Vision for a Venturing Ecosystem to Generate Global Health Innovation
Advances in collaborative innovation models in the United States involving entrepreneurs, academic institutions, venture capital investors and corporate partners have created successful start-up businesses that deliver science-based functional food products to the US market in a speedy, capital-efficient manner. These companies and their products provide preventive wellness solutions to personal and public health concerns including weight management and obesity, cardiovascular health, immune system and digestive health, and sleep and stress discomforts. Each of these areas has a large and well-established US market for costly prescription drugs to treat related ailments and chronic diseases; these food-based solutions are intended to offer an alternative approach to keeping people healthy.
Concurrently, advances in progressive entrepreneurial and investment models in developing countries such as India, Pakistan and Africa are receiving increased attention and capital. A broad range of non-governmental stakeholders including foundations, private investors, entrepreneurial intermediaries and multinational corporations are beginning to pursue product-driven, market-based solutions to pressing health issues related to nutrition, hygiene and disease prevention.
Both efforts flourish when diverse stakeholders with complementary capabilities and resources collaborate to form a common vision and embrace an open innovation ecosystem model for venture formation and implementation. The multinational corporation is a key actor and stakeholder common to both endeavors, and as such is in a unique position to provide initiative, capital and business resources necessary to catalyze and accelerate global health innovation.
Brand New Brands: Case study of a collaborative innovation model
In April 2004 my partners and I organized a venture-capital backed incubator called Brand New Brands (BNB) to create next generation functional food products and launch them as new platform companies in the United States healthy foods market. Our team developed a rapid and cost-effective innovation process that linked academic-based scientific research about novel food ingredients (with accompanying clinical research and patents) to unmet health needs of an aging baby boomer population.
We began by researching six major health issues affecting large populations that could be addressed through nutrition: Heart health, weight management, cognitive development, bone health, sleep and stress and immune system health. Simultaneously, we identified and inventoried the latest science-based ingredient technologies at leading academic institutions. Our creative team then generated seventy-five new product concepts that delivered the most scientifically credible active ingredients in convenient and attractive food forms. These preliminary product ideas, illustrated only as a name, product description and a drawing of a package were tested on early-adopter “healthy-food” consumers for their conceptual appeal using an internet-based market research tool. The market for the products was defined as “The Worried-Well”---educated consumers with discretionary financial resources who cared about, and believed in preventive health practices.
We then sourced samples of the appropriate food ingredients and began discussions with University tech transfer and licensing offices about proprietary use. The twelve most promising concepts (as determined by the research) were developed into prototype products on the bench at Mattson and Associates, a leading culinary design firm. The chefs and food technologists at Mattson were able to assess which novel ingredients could be practically incorporated into product forms that were great tasting, convenient and affordable while delivering efficacious amounts of the active ingredients (as determined by existing clinical studies). The group of twelve prototypes was culled to seven that had a strong chance of becoming high-growth business platforms. During the ensuing months, entrepreneurial teams of experienced business leaders, food developers and marketing experts were recruited to evolve the prototypes into commercial products and brand-driven businesses and launch them in the market.
The expectation of the entrepreneurs and investors was that these new ventures could grow quickly (four years or less from launch) and cost-efficiently (spending a fraction of what large companies do) in the market, attract loyal customers and achieve a substantive sales velocity that would be indicative of future scale and potential to become leading brands---$50M or greater in sales. At that point, the BNB businesses could be sold to larger food companies looking for opportunities to extend and expand their business into high-growth healthy food segments.
Brand New Brands was financed by a consortium of life-science and consumer-focused venture capital funds and the venture capital group of a multinational corporation. With $6M in capital and in less than 24 months, the BNB incubator launched four new businesses, complete with their own dedicated entrepreneurial teams and product lines. The incubator was able to attract the capital of these investors because of the potential to achieve sizeable financial returns as established by a pattern of high-value acquisitions by large food companies of emerging healthy food brands during the prior decade.
The collaboration of the cohort exemplified the potential for diverse partners to contribute effectively to a creative innovation effort. Experienced food entrepreneurs with links to leading academic researchers, backed by venture capital investors (several of whom had strong relationships with research institutions and ingredient manufacturers) were able to generate significant competitive advantage in terms of product innovation and speed to market over traditional large food companies. The BNB incubator was enhanced by the active participation of Unilever, one of the world’s leading food and personal care companies, which not only contributed capital through its venture capital group, but also made several executives readily available to BNB’s entrepreneurial leadership on an ongoing basis. These scientific and business resources provided insights and assistance about ingredient technologies, competition, markets and supply chain considerations. Additionally, Unilever dedicated a senior business executive with expertise in brand management, business development and M&A to assist the companies as a board observer after they were spun-out from the incubator. (It is worth noting that Unilever invested its capital on the same terms as the venture capital investors without any preferential rights to acquire or control the BNB businesses. The intellectual capital of Unilever’s executives was offered as part of their “value-add” and was a natural extension of the company’s recent commitment to an “open innovation” strategy.) Unilever was willing and eager to participate in an external innovation effort of this nature because these new products and markets were considered strategic to their long-term business, but too nascent, risky and small-scaled to be pursued or integrated into the company’s core efforts.
Brand New Brands’ products and companies were developed specifically for a fast growing US market enabled by a mature grocery retail distribution channel and large numbers of health-conscious consumers accustomed to paying a premium for healthy, organic, natural and functional foods products. However, the principles of using rapid innovation processes with a consortium of partners who share a common vision about value creation could be implemented to address global health issues in developing markets.
The venturing ecosystem
Brand New Brands was a carefully designed enterprise where all of the stakeholders—entrepreneurs, investors, corporate and academic collaborators—had aligned interests and incentives and shared a commitment to a core purpose. These guiding principles were memorialized in a “constitution” by the stakeholders. An incubator model was chosen, despite a history of mixed success, because of its appropriateness for rapid screening of manifold opportunities and the need for swift product commercialization. The US was identified as the focal market for many reasons: The experiences of the leadership team, growth dynamics of the consumer market, existence of an established distribution system, the availability of venture capital financing and the precedence of successful financial exits.
BNB’s incubator model had several unique structural attributes. It was not owned or controlled by any one party, and as such it functioned independently under motivated entrepreneurial leadership. This is distinct from corporate and academic incubators that often have flat institutional compensation structures and cultures that are burdened by the bureaucratic nature of large organizations. All of the entrepreneurs involved in BNB received meaningful equity incentives and were motivated by success in the marketplace. As such BNB was able to develop a distinct culture as a rapid learning organization where entrepreneurs cooperated and competed in a resource and time-constrained environment.
It was also agreed that all of the new products should be able to be made by contract manufactured by established food co-packers. This would also enable speed to market and avoid costly investment in facilities and equipment. Another innovative design feature was that BNB had a formal “end-date” and fixed budget when it would cease inventing and incubating ideas. This forced the teams to make decisions within a constrained timeframe and push their ideas to market. This structure reinforced a sharp focus on product innovation and market success. Open-ended incubators attract talented product development resources but can lack an orientation to take the innovations to market.
Expanding the collaborative cohort to create a global venturing ecosystem
Subsequent to the launch of four new functional food companies, the BNB team had been approached by several multi-national companies seeking to explore ways to stimulate innovation and entrepreneurial models that address unmet needs in developing country populations, particularly in the areas of nutrition, hydration and hygiene. This has inspired us to think about how we could leverage our venture ecosystem model to spur innovation in developing markets.
By expanding the stakeholder base in the cohort to include entrepreneurs, intermediaries and investors working in developing markets, the team at BNB, with its global academic partners, could simultaneously evaluate ingredient and food delivery technologies that had market potential in other parts of the world. This would be a simple and cost effective way to leverage the scouting level efforts that were undertaken as part of the basic incubator model but would require local market expertise and additional scientific and medical expertise.
Similarly, we could look to identify opportunities to transfer technologies and fully developed products through licenses to existing entrepreneurial teams or companies on the ground in developing countries. With the appropriate financing and distribution partners, these teams could launch new businesses intent on rapid distribution of appropriate products into underserved markets. This venture ecosystem might benefit from participation by foundations or other funders intent on financing or underwriting costs that would make products immediately affordable and accessible to the poor, while also providing necessary educational and technical support for market development.
Leadership roles for the multi-national corporation and social venture intermediary
While the overall effort is best orchestrated by experienced entrepreneurial leadership, a key partner in a global health innovation ecosystem is likely to be a multi-national corporation that has relevant product and domain experience, local market and distribution expertise, a proclivity for strategic venturing and growth strategy that embraces open innovation. In the past several years a number of Fortune 50 companies have announced strategic commitments to developing markets and are beginning to consider ways of replicating or adapting venturing models and best practices developed through US and Europe experiences. A committed multi-national corporation can provide myriad resources while helping to mitigate risks for all members of the cohort.
The first valuable resource is risk capital that may be committed as part of a larger portfolio of strategic venturing activities. At Unilever, the Company manages a diversified portfolio of investments in a global cadre of leading venture capital and private equity funds. The scope and activities of these funds match Unilever’s strategic interests and geographic focus. With the appropriate co-investors, limited partners and fund managers, a corporate investor might join an investment fund focused on starting and growing businesses in relevant developing markets. One related example is Acumen Fund, a non-profit global investment vehicle that converts philanthropic contributions into investment capital to deploy in market-based innovations to solve the problems of poverty.
The multinational corporation can also contribute valuable market research and insight and executive talent that can inform strategy. In some cases, the corporate partner may be in a position to structure distribution relationships or joint-venture partnership that could accelerate access or success of a new venture in market. (There are some positive precedents for this approach between large corporations and entrepreneurial start-ups in the US food sector.)
A successful global venturing ecosystem may also need a social intermediary partner to bridge the innovation ecosystem from the developed world to the developing world. International intermediaries that support entrepreneurship in developing countries such as Endeavor and Volans Ventures might be ideal partners to steward the creation of a linked and parallel venturing ecosystem. These groups are set up to help for-profit and socially focuesed entrepreneurs scale innovations to enhance overall impact. By taking a comprehensive design approach to an issue like micro-nutrition, hygiene or disease prevention, a social venture intermediary might be in the best position to identify and align the interests of appropriate entrepreneurial, financial and corporate stakeholders for a successful global venturing ecosystem.
- A venturing ecosystem can flourish when a diverse stakeholder cohort shares a common vision and commits to an open innovation model for new business creation. This approach seems well suited for transferring health product innovations related to nutrition, hygiene and clean water from the US to developing markets.
- Best practices developed and proven in the US could be linked and leveraged through partnerships with multi-national corporations and social venture intermediaries to extend a venturing ecosystem from developed countries into developing markets.
- A successful multi-stakeholder open innovation effort requires entrepreneurial leadership, creativity, and a shared design ethic intent on aligning the interests, incentives and outcomes for all stakeholders in the venturing ecosystem.