Ahead of his speaking role at Future Food-Tech New York, we spoke to David Behringer, CEO at Pilot Lite Ventures USA to find out more about how entrepreneurial thinking is changing within the industry, important metrics for successful innovation and Pilot Lite Ventures’ unique approach to management and innovation.

Which companies are leading a culture of innovation and entrepreneurial thinking? How is this changing within the industry?

Executives say that leadership support is the number one enabler of innovation success. But the second most important factor is the “ability to test, learn and iterate.” More mature companies recognize the value of setting the right strategy and vision for innovation — and putting in place the right team with the right set of skills. Interestingly, budget is typically not a key driver; there’s plenty of money to spend (and being spent).

Unfortunately, the consumer goods sector, especially food, is struggling to deliver against market expectations for top line growth. Many companies are being dinged for product portfolios that are out of touch with the needs of today’s consumer and for not executing on innovation strategies that will evolve their product portfolio. They’re focused on delivering earnings via more predictable margin enhancement and infrastructure rationalization. Given most Fortune 500 companies’ market success is built on trusted brands and predictable earnings, it’s only natural that mature organizations are efficiency-focused. Unfortunately, this short-term strategy does not create the incremental revenue required to sustain long-term market performance. Companies that are successful at innovation that drives long-term value generation adopt innovation strategies with these metrics:

• Revenue Generation from the monetization of innovation
• Deal Rate for in- and out-sourcing innovation assets
• Commercialization and transition from pilot-scale to business unit-scaling
• Speed to Market from idea to commercialization
• R&D Spend Efficiency reducing stranded innovation spend

One-quarter of companies today are not tracking the financial impact of innovation using metrics that drive the top line. As a result, they struggle to deliver against their stated revenue growth objectives. Companies that are laser-focused on innovation metrics that foster long-term value generation make smart-money decisions that drive growth. By monetizing ‘Outside-In’ and ‘Inside-Out’ open innovation, they maximize ROI on innovation spend, create multiple avenues for monetization and avoid over-investment in non-viable innovation.

Why is it important for start-ups, CPGs and investors to rethink how they are doing open innovation?

In the last 18 months we’ve seen acquisitions of RxBar by Kellogg for $600 million, Daiya by Otsuka for $400 million and Blue Buffalo by General Mills for $8 billion. From a technical and branding perspective, these small companies didn’t do anything the larger corporations couldn’t have done themselves in-house (theoretically speaking) but they chose to acquire instead. Why? It’s most likely because they lack the patience for growing organically and want to avoid the risk associated with building new innovation from the ground up and the stigma attached to failure that exists in many corporate cultures. They prefer start-ups bear the upfront risk and are willing to pay the multiple later. But because these acquisitions are costly, many (probably most) do not meet the ROI expectations post-integration and scaling.

Shifting from this late-stage acquisition model to an early-stage corporate-start-up collaborative partnership model allows corporates to move in a more nimble ‘start-up’ fashion while affording start-ups the much needed experience and scale benefits required to support their growth. These collaborative partnerships allow the corporate to capitalize on an opportunity at a much lower multiple while managing risk and corporate cultures.

Can you give examples of new successful ways and models PLV and global leaders are building open innovation? What challenges are there to overcome?

We are at a unique point in the history of food innovation. There is tremendous global R&D spend — $702Bn, up 3.2 percent over 2016 — and open innovation efforts by companies are helping to bring ‘game changers’ to market rather than incremental product development. We are seeing well-funded start-ups in the in pre- or first-revenues from VCs like Khosla Ventures and the Gates Foundation. There are mature, well-established open innovation models in place across many corporates and third-party providers helping to fuel innovation.

With that said, many of the transformational technologies and early-stage ventures funded by the $702Bn innovation spend are deserted in what is known as the ‘Valley of Death,’ a place where great ideas, millions of dollars, hard work and innovation languish.

It’s estimated that up to a third or as much as $250Bn worth of investment becomes stranded. Abandoning investment and moving along has become common and accepted by many organizations as the ‘cost of innovation.’

Not all stranded ideas are worthy of being launched — some are halted for good reason. Many are funded longer than they should be and contribute to wasted spend. Abandoning non-viable ideas earlier in the innovation process can unlock valuable innovation resources and redeploy them towards accelerating viable new ventures to market. On the other side of the coin, if the stranded innovation is truly viable, valuable and financeable, then billions of dollars in revenue are being left in the corporate file cabinet. This is the real opportunity cost of stranded innovation. At an IRR of 20 percent or a multiple of 3X, a staggering $750Bn per year or $2 trillion over a five-year period is locked in the ‘Valley of Death.’ A new model focused on ‘Inside-Out’ open innovation is required to monetize these early-stage ideas, turn them into profits and eventually reintegrate them into corporate fabric to fuel top-line growth.

How is PLV’s approach different from management and innovation consultancies, CVCs and VCs?

Management consultancies do not take on the risk associated with delivering projects (quite the opposite in fact). These consultancies think in terms of elegant solutions and ideal outcomes — but they exclude the realities of implementation. Innovation agencies fit within an HR process and enhance the thinking process, but they do not deliver hard assets to build a business on. Creatives communicate about a business but do not create one.

VCs and CVCs focus resources on selecting investments and overseeing investments via board seats. They do not actively develop and build out businesses from scratch. They back entrepreneurs, many of which fail at the point of scaling because they are not resourced with experienced management teams. As we know, beyond a differentiated offering, management teams are mission critical to the successful launch and scale of a business.

PLV’s Venture Management methodology provides an efficient bridge from entrepreneurship to corporate scale. Venture management goes beyond established front-end innovation collaboration. The output is always about rapidly turning an innovation into a business that monetizes the market potential — de-risked and ready for scale. Through our Pilot Lite Ventures and Pilot Lite Capital arms, we partner with and share the risk of launching new businesses with corporates allowing them to build businesses outside corporate walls with experienced teams that have decades of hard-won empirical experience accelerating and monetizing innovation.

What will you be looking out for at Future Food-Tech New York?

Our hybrid of venture management and venture capital is a unique ‘Inside-Out’ formula that has quickly gained strong market traction because our partners want to generate value from their stranded assets. We formalized Pilot Lite Capital in 2018 to address ongoing requests from the Pilot lite Ventures customer base to help create value from their R&D portfolio. Today we have four Foundational partners, all of which are Fortune 500 companies, including three in the food and beverage sector and one in home care. After reviewing hundreds of our partners’ stranded assets, we selected and validated three opportunities in the Personal Care, Snacking, Renewables categories. All three of these products have progressed to stage 5 and are progressing towards launch. We are currently in the process of vetting additional corporate partners to identify four more foundational partners and would love to find a few interested partners at Future Food-Tech New York.

David will be chairing the panel: Creating a Culture Open to Innovation and Entrepreneurial Thinking at 2.05pm on June 18 at Future Food-Tech New York.