Updated: Jul 9, 2020
Investment in smart mobility within the automotive industry is growing quickly. Over a 24-month period, the automotive industry invested more than $120 billion in autonomous vehicles, connected cars, electric vehicles and other smart technologies from telematics to infotainment to e-hailing, according to McKinsey & Company — with much more to come. However, despite the significant capital investment, no single automaker, supplier or venture capitalist has yet to secure pole position across all verticals.
To accelerate growth and maximize earning potential, automotive companies with multiyear development cycles will need to both invest in and co-create new ventures with experienced entrepreneurs.
Enter venture development
Through venture development, entrepreneurs collaborate with large corporations to create solutions to the threat of disruption corporations face every day. That means new products, services or even entirely new companies are invented with an edge to scale fast.
A venture development company or venture studio provides a range of services based around shared risk/reward models. Contrary to the “time and materials” model of consulting firms, these services often include strategy, design, development, branding, recruitment, product management, go-to-market, sales and marketing. The structure of the partnership incentivizes all to move extremely fast.
This combination of the vision and lean approach of entrepreneurs with the resources and deep domain expertise of automakers enables the creation of unique opportunities rife with market potential.
Throughout the process of venture development, the automaker faces decisions: Who is the best partner with whom to develop a new venture? What is the solution? What’s the minimum viable proposition and how do you test it? What is the likelihood of success? What’s the size of the market?
A good venture development partner knows structure defines outcomes and uses a tested framework optimized for success. This makes for improved risk mitigation and optionality that traditional corporate development simply doesn’t allow. Ultimately, the automaker can shut down the venture, incorporate it into the core business, sell it or spin out the venture as a standalone company while maintaining a foundational shareholder position.
Larger companies slower
It’s long been taken for granted that larger automotive companies can’t innovate as quickly as startups. But what exactly is it that makes larger companies slower? A number of factors play a role in hindering innovation in large companies.
Startups tend to have fewer fixed assets and more capital liquidity to purchase more modern assets down the line. That makes for significantly more agile structures, cultures and processes.
Moreover, while startups may have to answer to a board consisting of a handful of investors, automakers can have millions of shareholders, a board, thousands of employees and decades of built-up processes, policies and culture. It’s the epitome of it takes a long time to turn a big ship.
To put it simply, “Buy low, sell high.”
Because of crumbling oil prices and the spread of COVID-19, we’re facing combined supply-and-demand shocks. But the history of the World War II-era CEOs shows that pandemics create incredible financial opportunities for those with the vision to create them. While many were writing epitaphs for traditional automakers as game changers and disrupters stormed the gates, this pandemic has proved to be a pivot point in the future of smart mobility.
Many automakers have considerable experience weathering similar global setbacks and have demonstrated an ability to persevere, rebuild and expand. This time they will seek out entrepreneurial leaders to develop smart mobility, connected products and business models that evolve from the challenges the pandemic brings.
Worldwide shelter-in-place orders have led to a paradigm shift from the office atmosphere to a work-from-home culture, opening the door for countless new products and services in the automotive industry and beyond.
Through venture development, automakers can rise from the ashes of the global economy, replacing lost revenue with opportunities including contactless delivery and payments, curbside commerce, new vehicle-ownership models and a rethinking of the entire gig economy.
With these rapidly accelerating trends comes the opportunity for equally rapidly accelerating growth. Some might even call it the perfect storm for venture development and investment.
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