forget is you’re not there just to focus on the product, the experiments and small bets you’re running and the metrics that you’re applying to those. What’s your go to market set of experiments? How you’re reaching your customer? What’s your business model? How are you going to make money? what kind of pricing experiments do you want to run? Because you can get the other three right but not get to positive unit economics and then you’re out of business. And then the last is can you recruit the two. So we move from ideation incubate to accelerate. And then that’s how these ventures get launched.

 

Mark Divine  40:05  

how much penetration within global 1000 or whatever large company group we want to look at? Are these internal unicorn type structures already extended, right, where they’re existing and how many of your clients I guess on the flip side are, like, completely green and they’re saying, Linda, where do we start? You know, what’s the first step that we take?

 

Linda Yates  40:24  

One of the things that we are working on now is what we’re calling a venture transformation business, because venture turnaround is too negative. But for every 1,000 ventures that get launched successfully, there’s like 4,000, that didn’t get launched, right, that basically made a lot of mistakes, but there’s still potential and so there’s the opportunity to turn them around. The interesting thing about the global 1,000 Is there are so many companies you’ve never heard about, are really, really interesting companies. And so it’s not just all the brand names, I’d say probably 40% of those are basically trying to do something where they’re trying to drive growth through some form of venture building, venture investing, right, some successfully, some not successfully. I think the reason why our, we’ve experienced such hyper growth is because there is not much penetration. And so now people are realizing, ooh, you know what, we tried this, or we saw somebody else, try it, but we won’t actually do it right. 

 

Because there’s three reasons people fail. One is they don’t have any methodology. They think they can be Y Combinator, which is like our granddaddy of incubators, that can just have mentors and money. And that’s all they need. And that does not work. And remember, you know, Silicon Valley’s success rate is 12%. No large company can afford a 12% success rate, their shareholders won’t put up with it. So they need methodology so that they can have a repeatable, scalable model that they can know when to kill things, etc. The second thing that happens is that they don’t seize the mothership advantage, they have too much friction and not enough leveraging of their strings. And then the third, as we talked about earlier, is that senior executives failed to grow. Those are the three things that really kill them. 

 

And I would say that, you know, right now, there’s two things that are really driving the move to both venture building and venture investing. One is just a need for growth. Innovation, unfortunately, has been a little bit discredited as a word because we had too many chief innovation officers who really didn’t do anything. Or it was just a lot of strategy, a lot of slide wear, a lot of jazz hands around digital transformation till COVID hit and they got caught with their pants down realizing oops, maybe we haven’t done as much as we thought we had done. So I would say COVID really had an impact, because it really has driven the whole concept of digital transformation. I think the whole issue around growth versus innovation, people really realizing they need that, they need more shots on goal. And the third is the whole, frankly, move around ESG, climate change, sustainability, I think people are really realizing, hey, you know what, this is serious, and we got to take it seriously. And there are a lot of these big hairy problems. And you can do well by doing good.

 

Mark Divine  42:55  

When you go into a new company that’s kind of new to this, how much your job is training? And how much is consulting and how much is like roll up your sleeves and start executing?

 

Linda Yates  43:05  

Actually, our whole thing is learn by doing. There’s three things that differentiate us number one is we’re 100% focused on execution. Number two, when I founded the company, I said I’m not hiring any consultants, none. So 100% of the people… we joke, you have to have gray hair and no hair to work with us. 100 people? No, I’m serious. We joke because we’re bringing the next generation up. But the whole point is, I literally went to one of the top recruiters in Silicon Valley, and I said, this is what I want to do. I want to focus on execution. We’re gonna do venture factories and do this at scale. And I don’t want to hire any consultants. And he said, you have no idea how much you’re in the right place at the right time. Because there’s all these 40, 56 year olds, super smart, super fit, super successful, super experienced, never going to retire sick to death of working for 25 year old CEOs. And so now that’s what we found. So we have all these successful serial entrepreneurs, these top tier VCs, none of these guys, gals ever retire, C-suite execs. So among our group, we’ve created about $60 billion in market cap and companies we’ve invested in manage, created or built. And so for us, there’s not a lot of convincing because they look at our track records. It’s like, okay, crap. Yeah, you’re not a 25 year old who’s working at one of the top consulting firms who the partner bait and switch and sent to me. You’re like the real deal. And so that’s why we always have people start small, like we start with the design on the CVC side and say, hey, look, let’s get that right. Or we do one venture on the venture building side. 

 

The third thing that was unique about us is that and this is why I could write the book is from the day we started, we were all at a stage in our career where I don’t need to be promoted anymore, right? So I don’t need to leave you just enough damaged to sell you the next thing so I can be promoted, which is what happens in a lot of consulting firms, right? You got to sell the next thing and the next thing and the next thing, you can’t work yourself out of a job, whereas we from the beginning said we’re going to build capability not dependency. So we’ve invested 10 years. That’s the methodology that’s in the book. Now what we’re trying to do is democratize what we do because not everybody can afford to work with us. But we can help NGOs this way, nonprofits, we can startups, we can help small, medium sized businesses by both the book and then we’re creating a digital platform that people will be able to access as well, called 2401, which is 49 squared. By the way, if it makes no sense. Anyway, I was doing the 49 squared.

 

Mark Divine  45:22  

I don’t think I would have gotten there, though. (laughing)

 

Linda Yates  45:27  

So anyway, this is, this is like insider baseball. But the whole point is, it’s also that you’re doing venture creation and venture investing 24 hours a day starting day one, but I think we want to democratize what we do we want and so building this capability is really, really important, right, to work yourselves out of a job. The way we look at it is learn by doing, then you learn by co-leading, and then you learn by leading, and then you don’t need us anymore, right? Our whole thing is our growth programs group, which basically we will do masterclasses because there’s some CHR OHS who want to promulgate the methodology to other places, or will do disrupt tours to give that sense of urgency to your board of directors. But for the most part, we’re really here, not for some abstract theoretical exercise, we’re here to build a company or build a venture firm.

 

Mark Divine  46:13  

And you answered my next question, which was, who’s the real audience for your book? Because it didn’t seem like it was going to be the rest of the Fortune 500’s. You’re trying to go across other industries, like you said, and also downstream into the SMB industry. Is there a certain size where it makes sense to invest in these internal innovation projects?

 

Linda Yates  46:32  

No, almost everyone can, right? This book is targeted towards the global 1,000 CEOs, we basically made it easy. Harvard press was amazing. My editor, Kevin universe was great in terms of how we structured the book, I wrote the book, because you gotta know how to do it to do how to guide, right, so I wrote the whole thing where it’s kind of a year later than it should have been. But, you know, for CEOs, we basically have the intro and the first part, and then we have the last section. It’s like, okay, you got to focus on this, because it does have to start at the top. Grassroots efforts to do venture building venture investing rarely work without support from senior executives. And so it’s, you have to have them. And then it’s for those internal entrepreneurs, those internal venture factory members. And then it is to that broader group, you know, you can basically apply the methodology if you were a mom and pop shop, and you wanted to introduce a new service, because it really is about understand customer pain, marry it with the art of the possible, and then pilot. Place experiments, small bets, prove to yourself that you can move the greatest amount of risk and the least amount of capital, you know, and then we’ve got a bunch of tools and templates and activity. I mean, there’s a lot of things in there that we’re trying to basically give away to help people do what we help large companies do on a daily basis.

 

Mark Divine  47:43  

That’s awesome. So besides reading the book, The Unicorn Within, how else can you know CEOs is like really inspired by this conversation, connect you or learn more about your work?

 

Linda Yates  47:53  

Mach49.com it’s pretty straightforward, the website. So that’s easy. I’m [email protected]. So that’s pretty simple as well. Ultimately, we will be launching the first version of 2401 Powered by Mach49, which will be the digital solution. And if people are interested in that, I can put them in touch with the amazing woman who runs SVP of that group, that 2401 group, building that digital platform. So lots of ways to connect. We’re always putting out articles and things. It could be a CHRO, could be a C-suite member, it could be an internal entrepreneur, but happy to help.

 

Mark Divine  48:30  

That’s awesome. And I’m just out of curiosity, what is your favorite, most mind blowing project that you guys are involved in right now?

 

Linda Yates  48:39  

So I’m, of course, as an eco warrior, eco geek. I’m super happy with all of the big heavy sustainability work that we’re doing. But we’re doing really cool stuff in the metaverse right now that’s really, really interesting. And it’s really practical kind of industrial level. metaverse. Like how could you as a hotel, get people to come to the hotel, build community around that hotel, test those concepts before you ever do that? How, if you’re building a city to test a city before that, there’s a really cool one that we’re working on with a healthcare group, which is around cognitive behavioral therapy and augmenting it with alternative medicines. So alternative medicine was set up, whether it’s cannabis or psilocybin, or ketamine or other things. That whole alternative medicine was set back many years by the D.A.R.E. movement and D.A.R.E. had great intentions, but it shut down research on things that actually may have a major impact on how people feel about themselves. And I think all this stuff that we are learning about mental health is so powerful and so important. It’s just really exciting from sustainability to the mental health to, you know, water, to smart buildings to basically fun like Pernod Ricard has Conviviality Ventures, the coolest venture fund as Paul Hahn who runs are disrupting outside in practice, he got disrupting inside out disrupting outside in practice. He said, look, Conviviality Ventures is the first venture fund that was created to invest in fun, right? Because Ricard obviously is wines and spirits, but it’s basically using its venture fund to move to the $3 trillion experience economy. So there’s lots of cool things. 

 

But when we wrap up, I’m going to show you one video, I’ll send you the link, then you can put the link in.

 

Mark Divine

We’ll share the link because I’d love to see that. 

 

Linda Yates

It’s a venture called Omnibridge, Intel founded the emerging growth and incubation division. And this was a venture that came out of the venture competition that they ran. And this Omnibridge when you see it is run by a CEO who is an engineer at Intel, who cannot hear and cannot speak. And he has created a venture to bring the Deaf and hearing worlds together. If you look at the incubation of that thing, and you look how talented he is, and what he is creating. And you look at it and you say, Intel is building this good on Intel, right? And of course, there’s lots of strengths and capabilities that they bring to the table from computer vision and other things. There’s not a dry eye when you hear this CEO’s story. No, that’s cool. Yeah, you want to talk about human potential? He is incredible. 

 

Mark Divine  51:20  

Yeah, I’d love to interview him. Wow. 

 

Linda Yates

Yeah, he’s great. 

 

Mark Divine

I tell you what, it’s easy to be an optimist when you’re involved in projects, like you’re talking about, because I think that technology, a lot of it’s hidden from view. And it’s certainly not being talked about in the chaotic and negative mainstream, right, but you get a front seat to some of the most cool innovations going on. And I’m really optimistic about the future. And, yes, we’ve got some choppy sea in front of us. But on the other side of that, I think it’s going to be a really reMarkable future.

 

Linda Yates  51:49  

Totally. And when you see these people come together, and they work together, and they’re just so engaged, and so energetic. Giving people these opportunities is just the best thing ever, right? I mean, that’s why these two altruistic reasons have totally manifested themselves for me, in terms of giving meaningful, purposeful work to people helping drive growth, and really helping people do well by doing good and have changed the world. If the venture isn’t changing the world, if the way they do business, right? How they hire people, how they treat people, how they go about doing business with customers, you know, the cumulative effect of all of us doing that, that’s kind of like the house right? The pebble in the pond, a tree, one act doesn’t make a difference. But if we collectively can all do that act, then the ripple effect is massive. And I think we’ll at some point reach the age of Aquarius as a result.

 

Mark Divine  52:32  

Yeah, I agree. That’s, that’s, it’s really, really cool to, to get a bird’s eye view of these companies really caring and making a difference, because again, that’s not the narrative. And the leverage really does exist in the big corporation. So great work. Thank you so much for sharing the story with us today. And I’m looking forward to reading your book, The Unicorn Within and will anyone listening, please go check it out and reach out to Linda. Linda@Mach49.

 

Linda Yates  52:57  

[email protected] 

 

Mark Divine

All right. Awesome. Thank you, Linda. Thank you so much. Appreciate the time.

 

Mark Divine  53:03  

Great interview. It was awesome. 

 

Mark Divine

Well, that was a fascinating conversation and real cool inside look at what’s going on with the unicorns growing within the largest companies in the world, the Fortune 1,000 and all of them pursuing game changing technology, circular economy, environmental transformations really, really made me optimistic about the future. Very cool to get that inside look. So thanks so much, Linda. Go check out her book at amazon The Unicorn Within: How Companies Can Create Game-Changing Ventures at Startup Speed. Shownotes and transcripts are on our site at MarkDivine.com. And you can find the video on our YouTube channel at MarkDivine.com/youtube. Reach out to me on social media. I’m at Mark Divine on Twitter and then RealMarkDivine on IG and Facebook and always find me on my LinkedIn profile, or my new TikTok channel. Check that out. Shout out to my amazing team, Jason Sanderson, Geoff Haskell and Q. Williams and Richard Veneti. Appreciate the reviews that we get for this show. So if you like what we’re doing here, please continue to share and consider reviewing and rating it at Amazon, Apple or wherever you listen to the show. And also, finally, thanks for being part of the change you want to see in the world. It starts with us individually, and then we pay it forward with our families and our teams developing a more positive, optimistic and empathic view of the future. But living that right now, like dropping a stone in the water, the ripple effects will spread out and become transformative before we know it. So hooyah. Until next time, this is Mark Divine, your host out here