Innovation drives competitive advantage and sustainability for businesses. Innovation teams at leading global companies leverage existing market strengths to extend product lines, improve operating efficiencies and add new features to flagship products. This incremental innovation is an essential driver, keeping top companies ahead year after year. But there is also a powerful approach to innovation outside of large companies in savvy startups pursuing technology-driven market disruption. As the digital revolution continues to accelerate, young tech companies can become market disrupters so rapidly that large businesses may not appreciate the threat they represent until it’s too late.

Enormous amounts of venture capital are available to fuel disruptive tech startups, enabling them to compete at scale with established corporations. The number of “announced” corporate venture innovation initiatives grew by 85 percent in 2020, and corporate venture capital now represents more than half of total venture investments.

So how does a large organization that methodically grows sales year after year avoid getting blindsided? By doubling down. Companies that are effective at both internal and external innovation are ahead of the curve because they recognize the difference between the two approaches. One is driven by a culture of continuous improvement, the other by understanding and embracing new technologies. Companies must be able to sync with emerging tech startups and align their culture accordingly. This includes:

• A commitment from leadership. Adopt and adhere to a multi-year outside-in plan that complements internal innovation teams. The corporate C-suite must support outside innovation to overcome internal biases and operational resistance.
• A clearly defined strategy. Begin with a clear expression of company, customer and/or market pain points that align with strategic plans and priorities. Identify two or three focus areas.
• A strategy to address cultural fit. Startup culture doesn’t always mesh with internal corporate innovation. Separation between efforts and support for both can allow each initiative to thrive.
• A dedicated plan for resources and capital. Internal buy-in and independent budgets are needed to facilitate pilot programs. Successful pilots can lead to large-scale engagements, which can ultimately create opportunities for equity investment. Companies that lay out a clear pathway for pilots and investment have a significant advantage in attracting high-potential technologies.
• A willingness to act quickly. Venture capital-backed startups move fast because they are flexible, aggressive and laser-focused on problem solving. A challenge for corporations is that disruptive startups often stay off the radar and then, when rapid adoption hits, competition for partnership opportunities and investment heats up fast. Corporate leaders who appreciate this dynamic can empower teams to take appropriate risk, lean in through pilot engagements and generate strong returns from venture investment.

Corporations are increasingly aware that technology can immediately shift the competitive landscape, upending entire industries. Internal, incremental innovation drives growth, but external innovation drives disruptive change. Exploring outside-in tech sourcing is a crucial way to stay ahead of market disruptions.

Tech-driven, venture-backed innovation is changing business. And that is a good thing … if you embrace it.