The Venture Client model

Imagine it’s 1993 and a startup approaches you. It offers a new kind of phone that is mobile, meaning that is not fixed to a building, weighs five kilos, breaks off every two minutes, and costs ten thousand dollars. Would you want your whole company’s communication to rely on that technology? Probably not. You don’t know how the product will evolve, nor if the startup will still be around in two or three years. Also, your business units may not adopt the product, it might not even function as expected and the startup team may not be able to execute and scale their product to your needs. However, at the same time, you would hate to miss out on the opportunity to revolutionize your communication.

At the BMW Startup Garage, we solved that dilemma by being an early client of startups with groundbreaking technologies that might potentially have a huge impact on our business. We call this approach the “Venture Client” model. A model wherein we become a client of a startup when it’s still a “venture” to do so. This approach differs from the one of an incubator or accelerator in many ways, and comes with great competitive advantages: Venture Clients not only gain early access to promising new technologies at low cost and basically free of risk, they also benefit from gaining strategic insights into new technologies and markets, customization, pricing and time-to-market advantages.

At the BMW Startup Garage, we look for technologies that our current suppliers or partners do not offer. We select interesting startups and commit to purchasing an early version and even prototypes of their products and, to foster quick adoption, the purchased technology is immediately applied by business units in a real product or process. In addition, we provide startups with valuable client feedback and enable them to learn about the BMW Group. Gaining an early, paying client while learning about its needs is extremely valuable to startups. Working directly with the business unit establishes a virtuous cycle that speeds up product and business development. It’s not anymore about insourcing or outsourcing — to us, this is a complete rethinking of how innovation works.

Since starting the BMW Startup Garage in Q1 2015, this approach has delivered great results. On one hand, startups provide key technologies that allow us to accomplish strategic innovation goals fast. For example, some of our startups provide critical autonomous driving technology. Other startups help us innovate cost critical processes. Already some are radically innovating our logistics procedures, with the potential of saving us millions per year.

To startups, having an early-stage client relationship and working on-site alongside BMW Group engineers has proved to be essential for their success: thanks to this proximity they learn a lot about the complexity of innovating products, processes and business models within a corporate. And benefiting from the continuous feedback, they can fastly iterate their prototypes in the right direction, testing these in a series of short-term development cycles. One of our startups has already grown from 5 to over 50 employees and has successfully closed a B – round since starting their relationship with the BMW Group.

In addition to providing startups with a purchase orders and supplier numbers, we train them on BMW Group procedures, such as our quality, purchasing and development processes. Something that wouldn’t have happened if we had put them into an accelerator or an incubator, far from where the business happens. An extremely important element of the Venture Client model is to have startups work on a real, paid project directly with the business unit. Ultimately, what we’re trying to do is to establish and nourish a long-term relationship with the young companies we work with.

It’s true that there are many different approaches out there. For example, your corporation could decide to work only with startups that are mature and bigger, that have already proven their business model: startups that basically use venture capital not to prove or scale a product, but to expand in a certain market. There’s a fundamental difference though. In this case you’re just a normal client — which means you’re losing the innovation impact that you have as venture client. Think of platforms in the B2C world like Facebook or YouTube, where early adopters were able to ask for a new feature and had developers implementing their needs and suggestions. We want that to happen as much as possible in the B2B space too.

There is a quote by Henning Kagermann, head of Acatech, the German Academy of Technology, which goes:“Big companies have just as many ideas as startups do. The problem for big companies is not ideas, but corporate culture and speed.”

In most cases it’s not really just about having the idea. I think, it’s above all about execution capability, which is significantly depends on the resources one can assign to an idea. And here is one of the most powerful (and often overseen) advantages of startups. A startup has better and more resources to execute. Startups have a highly specialized team (i.e. the founders) and more money (i.e. the venture capital) than a corporation to execute and act on specific ideas. It may sound as a paradox but, as a corporation, you have a lot of money overall, yet little for each individual specific problem. For example, you may have an idea for a specific sensor, but you wouldn’t be able to assign tens of millions to develop it. A startup with venture capital, however, can, because it can sell that sensor globally to many companies. (Here again, the advantage of being a Venture Client: you get that sensor customized, ahead of your competition and at a better price. You want that sensor just for you? No problem: just acquire that startup, yet now with the certainty that the sensor works.) Also startups do not only have the idea and resources, they also have its intellectual property (IP). This is particularly the case for deep tech, B2B startups. While in a corporate, you might have a great idea, but you probably won’t have the IP you need to legally execute it, hence you can’t actually turn it into a working product.

A crucial aspect of the Venture Client is to find and attract the right startups to work with. At the BMW Group, we look for companies and products that fit our innovation strategy, and we actively seek them where they are. For instance, if we’d need a cybersecurity technology, we would probably go and look into Israel’s ecosystem, where some of the best cybersecurity startups are born. But our system is designed so that it can go both ways: startups can also approach us with solutions to problems we have not thought about. It’s important to know what you want and what your company needs: you shouldn’t pursue an interesting technology or product only for the sake of it. It has to fit your company’s strategy.

Yes, you might argue that purchasing from startups is nothing new. Corporations have been doing this forever. But the Venture Client model is different: firstly, the Venture Client process enables you to scale the amount of startup innovations you can integrate. Secondly, a Venture Client uses a different process, and acts as a fusion of the purchasing, innovation and venture processes. We become early clients of their products when they are not mature, and openly sold in the market. We do this without interfering with their entrepreneurial spirit, team, processes or culture. We do not demand exclusivity or rights to their IP or equity. Which means that these startups keep being owned by their founders, they remain 100% independent from the corporation.

In a time dominated by buzzwords, where startups are easily becoming just another marketing tool, for the BMW Group, they’re an innovation tool. An ever more powerful one.