Martin Elliott, Senior Director of Mattel, Inc.’s New Business Ventures, tells innovators how to avoid the budget cut thresher. Think like a V.C.
Some reasons innovation budgets get cut: wrong executive sponsor, turnover, don’t demonstrate value, or core business takes a hit.
Think of innovations as a New Business Venture. Act like V.C. and provide funding rounds at different iterations. Actually apply the same funding model and stages: Friend and Family, Seed, Venture, and Growth Equity.
Friends and Family phase goals create a proof-of-concept and get that critical first customer. Typically, this nominal investment hovers around a few thousand dollars.
Then, the concept gets pitched to an innovation council. Asking to expand to test customers, build a beta product, and show traction. The key question is can we begin to demonstrate profitability. While this is a larger investment–up to several hundred thousand dollars–the product is proving itself, so it is immune from cuts.
In the third stage, the questions are how big is the potential market and can we scale it? At this Venture stage, the audience is the CEO and CFO.
In the fourth stage, a Mattel brand, such as Barbie or Hot Wheels, is applied to the proven concept and a huge marketing push propels the product or service in the market.
This typical start-up funding model provides stage gates, where serial bets are placed as they are earned.
Helping innovators think like a start-up with incremental smaller bets over time inspires the agility of innovations. It allows for real consumer desirability and product improvements.
Typically weaker ideas die out early, at less expensive junctures. Capital is linked to the elimination of risk. Elliot ends with this sage BEI advice about the process: “Unlocking capital is directly proportional to reducing risk.”
image credit: mattel.com
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Michael Graber is the cofounder and managing partner at Southern Growth Studio, a Memphis, Tennessee-based firm that specializes in growth strategy and innovation. A published poet and musician, Graber is the creative force that complements the analytical side of the house. He speaks and publishes frequently on best practices in design thinking, business strategy, and innovation and earned an MFA from the University of Memphis.