Strategy and Innovation Officer
ProSiebenSat.1 Media AG
Trainee ProSiebenSat.1 Media AG
This publication shows the relevance of startup acceleration in a new co- opetition paradigm between giant companies and technology-driven multibillion dollar startups. Being attacked by growing technology startups, bigger companies will be left with only one good solution to survive: acceleration. The upcoming of disruptive startups challenge incumbents on many levels; not perceived until too late. While new disruptive players attack global incumbents through enabling platforms, they also offer new opportunities for cooperation. As a consequence, media accelerators emerged as an intermediate in between both parties to build up a new basis for a joint ecosystem. Accelerators make changes in the velocity of startups, mainly through network building, mentoring and coaching, cash and infrastructure funding, as well as through (TV) media commitments. Big corporations participate from added economic values, innovation deal flow and talent of potential unicorns, by setting up a startup accelerator to remain giant. After defining and putting in context giants and unicorns, this article will provide a standard formula for startup acceleration, stressing qualitative benefits of one part of its function: the influence of media on company acceleration.
At the end of this article, a best practice media accelerator is described: The ProSiebenSat.1 Accelerator is an example for a startup accelerator in Europe, working with gross media volume as an investment vehicle. It has a current portfolio of thirty startup companies.
1 THE DECEASING OF GIANTS AND GROWTH OF UNICORNS
Assume, you have an S&P 500 listed company in the late 50s. Your company’s market needs are met, year-over-year revenue increases, as well as the number of employees. The business model shows a high profit-margin and distribution is structured mainly through exclusive channels. The technology is working scalable and robust on a managed service and high availability basis (e.g., through offshoring). Your company would be best described as being a well-established ‘giant’: (AFCE, 2015).
1. Your monopolistic behavior gives you room for endless possibilities to expand your business model.
2. Your employee retention and recruitment is a rather easy task due to your strong business size, structure, and one -sided brand offerings and image.
3. Your competition is perceived as being almost non- existent, since your aggressiveness is known in the market.
4. You established a well-accepted company culture that keeps glorifying minor benefits such as overtime pay and flex days (AFCE, 2015).
As Ben Horowitz put it: “In good organizations, people can focus on their work and have confidence that if they get their work done, good things will happen for both the company and them personally” (Horowitz, 2014). This is the perception from an employee within a giant.
If your company expanded or listed on S&P 500, statistically speaking, it would have taken approximately sixty years to disappear from that list. You would have led a real giant, that nowadays leaves you open for disruptive innovation attacks on a regular basis. But today, the biggest companies only have a life expectation of roughly eighteen years (AFCE, 2015). Many big giants struggle setting up institutional initiatives to stay ahead in terms of speed, flexibility, talent, and digital innovation, while at the same time offering low market entry barriers – especially in specific vulnerable functions.
After a service or product has been created by the giant’s designers and engineers, the main focus switches very quickly to sales and monetization instead of tested customer reach building and network attention. A giant is focusing on de-risked growth optimizing, which is also known as incremental innovation, so that traction building follows a clear monetization rule: e.g., Product X should be technically optimized for Market Y in Year Z. But those real visionaries who initially developed and created Product X gradually lose status, scope, and network in a stakeholder-driven corporate setting and, therefore, there is no new direction for a pace-setting product – every giant gets lazy eventually and slowly loses its potential for innovation at all. Corporate entrepreneurship, technology evangelism, and digital transformation, require a two- way cultural attention span on:
* quickening up own incremental innovation processes,
* building an own ecosystem for new disruption in
services, products and/or solutions (AFCE, 2015).
Ries (2011), came up with the lean startup approach where he states that startups have to learn to develop business with the focus on sustainability through a lean and agile approach. Every startup should start with a minimum viable product (MVP), because “it helps entrepreneurs start the process of learning as quickly as possible” (Ries, 2011) through the feedback-loop of early adopters.
The lean approach is a process that every business can implement. The loop-process helps to identify ideas, work on them, learn from customers and adapt new ideas for technical product development. This is mainly why corporate events like hackathons, general community-meetings, or startup pitch events, are a good way to start a collaborative ecosystem. Universities are offering entrepreneurship degrees with the intention to help students to adapt the entrepreneur-mindset and capabilities in order to minimize the chances of failure (AFCE, 2015).
The fast advancement in digital technologies is another reason letting new startups evolve. Startups offering solutions, services, and products over the internet (e.g., P2P-marketplaces, trading platforms, affiliate networks, E-commerce sites) make entry barriers almost non-existent on a global scale, so more and more (young) professionals will become autonomous entrepreneurs with inner needs to match team passion and product-market fit to pursue their very own dreams and win in the time and space game. There are many enablement platforms helping out in flexibilization of powering up own sales (e.g., AirBnB renters, eBay Powersellers, UBER drivers) while creating new part-time jobs (Moritz, 2013).
No wonder that more than eighty startups, within a couple of years, were valued at more than a billion US-Dollars. Furthermore, eight so called ‘decacorns’ with valuations over 10 bn$ flexibly penetrating new markets or old ones in a disruptive manner. Unicorns are fast in giving giants haircuts. (Griffith, et al., 2015)
Meanwhile, you can share your room, your tools, clothes, and pets with other people. The gravitational field of the sharing economy is an emerging sector that grew into dominance through broadening transactional services, e.g., lending, sharing and borrowing. Behind its success, there lies a peer-to-peer principle that is available through apps on any smartphone (Baumgärtel, 2014). According to Werner (2014), accessibility to services and products is key to letting this principle work. Registered users at any of these sharing economy platforms are rated or get comments on their profile; therefore, both parties can see and decide if they want to collaborate. D’Onfro (2015) reports about a startup that is attacking grocery delivery services like Google’s shopping express or AmazonFresh. Although, Instacart has no track record of profits yet, the company is worth $2bn – mainly because of future expectations on disruption. Nayborfood (www.nayboorfood.com), an instant food-sharing app, is to offer a peer-to-peer food sharing experience by connecting the host with potential guests and vice versa and integrates perfectly in this value chain environment: more and more industries (e.g., the taxi, hotel and restaurant industry) are being attacked by disruptive unicorns tapping the sharing economy.
The Stock Exchange Commission (SEC) introduced new standards and laws that allow startup founders to raise capital through crowdfunding. Startups and small businesses are now able to raise up to $50 million through Kickstarter-alike crowdfunding campaigns. This new regulation allows the bypass of the process of raising money through venture capitalists (Biggs, 2015).
But what is it that so many upcoming Generation Y founders and startups do, or have, that big companies and high-profile corporate executives can hardly compete with?
Peter Thiel and Blake Masters (2014) believe that business creation is not about copying other products or services, but coming up with totally new ideas that deliver value to customers. Startups must begin with a small market, since it is easier to achieve a monopoly position within a small, less fragmented market. Within a saturated market, companies are already competing, and that is something a startup wants to avoid, if it cannot disrupt. In The Art of War, Sun Tzu writes, “Be extremely subtle, even to the point of formlessness. Be extremely mysterious, even to the point of soundlessness. Thereby you can be the director of the opponent’s fate” (Sun Tzu, 1988). Another advantage of startups in comparison to big corporation is their size. Startups are not only fast, but also small and lean in their processes, so members share common goals and a clear vision.
To come up with a unique product or service, startups and/or bigger companies need to find the unknown, missing piece of the puzzle, which makes a disruptive innovation work. ‘The best place to look for secrets is straightforward: where no one else is looking’, but still ‘the Western world needs nothing short of a cultural revolution to do it’ (Thiel and Masters, 2014).
Conglomerates have to put in a lot of effort to compete against many startups with expertise in their specific functions.
In mythology, unicorns’ spiraled horn on the forehead was thought to be the neutralizing poison. Therefore, giants might need to get stabbed by unicorns to evolve disruptive innovation potential within the giant’s body (The white goddess, n. d.). Instead of chasing or fighting the many unicorns on their own, a giant may find new ways to cooperate in this technological ecosystem to survive the battle, for example: startup acceleration.
2 A STANDARD FORMULA FOR STARTUP ACCELERATION
The definition of acceleration in physics is defined by the rate at which the speed of a moving object changes over time (Acceleration, n.d.). Acceleration is calculated by dividing the alteration in speed through time (Changing speed, n.d.):
Let us assume this object is a startup. Reflecting on the term ‘startup acceleration’ itself, the second thought after physics that may come to mind is, it fastens up solutions for 100% of strategic and operational startup issues while inspiring for new thought leadership. Such definitions hold true, yet are not integrative enough.
Successful acceleration makes a difference in speeding up (velocity >> v) a startup under limited time frame (time >> t) by additionally contributing with a strong catalyzer (e.g., executional team) and its ability to:
1. actively convince new stakeholders as well as actively maintain valuable relationships within a strong network environment of multiple business and technology angels, VCs, private equity boutiques, startups, corporates, political and scientific community – (network >> n),
2. provide startups with needed cash (direct investments, increase of capital stock debt management, convertible notes, crowdfunding, etc.) and/or infrastructure (laptops, VoIP telephones, creative whiteboards, printers), office space (workplace and meeting rooms) – (cash >> ca),
3. provide startups with industry experts’ and investors’ mentoring and day-to-day coaching by experienced (corporate) entrepreneurs – (coaching >> c),
4. generate regular investment deal flow through clear value perspective on media (TV media, Online media), also through international partnerships – (media >> m).
So a new formula for successful startup acceleration may be:
It is to assume that the effect of startup acceleration is randomly equal, especially in the context of Einstein’s relativity on gravitation and acceleration: ‘no experiment inside an elevator can distinguish whether reaction forces (which provide the impression of eight) arise from gravity, acceleration or a mixture of the two’ (BBC, n.d.), and ‘no physical measurement can distinguish a reference frame which is accelerating (relative to an inertial frame) from one which is placed in a uniform gravitational field (Einstein’s special and general theories of relativity, n.d.).
Under Einstein’s premise that,
(Inertial mass) x (Acceleration)
= (Intensity of gravitational field) x (Gravitational mass)
you can assume, that for startup acceleration this analogical standard formula may hold true:
Inertial startup x acceleration = (Intensity of the network, cash, coaching, media) x (Mass between accelerator and startup)
3 THE INFLUENCE OF MEDIA ON STARTUP ACCELERATION
While startups today search for more reach potentials, big corporations offer a wide range of possibilities to boost the acceleration through media. In theory, there are three main operational innovation tools for startups to benefit from a TV media powerhouse with idle ad inventory without investing into planning and infrastructure to advertise on TV:
A. Media-for-revenue: receive gross medial volume (e.g,, TV, Digital) for revenue share.
B. Media-for-equity: receive gross medial volume (e.g., TV, Digital) for equity stake.
C. Mixture of A and B.
All methods increase brand-awareness in a competitive landscape and trigger a positive signal to investors (Kolbrück, 2012). The rise of Zalando showed how TV media can influence revenue and brand awareness. Zalando started to advertise on TV in 2009 and showed a revenue of 6M Euro. Four years later, the revenue increased to 1,76bn Euro (Söllner, 2015). Thus, accelerators with high partnering and media commitments may have a strong impact on startup internationalization.
3.1 Media Impact on Online Search Volume
Potential unicorns need to scale quickly and on a global basis. Some of them are not only longing for long-term effects, but are looking for short-term sales push for a specific product during the defined period of a marketing launch campaign. There are several core marketing levers to kick off such campaigns in new countries to create sales (SEM/Affiliate/Video Advertising/Display Advertising) that can be combined with a TV media strategy to create awareness and trust. Potential TV spot messages may show a different impact between performance and branding goals in the media mix. Focusing on sales, a startup needs to give prominence to the specific benefits of its products and reference to sources of supply and prices given. Focusing on brand building, the startup company raises awareness to create a unique brand image.
TV advertising has a positive effect on online search volume in the context of a linear correlation, because, for example, viewers like to get additional information about an ad or want to buy products aired on TV. Studies show that one-third of TV viewers browse the web at the same time. Search engines like Google and Yahoo are the most frequently used websites to gather information during a TV advertisement. The best example is the effect on search volume of companies’ advertising during the Super Bowl. Search volume shows a high peak within the first sixty seconds, and slowly decreasing volume for the next hour (Liaukonyte, et al, 2014).
The TV media investment of Zalando had similar results in Europe. As of 2006, before the media deal for ProSiebenSat.1, the search volume for ‘shoes online’ was rather low in Germany and increased significantly with the investment in TV advertising. Zalando quickly became the number one alternative for online shoe commerce in Germany (Source: ProSiebenSat.1).
Increasing the online search volume through TV strongly influences site visits, but does not necessarily result in higher performance in sales – so there remains a strong dependence on the target site’s conversion rate, product performance, scalability and robustness of backend when transferring millions of viewer (i.e., users).
3.2 Best Practice – The ProSiebenSat.1 Accelerator
The ProSiebenSat.1 Accelerator is a three-month program to support start-ups, led by one of the biggest media companies in Europe, ProSiebenSat.1 Media Group (P7S1). ProSiebenSat.1 has the power to reach more than 42 million households in Germany, Austria, and Switzerland through fifteen TV channels. The reach is extended through a portfolio of over fifty digital- and e-commerce companies with synergy potentials (source: Website ProSiebenSat1.com).
Launched in March 2013 the accelerator program provides high potential startups with seed funding, mentoring, office space, and access to Germany ́s largest media network. The program leads to a Demo Day marking the end of the program, where the startups get the chance to pitch their business models and technologies in front of an audience of distinguished investors and potential strategic partners. The investment focus of the accelerator program is wide and not limited to a particular market segment – both B2C and B2B startups are welcome. The aim of the program is to speed up the pace of development of promising startup companies, and to find synergies within the wide-reaching internal and external network of the ProSiebenSat.1 Media Group. The accelerator team consists of executives with different backgrounds within the ProSiebenSat.1 Group, with expertise in product development and experience in entrepreneurial environments. Mentoring and coaching sessions are led on a daily basis with internal and external professionals in areas such as technology, strategy, media, marketing, and business development, as well as law and finance.
Source: ProSiebenSat.1 press releases/Google Trends
The ProSiebenSat.1 Group has a wide range of cooperation possibilities for startups through its many subsidiaries. Thus, every startup receives 25,000 € in first cash funding, 500,000 € worth of gross media volume to get on TV, and every year the best accelerator team gets a wildcard for the SevenVentures Pitch Day (7VPD) to compete for an additional 7 million euro gross media volume in TV advertising. Within the accelerator, ProSiebenSat.1 combines the benefits of both, startups and corporation, to activate synergies. ProSiebenSat.1 has the ability to scale services and products due to its reach in the TV market and its many connected networks and affiliates. As discussed, this media perspective is only one of the strong factors increasing velocity, leading to overall success: the low startup acceptance rate of under two percent out of all startup applications and numerous awards and millions in follow-on cash funding.
An accelerator brings in new ideas, fresh perspectives, and most importantly, it transfers the speed and flexibility of potentially disruptive startups in terms of innovation, talent, and portfolio value for all assets. Everything a giant needs to survive more than just eighteen years.
This article showed the relevance of startup acceleration in a new co-opetition paradigm between giant companies and unicorn startups. While new disruptive players attack global incumbents through enabling platforms, they also offer new opportunities for cooperation. As a consequence, media accelerators emerged to intermediate between them to build up a joint ecosystem. Accelerators make changes in the velocity of startups, mainly through network building, mentoring and coaching, cash and infrastructure funding as well as through media commitments. Big corporations participate from added economic values, innovation deal flow, and talent of potential unicorns, by setting up a startup accelerator to remain a giant. The ProSiebenSat.1 Accelerator is an example of a startup accelerator in Europe, successfully working with gross media volume as an investment vehicle.
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HERBY MARCHETTI has worked in a variety of different functions at ProSiebenSat.1, mainly in the areas of international business development and investment management of digital media and technology assets. Herby started his career at Holtzbrinck Digital Incubation eLab, where he qualified himself for the management program at the Holtzbrinck publishing group. In this program, he was overseeing several internet initiatives and gained profound expertise. Herby completed his Business Administration Degree at the University of Munich and also took leadership courses at Stanford University Graduate School of Education. Since then, he remains involved in many areas of academia, being a founding member of the Internet Business Cluster e.V., as a university lecturer at Steinbeis University, and also at the Fresenius University, where he engages and challenges MBA students to realize their full potential. Herby is one of the Co-Founders of the ProSiebenSat.1 Accelerator. Currently, he reports to the Chief Information Officer of the ProSiebenSat.1 Group in the role of a Strategy and Innovation Officer.
ALEN JAZBEC is a management trainee at the ProSiebenSat.1 Group. Prior to this, he worked in his family’s business. Alen is interested in new digital media, start-ups and digital trends in the business- and lifestyle environment. He is currently working with the Strategy and Innovation Officer of the ProSiebenSat.1 Group and operating a corporate technology innovation lab. Alen holds a Master’s degree in Service Leadership and Innovation from Rochester Institute of Technology, New York, USA, with a focus on Open Innovation and Co-Creation.