Ever heard of a "skunkworks" project? Most people in tech or manufacturing have. But lately, there’s this specific approach to internal venture building—often shortened to inve—that is causing a massive headache for C-suite executives who thought they could just "innovate" their way out of a slump. It’s messy. It’s often expensive. Honestly, it’s basically the corporate version of trying to build a speedboat while you’re still standing on the deck of a sinking cruise ship.
Some people think it’s just a fancy word for R&D. It isn't.
If you look at how companies like Xerox famously failed to capitalize on the GUI or how Kodak missed the digital photography wave despite inventing the sensor, you start to see the gap. Inve is the attempt to bridge that gap by creating autonomous entities that don't just research—they compete. But here’s the kicker: most of these internal ventures die not because the tech is bad, but because the "mother ship" eventually sees the new venture as a threat and starves it of oxygen. It’s corporate cannibalism at its finest.
The Real Reason Internal Ventures Fail
Most corporate leaders think they want innovation until they actually get it. Imagine you’re running a $500 million division. Some small inve team comes along and says, "Hey, we found a way to do what you do for 10% of the cost, but it requires us to stop using your sales team."
What happens? You kill it. You kill it fast.
Harvard Business School professor Clayton Christensen wrote about this extensively in The Innovator's Dilemma. He argued that successful companies are actually too good at listening to their current customers. They focus on the high-margin, safe bets. An inve project, by its very nature, usually starts with low margins and a "crappier" product that appeals to a niche market. To the big bosses, it looks like a distraction.
There is a psychological wall here. It’s the "Not Invented Here" syndrome combined with a genuine fear of cannibalization. If the new venture succeeds, the old one dies. If the old one stays alive, the new one is irrelevant. It’s a paradox that requires a very specific type of leadership to navigate—the kind that is willing to let their own legacy be dismantled for the sake of the future.
Structure Over Strategy
You can have the best idea in the world, but if your inve is tucked three layers deep under a cautious CFO, it’s doomed. Structure is everything. Companies that actually pull this off, like Alphabet with its "X" lab or Amazon with its "Two-Pizza Teams," do something different. They separate the funding.
They don't make the startup beg the core business for every nickel.
Look at how Sony handled the PlayStation. It wasn't born in the main electronics division; it was almost a rogue operation led by Ken Kutaragi. He had to fight tooth and nail against the traditionalists who thought Sony shouldn't be in "toys." If PlayStation had been a standard internal R&D project, it likely would have been strangled by the audio-visual department before it ever hit shelves.
Metrics That Actually Matter (And The Ones That Lie)
Stop looking at ROI in year one. Just stop.
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If you’re measuring an inve project by the same quarterly KPIs as your mature product lines, you’ve already lost. Mature products need efficiency. New ventures need "learning velocity." This is a concept popularized by Eric Ries and others in the Lean Startup movement. How fast can you fail and pivot? That’s the only metric that doesn't lie in the early stages.
- Customer Acquisition Cost (CAC) vs. Lifetime Value (LTV): This is the gold standard for a reason, but in a corporate setting, it gets warped.
- Pivot Frequency: If a team hasn't changed their approach in six months despite no sales, they aren't "persistent"—they're stuck.
- The "Internal Friction" Index: How many legal/HR/compliance hurdles did the team have to jump this month? If the number is high, the venture is moving too slow to survive.
The Talent Trap
Here is something nobody talks about: you cannot put your "safe" corporate managers in charge of an inve.
You just can't.
Corporate managers are trained to minimize risk. Startups require people who are comfortable with the idea that the whole thing might be gone by Tuesday. You need the misfits. The people who are slightly annoying in meetings because they keep asking "Why?" are usually the ones who should be leading the charge. When you take a high-performing VP of Sales and tell them to lead a radical new venture, they usually try to apply the same old playbooks. It's like trying to fly a drone with a steering wheel from an 18-wheeler.
Case Studies: The Good, The Bad, and The Ugly
Let’s talk about IBM. They’ve been through this cycle more than almost any other company. When they were developing the IBM PC, they knew the internal bureaucracy would kill it. So, they sent a team to Boca Raton, Florida—far away from the New York headquarters. They gave them the freedom to use off-the-shelf parts (like Intel processors and Microsoft’s OS) instead of waiting for internal IBM divisions to build everything. That was a classic inve success.
Then you have the "Bad." Look at many of the traditional automotive companies trying to build software divisions. They hire 5,000 developers, put them in a shiny building, but then subject them to the same 5-year hardware development cycles used for making fenders. The software is outdated before the car even hits the road.
The "Ugly" is when a company buys a startup to "inject innovation" and then proceeds to "integrate" them. Integration is often just a polite word for "smothering." They force the startup to use the corporate ERP system, follow the corporate travel policy, and suddenly the founders spend 40% of their time in status meetings. The talent leaves, the IP rots, and the $200 million acquisition becomes a tax write-off.
Why Small Businesses Have an Edge
If you’re a smaller company, you might think inve isn't for you. You'd be wrong. Small businesses actually have it easier because the "cultural gap" between the core business and the new venture is smaller. You don't need a billion-dollar lab. You just need one or two people who are allowed to work on a "side project" that is explicitly designed to disrupt your main product.
It’s about being your own toughest competitor.
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If you don't build the thing that kills your business, someone else will. It’s a harsh reality, but it’s the truth of the current market. Technology moves too fast for "gradual improvement" to be your only strategy.
Actionable Steps for Building a Real Venture
If you are serious about this, you need to change the rules of the game before you start. You can’t fix the plane while it’s in the air; you have to build a separate hanger.
1. Create a "Kill Switch" Early
Define exactly what failure looks like. If the venture doesn't hit X milestone by Y date, shut it down. This sounds cruel, but it's actually the kindest thing you can do. It prevents "zombie projects" that just suck resources and morale without ever producing a result.
2. Give Them Their Own Legal and HR "Fast Track"
If your startup team has to wait three weeks for a legal review to sign a $500 software contract, they are dead. Give them a pre-approved budget and a "no-questions-asked" limit for operational expenses.
3. Change the Incentive Structure
Equity is the lifeblood of startups. In a corporate inve, you can’t always give away real stock, but you can create "phantom equity" or huge performance bonuses tied specifically to the venture's success—not the company's overall stock price. If the team doesn't have "skin in the game," they'll just act like employees instead of founders.
4. The "CEO Air Cover"
The leader of the venture must report directly to the CEO or someone with equal power. This isn't about ego; it’s about protection. When the middle managers start complaining that the venture is "stealing resources," the CEO needs to be there to tell them to back off.
5. Focus on the "Problem Space," Not the Solution
Most internal ventures start with a cool piece of tech. "We have this new AI algorithm!" That’s a mistake. Start with a problem that your current company is too slow or too expensive to solve. Use the inve to attack that specific pain point. If the customers don't care, the tech doesn't matter.
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Stop treating innovation like a department and start treating it like a fight for survival. The companies that win are the ones that realize their current success is just a temporary state. Building an inve isn't a luxury; it’s an insurance policy against your own obsolescence. It's time to stop talking about "digital transformation" and start actually building the things that make your current business model look old. That's how you stay relevant in a world that is trying to replace you every single day.