- Lowe’s is an American multinational with a chain of home improvement stores. It runs an innovation lab in Bangalore where a startup in stealth is developing a filament for 3D printing from the carbon of tailpipe emissions. VR, robotics, and other new age technologies are also brewing in the lab, as Lowe’s wants to become a “home experience” company in 10-15 years.
- Victoria’s Secret runs a center in Bangalore to work with startups on use cases specific to its women’s lingerie business. These mainly involve data analytics, supply chain, and design innovations.
- Arya has a platform for creating artificial intelligence products. The startup is in Swiss Re’s accelerator in Bangalore, where it developed a predictive analysis product for crop insurance, using its AI platform.
These are three quite different programs: one is a lab for long-term innovations where startups rub shoulders with academics; another is an outsourcing center for use-case-driven innovations; and the third is a more broad-based corporate accelerator for startups. What they have in common is that all three programs are managed by Kyron Global – a sort of meta-accelerator based in the US and India.
“We’re designing and operating innovation programs for different companies at different stages of adopting innovation,” explains Kyron CEO Venkat Raju. “A one-size-fits-all approach doesn’t work.”
To see how this model evolved, we have to go back to the beginning.
At the turn of the millennium, ‘Bangalored’ became a term to describe losing one’s job in the US because it had been outsourced to Bangalore. Massive IT services companies like Infosys and Wipro had made the city the back office of the world.
Then a new trend emerged. Instead of outsourcing, multinationals began to set up their own back offices in India for IT services at a fraction of the US cost. Euphemistically called global in-house centers (GICs), their number in India is over 1,000 today, according to industry body Nasscom.
If you’re making money from unicorns, say you’re playing the funding game, don’t call it acceleration.
Lalit Ahuja, country head in India for US-based retailer Target, saw an opportunity back in 2003 to help multinationals set up GICs in India. He founded a firm called Ansr which took care of everything from real estate to finding talent, from managing finance to regulatory issues, in setting up GICs. And unlike a consultancy firm, it puts its skin in the game by taking a 20-25 percent stake in these entities.
These GICs were joint ventures for five to seven years, until their business reached the expected scale and Ansr exited. Target, JC Penney, Wells Fargo, Eli Lilly – 22 Fortune 500 companies partnered with Ansr to set up GICs in India.
In the last few years, a new requirement emerged for these multinationals as startups began disrupting their industries: innovation.
Flawed accelerator model
In 2013, Ansr set up a corporate accelerator in India: Kyron. The idea was to match startups in its portfolio with the innovation needs of corporations.
A year later, Lalit roped in Wall Street investment banker and Bay Area veteran Venkat Raju to head Kyron.
Venkat, who had founded two startups in the US, says he had misgivings about it. Firstly, he did not believe in the accelerator model. “In my own assessment of global accelerators and incubators, they have failed everywhere, including the US. In ROI (return on investment) terms, no one has succeeded,” he says. “Techstars and Y Combinator are seen as successes because they had a fund and invested in unicorns, hiding flaws in the business model.”
What’s wrong if they get their returns from unicorns, I ask.
“If you’re making money from unicorns, say you’re playing the funding game, don’t call it acceleration,” counters Venkat. “The focus should be on founders. Do the accelerators make a material difference to a significant number of them coming through these programs?”
He doesn’t think so.
Secondly, he felt there was a conflict of interest in Ansr running GICs and also an accelerator that feeds startups to the GICs. But Lalit gave him a free hand, and the first thing on his agenda was to shut down the Kyron accelerator.
Instead, Kyron Global started working directly with multinationals to build customized innovation centers, like those of Lowe’s and Victoria’s Secret, or partner accelerators, like those of Target and Swiss Re. It sources suitable startups for them, mentors the startups, and helps both sides make it work.
The value proposition comes from India’s tech talent pool and relatively low cost. “Innovation by definition is high risk,” explains Venkat. “If you run 10 experiments, six to seven will fail, but the two to three others more than make up for it. The cost of experimentation in Bangalore is a quarter or even a tenth of the cost in New York or London. So in place of 10 experiments, you could run 50 experiments and increase the odds of success.”
A year and a half ago, Kyron raised funding from Accel Partners and others. One of the investors was IT services giant Infosys.
Indian corporations are finally waking up to the need to get off their high horses and work with startups. Venkat says Kyron is in the final stages of working out deals on innovation programs for a couple of big corporations. But it isn’t easy.
“Indian CIOs don’t mind paying a lot of money to foreign companies but seem to have a mental block when it comes to Indian startups,” he says. “The mentality is ‘we can put 10 people on the job and get this done.’ They don’t appreciate the fact that it’s a product, and it would require a long-term cycle of growth to start yielding benefits.”
In place of 10 experiments in New York, you could run 50 experiments in Bangalore, and increase the odds of success.
Even with the multinationals, Kyron has to bridge cultural and structural disconnects with the startups. “There may be buy-in from the innovation team but a disconnect with the business unit where the main decisions are made,” says Venkat, who is also an angel investor in product startups. “So a startup may have a fantastic demo day but nothing happens inside. It invests four to five months without tangible results.”
With the corporations for which it set up GICs, Kyron has the advantage of high-level connections to iron out the wrinkles. But with others that don’t come to Kyron via the Ansr pipeline, it’s more of a challenge.
The startups also present problems because most of them have little notion of what it means to be enterprise-ready, from data integration to legal compliance.
Currently, Venkat and five other senior managers well-versed in global retail and finance handle the innovation programs, three to five per head. Mentors and domain experts are brought in from outside as required, leveraging their networks.
Now the aim is to further “productize” the model to handle the growing pipeline of corporations wanting to set up innovation centers or startup accelerators in India.
Venkat remains skeptical of pure play accelerators. He hopes for tangible results coming out of innovation programs designed from the outset to pair up corporations with startups – what he calls “partner accelerators.”
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