Daniel: Hi, I’m Daniel Torres Dwyer and welcome to LS International’s career success podcast. Olga Guerous originally from Russia served at various executive roles in leading Consumer goods and health care companies such as the Danone, Novartis and more recently as commercial vice president and regional head for Mars Inc. Through her entire career she has been praised for her strategic thinking, perspective, extreme curiosity as well as strategic partnership development and transformational skills. In 2019 last year Olga founded Innopearl. Olga believes in huge potential of entrepreneurs to inject positive value with innovation for the business, society and environment. As the CEO of Innopearl, she helps entrepreneurially minded executives of large and nimble organizations to develop partnerships leading to disruptive market growth. To further explore these partnerships between smaller companies and bigger ones she’s the guest of our podcast today.
Daniel: Hi Olga, Thanks for joining us today.
Olga: Hi Daniel. Thank you for inviting me to do this podcast.
Daniel: Excellent. So as I mentioned before a lot is happening in the consumer goods industry right now but I would like to ask you, Olga as an expert of this industry. What’s happening today in the consumer industry environment
Olga: Excellent. Thanks for asking Daniel. Let’s look at what’s happening in the consumer industry environment from the lances of the fourth industrial revolution. And what we can see is that the global scale, access to capital and privileged relationship with mass distributors that were bringing growth advantage to large FMCG players is not working as it used to be anymore. According to the study that was done by McKinsey couple of years ago, companies with turn over above 8 Billion, they grew organically at twice lower rate than nimble brands with turnover below to a billion. And if we look at nineteen half year results that have been reported by large players we can see that this trend is actually not moving away. Companies like Nestlé, Unilever, Danone, Mondelez, General Mills they are definitely doing a great job in improving margins and earnings per share, but their organic growth hardly reaches a low digit 3%; and if we look at nimble players during the same period, they are growing 3-4 digit rate so companies like Cece’ Veggies, Universal Yums, Uptime, or Perfect Snacks which are more known in the United States, they are capturing a lot of market growth and in certain areas this goes up to 30% of category growth is going to nimble players.
If we consider that those companies are not direct competitors of large consumer goods industries that will be a little bit diminishing approach. Why? Because there are so many of those and their expansion today is not anymore fueled by pocket money. It is fueled by VC investors and therefore they have ability to develop disruptive innovations desired by consumers and capture up the growth in certain categories as I said and advance both, well established large players and recent nimble brands are fighting for the same consumers. It feels like those nimble brands today are little bit more successful in attracting the growth than the large brands.
Daniel: Yes, absolutely. How large FMCG Companies are responding to the challenges these smaller innovative companies are representing?
Olga: Well the large FMCG Companies they are definitely very well aware of what is happening. Disruption, agility, pace, all words that CEO’S have been using for the last couple of years. What they have done is many organizations appointed new CEO’s and you probably have seen that companies as PepsiCo, Mondelez, Unilever, Nestle… they all brought new generation leaders and what these new generation of leaders start to be doing is mobilizing resources to become faster, more innovative and agile. This is one thing that they are doing but there are three more. The first answer that they are putting is putting more pressure on RND teams. They want RND Teams to build a pipeline of innovations and execute them much much faster than ever before. But let’s face it. Despite this pressure from the boards, internal teams in large groups are struggling to deliver disruptive innovations.
Also, if you look today at what millennials are looking from a product, they are not looking for about a taste or little bit about the taste, they are not necessarily looking only for new flavor, they are looking for product experience. Therefore, companies need to blend innovations in product recipe with innovations in such areas as sustainability, as distribution as supply chain as experience or service. And if we look back in those large companies, who’s responsible for let’s say innovation in consumer services or in supply chain or in sustainability. Not really RND space, right?
So that is the first answer. The second answer is definitely M&A. M&A particularly scope transactions. Those that are designed to enhance capabilities and open up new markets grew really fast over the last few years. Examples of such M&A’s would be Soda Stream acquisition by PepsiCo, you’ve heard about this Daniel, Mars acquisition of AniCura and Linnaeus. This tactic is a great one, or the strategy is a great one, but it has few challenges as well. Firstly, these acquisitions are very expensive. We are speaking today about a multiplier somewhere between 16 & 25. And it can be below or it can be higher, but it’s pretty much the average. The reason for it is that the large assets grow secures and private equity firms provide more and more funding for these companies. Secondly these acquisitions, they are bringing only temporary solutions. First because integration of innovators with very different culture with completely different working practices, decision-making and entrepreneurship mind set is extremely difficult.
And even if it happens, imagine this happens, you can be sure that innovative culture that this acquired company is bringing in will most likely go away. Dollar Shave Club acquisition by Unilever is a good example of it. And also, if you speak today to the CEO’s of major companies, and you would ask what are your predictions of how their consumers preferences would shift. Nobody has an answer and for a good reason. The only answer is, we need to be agile so when you put so much money in acquisition and you put so much effort in integrating the acquired entity and you know that probably in 2-3 years, there will be something else that consumers will be attracted to, it is a challenging approach, right? So that’s the second answer.
And there’s a third one which became extremely popular with major corporations and all industrial leaders like Danone or Unilever, Pepsi, Nike, they are all very active internal and external innovative partnerships. And these partnerships with nimble players, startups or scale ups became unavoidable and here is other thing. While these partnerships are absolutely the right thing to do, they are not an easy win-win and as the survey done by – this one done by – Boston consulting group, carried out somewhere in June so it’s pretty recent and they showed that while 65% of corporations reported having had some interactions with startups over last few years, only 8% of corporates and 13% of startups rated themselves as very satisfied by those collaborations.
Olga: Isn’t it interesting?
Daniel: Yeah. It is very low.
Olga: It is very low and the risk is that it will create over time a partnership fatigue and I can see already that in certain instances and in some areas, this is happening already. It is not corporations who would be choosing which startups or scale ups they want to partner with, it will be the other way around. Startups and scale ups will be the one choosing which partners, which corporations they want to work with in order to promote their idea, to promote their purpose and obviously generate scale in the retail channel. That is becoming something that companies should expect to happen in next few years on a much much broader scale.
Daniel: I’ll ask you in a minute what’s the recipe to make a partnership successful but before that, what benefits do big FMCG’s gets from partnering with small innovators and also on the other hand what’s the benefits for a smaller company to start partnering with a big FMCG. Why is that better than the other solutions?
Olga: That’s an excellent question Daniel. Obviously, if companies saw partnering with each other – there are benefits for other than just learning for each other from the business stand point. So let’s imagine that we found a way to eliminate obstacles which are staying on the way of corporates and nimble innovators to partner with each other successfully. Let’s imagine that we manage to bridge the cultural working practices, decision making, pace and scale related differences. Let’s imagine that we established a very special and rare relationship between those who hold disruptive innovations and know why consumers would love to use them and those who know how to execute those innovations at large scales. So what will happen? For corporates few things and let me quote just three of them because the list otherwise can be of much much longer. Well the first is, corporations would be in a position to build and execute innovation pipeline at variable cost. Let me explain this a little bit. To successfully drive growth agenda every corporation needs a pipeline of innovations that they would fund, resource and execute in priority within a period of next 12 months, 3 years or 5 years it differs by corporations. This pipeline exists today at any company and occasionally they contain a really great innovative idea but in most cases corporations move same old ideas through the years hoping it would be picked up one day by the executives team and at the end, all they execute is few more novelties, new tastes, new packaging or improved recipes. These novelties will obviously come along with more SKU’s; therefore, more complexity to manage but same old stuff.
If the corporations were in connection, in close connection with nimble innovators, they can actually easily expand scope innovation to areas which consumers are very attentive today about and they desire them and do it with much more agility and pace. This Innovation pipeline would then include probably 10 or 20 or 50 fresh and innovative ideas that can help to solve the most complicated business problems or consumer needs. And this won’t be just in the area of the product itself, it can be as I said before in the area of supply chain, it can be some sync related with a new service or completely different experience or completely different way of bringing the product to the consumers. And the beauty of that is that this approach would require no expensive investments and the external ideas and those solutions that extremely talented R&D’s teams develop, they can complement each other and create a new blend of innovations for the consumers. So that’s the first advantage, building and executing innovation pipeline at variable cost. The second advantage or benefit I would say is that corporations can go to market with agility and 10 to 100 times faster speed than they ever done.
Why? Because traditional product development timeline is 2-3 years. And there are some examples, I know that Mondelez have achieved a market with new innovations in just 6 months but those are rather exceptions than a rule. Let’s now imagine that you actually have a set of innovations that have already been developed, have already been tested or potentially even marketed in other industries, they can be then pretty quickly integrated by the company and tested in a given market and when successful , then partners may decide to expand this product to more geographies or reiterate and try something different. So that will be for me the second benefit from such partnerships. The third is, the corporations can achieve destructive market growth and I think this one is critical because this will be an organic growth and not necessarily nonorganic growth. They don’t need acquisition for doing this. Let me give you an example, so let’s look at iPhone example. iPhone or iPod or iPad. We all know Steve jobs and we all know how passionate and how impressive capabilities he had in building user interfaces and designs.
But not many people know that majority of innovations and technologies that were put into apple products are not outcome of internal Apple R&D Team work
Daniel: Oh wow. Yeah I had no idea about this to be honest
Olga: Absolutely. What Steve Jobs had is vision of how his products should look like. Then he would attract external innovators to support realization of this vision. As an example is screen that we are very familiar with, the screen touch that continues, well it certainly delights me today, it was made possible thanks to Corning gorilla glass and for a small anecdote when Steve jobs realized that it was a patent for the glass and when he reached out to Corning Gorilla glass, he realized that they had no market for it, to the point where they stopped the production of this glass. Steve Jobs told them “hey, you have 6 months to reopen your production unit because we are going to use them”. So that’s what made the successful savvy blend, if you wish, of external innovations with start the core things that the company can do, enable jobs to successfully uplift the consumer value and also lead the companies to incredible organic growth many years. Right?
Daniel: Yeah, absolutely
Olga: And so if now let’s go and look at a more recent example. And if we look at those nimble brands well in consumer industry, the ones that we have spoken about which can be viewed as direct competitors or challengers for large FMCG companies, they are actually using exactly the same approach in innovation. They have frugal internal resources, right? They don’t have massive R&D teams. So, what they do is, they establish competitive advantage by partnering with dynamic and agile ecosystems of innovators and the innovators can be coming from different industries, they can be blending the different type of innovations and bring them in their own product as experience, as value chain optimization or anything that would delight the consumer. I believe that corporations can also attract those product services or experience related innovations and assemble them, let’s say if they were legal bricks, very flexible, powerful and sticking well together. And that requires skills.
Daniel: And on the other hand, what benefits are there for the innovators, why should they start working with a large FMCG?
Olga: Right. Obviously, the benefits for innovators also exist. By the way, there is a common belief that innovators are more interested in getting access to large customers at scale, financial and human resources and therefore should be prepared for all sorts of compromises than corporates do.
I believe actually that this is not going. Well, a) this is not necessarily true, and two) if this is true, it is going to change pretty fast in certain areas. So today, for an innovator there are definitely advantages of working with a large client because it allows them to build a scalable customer base. Obviously working with a large customer gives you reference for future sales, it gives you access to some of fantastic talent groups, it gives you an opportunity to develop a very attractive retail channel or go much broader geographically if your product or your solution is very successful as large customers do want larger utilization of the same innovations. So definitely there are advantages for innovators to work with corporations. The thing is, today it’s extremely hard for innovators to work with corporations.
Daniel: Yes, from a cultural standpoint, process standpoint…
Olga: Exactly. From the speed standpoint, from the decision standpoint as many innovators – and we work with many of those – they are just amazingly smart people. Some of them are familiar with how corporate world works, but most of them have no idea how it is working in corporations, what are some of their processes, how even to get in touch with the right people, how do you follow up, how do you manage those projects with them…How you even clarify what is needed from you.
It is not so obvious for innovators and some of the governance that corporations are putting in place which had a lot of sense and is possible when they speak in when they work with large suppliers, they are extremely difficult to put in place by innovators.
At the end, both have a lot of benefits of working with each other but there is something bigger, that I believe in and I can talk to you in few minutes about, which is, what these partnerships could do for all of us, for bigger purpose, for bigger impact and for more positive advancements for people, for society, for the business, for the environment but I’ll speak about it in a few minutes.
Daniel: Well, yeah, or we can all go straight into it. Well related to this, I think this question will lead us to what you were just saying now, how can they have a bigger impact on economy, on society, etc. What’s actually needed, what’s the secret recipe, if there is one to make these partnerships between big FMCG’s and innovative companies successful?
Olga: Well, I wish there was a secret recipe and If I had one, I can tell you, I wasn’t going to tell it. Or maybe I would, but let’s say this way. There are 5 essential ingredients that can help companies to make partnerships successful; The 1st one is focus, the 2nd one is clarity, the 3rd one is choice, the 4th one is strategy and the 5th one is orchestration. Let me give you a couple of tips around each one of them.
On Focus, it is extremely important to decide which challenges you would partner on, both for corporates and for startups or scape ups. Not all issues need external help in corporations and many amazing solutions can be found by modeling internal company talents and internal innovation assets. So what corporations need to do is establish a clear focus for their strategic innovation agenda and what inside the innovation agenda, the company would do internally and what are the areas for which they absolutely need external innovators help, that’s the focus.
The 2nd one – clarity. We need to be clear about what is the mission and vision of partnerships’ success. It starts from there and this is the number one complain of innovators. They are all speaking about the lack of understanding of the objectives and expectations from partnership relationships. You can’t imagine how much frustration it is driving for them, so before engaging in the work with external innovators, I would suggest that corporations clearly define, what are the key objectives, how fast they should be achieved and at what scale and this gives already great guidelines to the innovator.
The number 3 is choice. Companies need to be selective about which innovators to partner with. We spoke about the cultural fit, we spoke about the strategic fit, there are many, many areas where innovator can work with one corporation very successfully but not with another one. And the thing is, there is abundance of innovators today with huge differences in their value proposition, difference in their capabilities, their let’s say their operations footprints and this is a critical step for partnership success to define what is important for you and then making very early go, no go decisions. So, this means that instead of letting the partnership go into the wall, the management needs to be able to objectively assess which innovators offer the greatest strategic value to the company and which innovators have a cultural fit to bring this strategic value to life. So, this is a choice.
The 4th one is strategy. I believe the partnership relationship develops in itself to some kind of evolution. It needs to be a part of strategic thinking and companies should decide what strategic value can be achieved through this external innovation collaboration and what is a joint strategy for partnership development. And I’m saying this is a joint strategy and definitely each company would have defined its own part of it, but both need to be in agreement: what they want to achieve together, how they would play. For example, the innovator may need to be ready to operate at desired scale immediately or it may require some customized support and development to scale up. All the things are a part of the strategy. What they would do, how they would do and when they will see the partnership to develop in the future.
And the last one is orchestration. Running a partnership program requires full attention. Executing it with the innovator needs to be carefully orchestrated. Most innovators would operate really differently from typical corporations. And they can also deliver results at a much faster pace. Right? However for the partnership to yield the expected benefits, both parties need to play in single. So, this would mean, that some of them would need to evolve some internal policies, some processes and ways of working. It is, as if they were working as one team and actually, it is not even as if, they need to be working as one high performing team on the issue, on the challenge, on opportunity that they have identified together and they are structurally and strategically working to achieve. That means as well for corporations to accept that always done it this way mindset, exceeding on their way to growth and this is something that they would need to change.
Daniel: Ok. Fantastic and is there anything you want to add? As you mentioned before about having a larger impact on society. Anything along these lines that successful partnerships can bring?
Olga: Oh. Thank you for reminding me of this one Daniel.
Daniel: You’re welcome
Olga: Above it all, both companies need to define why? Why they want to partner. I like this quote from Simon Sinec who said very rightly, the goal of the business should not be to do business with anyone who simply wants what you have. So in the company, in Innoperal company that I run we believe in the potential to uplift the positive impact for society, for the business, for environment from destructive ideas. This means that this passion in entrepreneurs, both from corporations and nimble companies can turn into a creative way to solve the most complicated problems and do it at scale
Wouldn’t it be fantastic if we could connect the most creative, the most entrepreneurial and the most focused folks in the business and make them work on some of the challenges that we are facing either now in our everyday life or that we will be facing tomorrow on the technologies that we will need to work in the future? Or in something that we will not see but our kids would and creating a workplace that will be absolutely fascinating regardless of whether you work in the corporation or for a nimble player. That everyone can have an impact on positive advancement of our society, of our business and of our environment. That’s something which is much bigger. The 5 ingredients for success that I stated before, that would also mean that for some innovators it is not a good idea to partner with certain corporations because they don’t have in a line why, they don’t have a why that is complementing each other and which is helping them to achieve a bigger, bigger purpose. So that’s why what we do is bring together entrepreneurially-minded people from multi billionaire companies and startups, scale-ups or small businesses and we help them. We help them to develop partnerships that lead to disruptive market growth and that lead them to a positive impact on the way we live, on the way we work and on the way that we consume and on the way that we treat this planet around us.
Daniel: Very interesting Olga. I mean this conversation was fantastic so thanks so much for joining us today.
Olga: Thank you Daniel. It was a pleasure speaking to you today.
Daniel: Yeah and I must say if anyone wants to know more about how to build a successful partnership, I think I can give some insight, but I think Olga is the person to go to. So, thanks to all our listeners for joining us and we will see you in the next edition of the podcast
Olga: Thank you Daniel. Take a lot of care!