How big brands are buying into innovation
Seen on the shelf of a trendy bar or upmarket department store, Seedlip’s colourful bottles look like those of any other premium spirit – and come with a £27.99 price tag to match. But unlike Hennessy, Johnnie Walker or Grey Goose, they don’t contain a drop of alcohol.
The pioneering brand is the brainchild of Ben Branson, who experimented with 17th-century recipes for distilled home remedies after struggling to find something interesting to drink when he wanted to avoid alcohol on a night out.
Rather than trying to create an entirely new variety of drink on his own, Branson turned to Distill Ventures, the corporate venture arm of Diageo, the FTSE 100 booze giant behind the likes of Captain Morgan’s, Smirnoff and Gordon’s gin.
Distill helped the new brand speed up its growth, investing an undisclosed sum for a minority stake and providing mentoring, including meetings with Diageo boss Ivan Menezes. “Back in the Eighties and Nineties, it was very much David and Goliath, the big guys stamping out the little guys,” says Branson. “But [there’s been a] huge shift now in big companies realising they are not great at starting things and taking those early risks”.
Diageo is far from alone. Inspired by the success of similar initiatives by Silicon Valley giants and fearful of being outgunned by more innovative, nimbler rivals, dozens of big UK companies, from British Airways owner IAG to Jaguar Land Rover and Lloyd’s of London, have launched start-up investment funds and accelerator schemes in recent years.
But while there are early signs of success, there are concerns that some companies are jumping on an already crowded bandwagon and ploughing mounds of cash into the schemes without a concrete sense of why they are doing them. It’s not hard to see why Jaguar Land Rover felt the need to set up its accelerator Inmotion Ventures two years ago. While the car maker has enjoyed solid growth in recent years, in the longer term it will have to deal with a decline in car ownership among younger generations.
“The industry frontier is changing,” says Sebastian Peck, Inmotion’s MD. “Everybody is trying to understand how they can increase their footprint and diversify their revenue away from simply manufacturing hardware.”
The unit’s most high-profile tie-up so far was a £20m bet on US ridehailing giant Lyft, a rival of Uber. More early-stage punts include Cove, an Asian car-sharing scheme, and Voyage, which hopes to build a network of autonomous cars that can be summoned remotely. JLR is unlikely to be shutting down its production lines in favour of offering such services any time soon, but the tie-ups give it the opportunity to explore new areas without dedicating as many resources as if it had to go it alone.
Peck says: “It’s helping us to understand, is this a business we want to be in as an operator?”
Many of the schemes are run by L Marks, an innovation consultancy whose clients have included IAG, William Hill and EDF Energy. Daniel Saunders, its chief executive, says accelerators work best when they are focused on specific challenges the big company wants to address, rather than a general attempt to be more innovative. Chris Haley, head of research at innovation charity Nesta, adds: “In some cases it’s not clear to the corporates themselves why they’re doing this. There’s a fear of missing out – it’s the fact their competitor has set up a programme and they feel they should be doing this too.”
Saunders says L Marks recently pulled the plug on an accelerator it was preparing to launch because he felt the client was more interested in “innovation theatre” to attract press coverage and keep investors happy than actually engaging with the start-ups it was working with.
Another challenge is culture clash. Haley says “a great many” of the start-ups he has spoken to have felt inadvertently “strung along” by big companies.
Some big companies see the accelerators as an opportunity to deal with that very problem, hoping they can absorb some of the entrepreneurial zeal of the start-ups they work with.
“We bring these companies into the heart of our business so we can learn from them and they can learn from us,” says Dupsy Abiola, who heads up IAG’S Hangar 51 programme, which is on to its third cohort.
John Lewis has been running its JLAB programme for four years and while the long-term collaborations with the companies that have gone through the accelerator have so far been limited, the retailer’s innovation boss John Vary says it’s as much about improving mindsets as using specific technological innovations.
He says: “If we look back to year one, doing trials in stores was quite tough. What it’s done in the years since then is really help shift people to see the value of JLAB in terms of experimenting with getting new concepts into branches and head office.”
That doesn’t work for everybody, though. Haley says: “Many corporates have founded accelerators in the hope this will lead to internal change … and have been disappointed as a result”.
While their value to big business is yet to be proven, there’s no doubt accelerators can be a significant boost to the small businesses that come through them. Seedlip is now stocked in 75 UK Michelin-starred restaurants, Fortnum & Mason and Waitrose, and has sold half a million bottles in the past year. Not bad for a company that existed only in its founder’s head five years ago.