Fast Venturing: The Quick Way to Start Web Businesses

When Wal-Mart Stores built its first version of, it used internal resources. But when it was ready for a relaunch, it chose to partner with a venture capital firm. Why? With $165 billion in 1999 sales, the giant Bentonville, Arkansas, retailer didn’t exactly need an infusion of cash. The reason is that company executives recognized the need to give their e-business the kind of “kick” that only outside partners can give. So Wal-Mart turned to fast venturing.

In fast venturing, innovating companies tap into the specific knowledge and experience of equity partners (usually venture capitalists or banks) and operational partners (sometimes incubators, sometimes professional-services firms, such as consulting companies, systems integrators and Web portals) to get a project to market and scaled up fast.

Speed is a widely acknowledged necessity in the New Economy, but many current approaches to starting a new venture are just not rapid enough. Typically a company chooses internal corporate venturing, which management strategist Gary Hamel describes as “bringing Silicon Valley inside your company.” Hamel and others believe that to create the novel products and services mandated by the Internet economy, companies should establish pockets of creative thinking under their own aegis and launch new ventures from the inside out.1 However, our preliminary research suggests that, although internal venturing might be feasible in a few cases, the strategy is too difficult and too slow for most companies. By the time an organization incorporates Silicon Valley into its traditional structure and is ready to reap the benefits of a fluid exchange of ideas, capital and talent, the Internet economy has moved on. (See “Internal Corporate Venturing and Investment.”)

Internal Corporate Venturing and Investment: Alternatives to Fast Venturing? »

Today most companies are likely to confront competitor innovations that undermine their area of competence. Disruptive technologies may change the definition of the company’s products, customers, channels and competitors.2 Responding to disruptive innovations often requires entirely new business models, skills and systems. And if the company wants to fight back by establishing a presence on the Internet with its own status-quo-disrupting idea, it can be sure that the same innovation already figures in the dreams of at least 10 potential competitors.3

How fast is fast? Electronic commerce forces innovators to move at lightning speed. We think of fast venturing as taking three to six months from idea to launch of an operating venture. New ventures such as, and, which established substantial market positions in just 12 weeks, leave old models of business planning, financing and implementation in the dust. Of the top 10 brands on the Internet, 9 were first movers, and although being first to market may not guarantee success, being late is costly. Moreover, today’s information products attract customers, and the existence of customers attracts more customers, so companies benefit from positive network effects.4 (The original telephone became more valuable with every new telephone owner because telephone users had more people they could reach by phone. With an eBay, too, it is the customers that provide the value. Some customers offer things to sell; others do the buying that encourages other sellers to want to sell on eBay. Each new customer makes the site more desirable.) Sustaining first-mover advantages requires continuous innovation and operations that ramp up quickly to meet customer expectations. Fast-venturing partners can make that happen.

The secret of fast venturing lies in its ability to expand the knowledge and capabilities of internal resources by drawing on the experience of outsiders. Standard new-venture approaches use outside financing expertise only; fast venturing also calls on partners for operational expertise. So how does it work? First, the entrepreneur or traditional company doing the venturing sets up a distinct equity structure for the new company; next, it finances the venture with equity participation from venture capitalists or other financial partners; and finally, it plugs the new venture into a network of operational partners who help build the business quickly by designing and implementing strategies and organizational processes and systems to access markets at scale.

A likely scenario is that traditional brick-and-mortar companies will increasingly execute their dot-com strategies through fast venturing and dot-com startups will increasingly tap incubators (companies that provide a roof, financing and operations assistance to high-tech start-ups for a piece of the action) or venture networks (companies such as Softbank and CMGI, which provide numerous support functions, but not under one roof).

Although fast venturing is too new for systematic research and evaluation, useful information is available. To tap into it, we conducted a study using telephone and e-mail interviews with traditional companies doing fast venturing (Staples, Nordstrom and Wal-Mart). We also contacted several start-ups to understand how they had launched quickly, and we interviewed partners and managers at venture capital firms, banks, securities firms and professional-services firms. The interviews, combined with our own experience serving in advisory roles to Internet start-ups, supplemented our analysis of the literature on corporate venturing.5

The Fast-Venturing Model

Fast venturing involves a network of partners, each contributing different skills and specialized resources to the three stages of the fast-venture process: illumination, investigation and implementation. (See “Fast Venturing Stages and Roles.”)

Fast Venturing Stages and Roles

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Illumination, or Thinking Big

At the core of a new venture is an idea that creates a compelling value proposition. But which ideas are viable in the New Economy? Which need refinement? Which should be abandoned? Who can objectively evaluate an e-business plan?

Playing a critical role in the New Economy are venture capitalists (VCs) acting as equity partners.6 Broadly defined, equity partners include corporations, consulting firms and banks that provide venture capital in return for an equity stake. Thousands of rough concepts and business plans cross VCs’ desks every year. Only a few advance to formal funding. The VCs have fine-tuned their ability to winnow ideas, while identifying and refining the business models most likely to succeed. VCs can provide guidance for developing a business concept, helping managers integrate related innovations and selecting the right managers for the new venture. Wal-Mart chose San Francisco-based Accel Partners, in part because, according to Wal-Mart representative Melissa Berryhill, “they had a clear and exciting vision of where needs to be.” She also told us that Wal-Mart executives believe the partnership will “help them accelerate the development of at Internet and Wal-Mart speed. Specifically, it will give [Wal-Mart] better access to an outstanding talent base as well as emerging Internet technologies.” VC partners can provide not only capital, but ideas and access to skilled personnel to support fast venturing.

Operational partners, whether they are professional-services firms or Web portals such as VerticalNet (a business-to-business site) and Lycos, Excite or Yahoo! (business-to-customer sites), are also becoming critical at this stage of fast venturing because they aggregate many buyers. Operational partners can provide deep expertise about potential channels, customers and markets. An entrepreneur developing privacy-protected access to medical records might choose an initial operational partner from among small providers of specialized network security and have it design and build a site. The entrepreneur might then go with a large systems integrator to help sell the system to insurance firms, HMOs and hospitals.

Consider Two European entrepreneurs with experience selling automobiles wanted to develop a new way to sell them in Europe. They initially partnered with a professional-services firm, which helped them assess the market, develop a business plan; and craft and implement key capabilities in strategy, business processes and technology. The consultants also helped find venture capitalists. Today lets customers compare, configure and order vehicles online; it then matches car buyers’ requirements with available vehicles.

Because venturing in the Internet economy is increasingly critical for companies’ growth, operational partners such as Bain & Co., Andersen Consulting and McKinsey & Co. also have created venture capital funds to serve as equity partners. Working together, equity partners and operational partners evaluate the feasibility of new business models and markets, suggest other partners and provide financing to mitigate business-model and financial risks.

Investigation, or Starting Smart

Investigation, the testing-and-refinement stage, is critical but increasingly compressed as ventures move ever more swiftly from illumination to implementation. Equity and operational partners are helpful.

They have the experience and the industry contacts to develop, tailor and test new business models. They can help create action plans to manage proof-of-concept activities — quick market tests to see if the product will fly. (When idealab! created, it needed to prove the concept that people would buy a car on the Internet. After setting up a test site and getting orders right away, idealab! was confident that cars could be sold on the Internet. It then proceeded to: hire a management team; design and refine the distribution, fulfillment and marketing strategies and implement the new venture.) Consulting firms with systems-integration and development expertise are especially well prepared to design and test prototypes of business models — a key capability now that pilot testing is growing more and more critical to new ventures. Entrepreneurs rarely get the business model correct on the first pass, and pilot testing lets them refine their offerings and better match customer needs. Incubators dedicated to e-businesses also do pilot testing of new concepts. (See “Incubators in Action.”)

Incubators in Action »

In the refinement phase, professional-services firms develop sales and marketing plans, business-case scenarios and detailed operational plans. Professional-services firms with broad reach can promote new ideas across domestic industries; those with global reach can facilitate business development in international markets. Outsourcing those functions to operational partners reduces the time to market and frees the always short-handed entrepreneurial team to focus on refining the product, addressing customer needs and competitive responses and financing and creating the organization.

Finding talented people to build the company is also critical. With the Internet economy expanding rapidly, the people and skills required to lead the transition to a full-scale operation are in ever-shorter supply. Fast-venture partners can use their vast networks of contacts to locate people with the attitude, values and work ethic necessary to build a business from scratch. For established companies looking internally for fast-venturing talent, the objectivity of outside partners is a plus. Outside partners’ contacts are also helpful in finding deeper functional or industry talent to lend fast credibility and capability.

Implementation, or Scaling Fast

The challenges of executing strategies and rapidly scaling up can sink a new venture. Poor execution drives customers away and swiftly destroys the brand image. A once-promising business model becomes someone else’s successful implementation.

Established professional-services firms — experienced with supply-and-demand management, procurement, distribution and fulfillment, customer-relationship management, enterprise systems and organizational and change management — can help companies maintain quality during the scale-up phase. Equity partners’ contributions tend to diminish after a liquidity event (an initial public offering or an acquisition). Professional-services firms, however, stay on, helping new ventures manage the operational risks in the growth phase. Consider Dan’s Chocolates ( of Watertown, Massachusetts. CEO Dan Cunningham, a young man with experience in high-tech but not in candy stores, founded the company in August 1999 to sell specialty chocolates directly to customers over the Internet. To meet the demands of the upcoming holiday season, his start-up needed to be running at scale in 11 weeks. With seed funding from Internet greeting-card giant Blue Mountain Arts and others, and with access to Blue Mountain’s customers, the company needed a scalable business infrastructure in short order. After contracting with a specialty chocolate maker in Wisconsin and a transportation vendor, Dan’s Chocolates used two other professional-services firms to implement a full-fledged enterprise-resource-planning system and Web site — within the time constraints. Although Dan’s had some of the best Web-development expertise in-house, it could get through the implementation phase faster by using outside vendors. That investment enabled Dan’s to successfully meet the demands of the 1999 Christmas season. By having a scalable infrastructure, Dan’s had an operation that, it estimates, handled the same number of unique Web-site visitors as Godiva (the major competitor) for Valentine’s Day and Mother’s Day 2000 — the busiest period for chocolate manufacturers and retailers.8

A critical capability that requires fast scaling is order fulfillment. Indeed, consistently reliable order fulfillment, a major source of competitive advantage among retailers, remains one of the most vexing challenges facing e-businesses. Professional-services firms help companies develop the necessary building blocks. They help them decide, for example, where to put warehouses, how to design warehouse processes, how to connect to logistics providers such as FedEx or UPS and how to handle fulfillment. They can design and set up a network of third-party firms to handle such links of the value chain as distribution or customer service. The outsourcing arrangements free new-venture leadership teams to focus on core competencies. For Dan’s, the core competence was creating a great customer experience and brand. demonstrates speed in order fulfillment. In six weeks, a SAP implementation and software-development company created’s Web site. A consulting firm specializing in e-fulfillment services helped the company scale fast by designing the distribution systems to ensure that online orders would be processed, shipped and billed correctly. “We have carefully assembled the perfect set of backers to ensure we have the strongest media research, best technology and the most committed capital in this space,” says CEO Douglas Mack.9 The $50 million backing of set an all-time record in its industry segment and was one of the highest first-round totals of any Internet venture to date.

The strategy of fast venturing — the quick migration from illumination to investigation to implementation — transforms the promise of an e-business into the reality of a sustainable operation. And the partnership can extend beyond the liquidity event. Innovators and equity partners often keep working together to increase the value of their investments; innovators and operational partners may collaborate on further growth objectives post-IPO.

Fast Venturing in Practice

There’s no one-size-fits-all road map to launching a fast-venture relationship, nor is there an established protocol for selecting the network of partners. Moreover, choosing a lead partner (whether incubator, operational player or VC) will depend on two factors: existing informal relationships and reputations and the innovator’s stage of business development (the pilot-test stage, the stage in which a good management team forms or the stage that develops a workable system). On one hand, a start-up with an existing management team and a wholly developed concept might be served best by initially partnering with an operational player to develop operational capabilities and scaling. On the other hand, an incubator as lead partner works well for early-stage start-ups, when the proof of concept and proof of management are evolving. In general, our research suggests that, in addition to speed to market, innovators seek six key benefits from the fast-venturing arrangement: refinement of strategic intent; access to specialty skills; access to markets and contacts; access to talent; a focusing of managerial attention and building scaled, operational capabilities.

Consider Staples. The $9 billion office-supply retailer lagged competitors in having an online offering. As the idea for setting up one gained momentum, Staples recognized the need to move fast. Like many incumbents, though, the company wrestled with how to compete for talent against emerging pure-play start-ups, which could focus all their energies on one business.

Staples decided to launch its e-business,, as a separate tracking stock in fall 1999, selling a 5% equity stake to a syndicate of venture-capital investors and filing for an IPO in February 2000. “We didn’t need the money as much as we needed access to our investors’ expertise,” said a Staples executive. “They know what it takes to make an e-commerce business successful.” Stock options as recruitment carrots proved successful in attracting both internal and external talent. As the unit evolved, added professional services to build out the business. Sapient of Cambridge, Massachusetts, implemented and integrated technology components; Human Factors of Fairfield, Iowa, helped improve the usability of the site; BeFree Inc., of Marlborough, Massachusetts, managed affiliate sales and marketing. The venture syndicate and an advisory panel of e-commerce experts continues to be helpful in identifying strategic investments and partners for

Like, had a corporate parent with operational know-how. When Nordstrom approached Benchmark Capital, a Silicon Valley venture-capital firm, it had a basic understanding of how to create a positive, direct-to-the-customer experience. Earlier investments in an interactive television initiative pushed the retailer to develop its direct-to-the-consumer infrastructure, which included a pick-and-pack fulfillment center and a call center. What needed was insight — a partner that had a track record in launching new e-businesses. “They could see how we could take our idea farther, and how we could expand the scope of what we can do,” explained a Nordstrom representative. With Benchmark as a partner, Nordstrom launched as a separate entity. Nordstrom owned 84%, Benchmark 15% and others 1%. was able to offer stock-option packages to lure key executives from direct-to-the-customer touchstones Lands’ End and Victoria’s Secret. Operational partners were added to refine back-end delivery and develop front-end Web-site experience.11 innovators, in contrast, collaborated early with an operational partner and later selected an equity partner. Speed to market, managerial focus and fast operational capabilities were key determinants in the OneSwoop entrepreneurs’ decision to use an operational partner. Day-to-day operations were out-sourced. Indeed, as the company evolved, the personnel from the operational partner served as management executives until a permanent team was hired.

Why Should Traditional Companies Fast Venture?

Why should traditional companies use equity and operational partners when starting a new venture? After all, established players such as Wal-Mart certainly have the financial resources to go it alone. The answer lies in the need for speed to value in the New Economy. Traditional strategies such as internal corporate venturing show a mixed track record and are often too slow to capitalize on innovations. Today we find both start-up and incumbent innovators are increasingly willing to relinquish some degree of operational and financial control to get to markets and scale up quickly.

Fast venturing realizes speed by having fewer organizational constraints than traditional internal corporate ventures and through access to the new concepts, capital, capabilities and channels that partners provide. By establishing a separate equity structure and organization, fast venturing allows an initiative to be liberated from the company’s traditional hierarchy and rules, which often restrict the use of internal or external resources. Left alone to make decisions, new-venture teams are motivated by financial gain and the opportunity for personal satisfaction (rather than by career advancement or company politics); they answer only to market forces and their boards. Internal corporate initiatives often suffer because managers have little personal stake in the outcome. Fast venturing is different. Nothing so concentrates a manager’s mind as the prospect of an IPO in three months.

Beyond execution capabilities, operational partners provide access to channels and customers. When Kmart fast-ventured with Spinway and to form, it benefited not only from Spinway’s Internet access technologies, but also from Yahoo’s online marketing expertise and sizable customer base. In just a few months after its launch, BlueLight realized a customer base of more than one million subscribers.

Level of Management Attention Required Determines Whether Outside Partners Are Advisable*

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Partner access to channels and customers is helpful to start-ups as well. The partnership that ChemConnect (an electronic exchange for trading chemicals and plastics) created with an established consulting firm assisted the fledgling company in getting commitments from the consulting firm’s major chemical clients. ChemConnect quickly became a formidable player in the electronic marketplace for chemicals. In similar fashion, partnering with Blue Mountain Arts gave Dan’s Chocolates instant access to the millions of potential customers who send Blue Mountain’s free electronic greeting cards.

When Should Traditional Companies Fast Venture?

In deciding whether to fast venture, a company must first consider whether the innovation propelling the new venture forward is a sustaining or disruptive one — and how much organizational change in scale and scope it will require. (See “Level of Management Attention Required….”)

If disruptive, the scale and scope of change will likely be substantial. The company will need to access new customer segments through new channels — with new products implemented through new capabilities. Senior managers will have to decide if the company has the resources of capital and capabilities to support the scaling of the new venture or if it needs to access such resources through equity and operational partners. They also must critically evaluate their organization’s track record of launching new products and services and must decide to what extent their company’s market position, capabilities and organizational policies and culture will support alternative venturing strategies. (See “Questions To Test Your New-Venture Orientation.”)

Questions To Test Your New-Venture Orientation

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If the innovation is primarily a sustaining innovation with limited requirements for organizational change, the company may be able to realize value through internal development without having to share equity with venture capitalists and other investors. Alternatively, if the expected scale and scope of changes are large and the company has a poor track record of realizing value from innovations through corporate venturing, a fast-venturing partnership may be advisable.

Our interviews with managers underscored another factor propelling fast venturing. Managers in traditional companies are being torn in two directions today. They must maintain and improve the performance of existing businesses while simultaneously launching entirely new ventures for growth. It is difficult to allocate sufficient attention to both tasks. In order to be responsive to changing competitors and markets, a separate organization with a management team focused on the new venture is likely to increase chances of success. Furthermore, operational and equity partners provide expanded levels of the “attention” resources needed in different stages of growth. As scale and scope of change increase, pushing companies beyond what we describe as the “efficient attention frontier,” companies are compelled to adopt a fast-venture strategy.

How Should Companies Fast Venture?

Our research interviews with innovators and other venture network participants indicate five sets of decisions that are critical to fast-venturing success.

Defining the Critical Requirements

At the outset of a new venture, one innovator’s needs will differ from another’s. OneSwoop needed an operational partner more than an equity partner because its founders lacked experience developing and testing an e-business concept. Wal-Mart was in greater need of an equity partner with experience shaping Web strategy and identifying other potential partners. Blue Mountain Arts provided both functions for Dan’s Chocolates.

Innovators must determine the critical constraints to their aspirations: access to ideas, capital, capabilities or customers. They must then consider what lead partner would be most appropriate in helping them strengthen their areas of weakness.

Selecting Partners and Committing to Fast Venturing

Next, innovators must select the lead partner who will help them launch their new ventures. Venture capitalists look for “A-teams” to implement “A-ideas.” Fast-venturing innovators need A-teams, too. They need to select equity and operational partners whose networks can create the greatest value and who have track records that demonstrate success with speed. Track records, however, are not sufficient. Wal-Mart executives chose Accel as much for its similar culture and shared beliefs about the venture as for its credentials. To avoid downstream problems, careful diligence about culture is essential.12 In addition, both innovators and partners must demonstrate commitment to fast venturing by establishing a separate equity structure with an option for an IPO. Without this equity structure, it is highly unlikely that top-tier venture capitalists or other equity partners will participate. If innovators insist on restrictive covenants (such as an option to buy back the venture) or limitations on new alliances (such as alliances with traditional competitors), they are likely to undermine the interest of the better equity partners. As Bruce Golden of Accel Partners noted, traditional company innovators must be ready to accept that the new venture can cannibalize the traditional company offerings and must be committed to allowing the new venture to “compete fiercely, fairly and with agility” in the marketplace.13

Clarifying Roles, Responsibilities and Incentives

Perhaps the most critical set of decisions that will shape the operation of the new venture relates to aligning the goals of venture partners and structuring the roles, responsibilities and organization of the fast venture. Stock options are vital for attracting and retaining talent and for ensuring employee commitment to the success of the new venture. Typically, between 10% and 30% of the new venture must be reserved for incentive compensation. An established company that wants to align the interests of its internal staff with the new venture can use stock options for that purpose as well. At Staples, eligible managers and employees (those over a certain grade level and length of service at Staples) receive options in Wal-Mart uses a similar strategy.

A new venture that is sponsored by a traditional company must have substantial autonomy. Clarity about how the roles of people in the new venture differ from the roles of people in the traditional company is essential for speed. Defining the differing roles and responsibilities of managers and partners is especially critical. Moreover, for a fast venture to be truly fast, it must have commitment from executives or board members with key decision-making and resource-allocation authority. had its own board, which initially included such high-level people as Jim Breyer, the managing director of Accel Partners; Rob Walton, the board chairman of Wal-Mart Stores; and H. Lee Scott, Wal-Mart Stores’ vice chairman and COO.

Selecting Strong, Independent Leadership

For any new venture, strong, independent leadership is key to developing the distinctive culture and operations required for speed to market. Often the managers chosen at the outset are expected to be temporary. Start-ups may leverage interim talent from operational lead partners. Incumbent innovators may look internally for an interim CEO, although some move directly to hiring an outside CEO with specific skills and organizational fit. For example, needed an experienced retail leader with merchandising and brand-management expertise, so it tapped Jeanne Jackson (former president and CEO of Banana Republic and Gap’s online division GapDirect). and others had another approach. They chose “serial entrepreneurs” as CEOs, hoping to benefit from the entrepreneurs’ past experiences of nurturing and growing new businesses.

Making Optimum Use of Partners at Every Stage

New ventures are uncertain, and the business models that succeed may not be the ones defined at the outset of the fast venture. To adapt to changing markets and effectively realize value from partnerships with equity and operational partners, the new-venture management should put in place processes to leverage partner assets at each stage: illumination, investigation and implementation. Staples and others ask their equity partners and other e-commerce experts to serve on advisory boards. Experienced VCs and professional-services firms can help structure 60-day to 90-day operational plans that specify roles and responsibilities of venture partners in the early stage of the fast venture. Others, such as the idealab! incubator, use a staged model for launching companies, with performance-measurement checkpoints that guide the allocation of relevant incubator resources. Building explicit processes to involve partners in each stage of the fast venture is important for realizing the value of the partnership.

Fast venturing is a promising new model, but it is not without risk. Venture capitalists, professional-services firms and traditional businesses are only beginning to learn how to do fast venturing, and mistakes are inevitable. Benchmark, for example, found it was unable to partner successfully with Toys “R” Us in a way that left both parties satisfied by their equity share and roles. However, Toys “R” Us reaffirmed the need for a fast-venturing approach and partnered with Softbank to speed up online development to support fast future growth.

Trends: From Incubators to Venture Networks

Fast venturing is rewriting the rules of competition for professional-services firms and providers of venture capital. Today capital is hardly a constraint for creating new Internet businesses, and rivalry among venture-capital firms is increasingly intense.14 The demand for winning ideas and the capacity to implement a new business venture at speed are today’s constraints. For professional-services firms, value and growth in the New Economy is migrating away from traditional clients toward new ventures. Both venture-capital firms and professional-services firms are investing in fast venturing and are providing more-specialized infrastructures. Specifically, they are investing in incubators and venture networks — one-stop shops for launching or scaling up new ventures and for accessing critical resources, whether new concepts, capital, capabilities or channels to customers.

Incubators can provide multiple ventures with shared infrastructure and support: strategic guidance and shared services (legal advice, accounting, graphic design, advertising and public relations) as well as office space at a common location. Some offer systems capabilities and organizational-development assistance. In gathering innovators under one roof, they give members an inspiring setting and the sustaining energy of being around like-minded people exuding creativity, motivation and purpose. The resulting social capital leads to sharing of approaches, models, tactics, competitive information, contacts and ways to avoid missteps. The learning accelerates progress. A 1999 National Business Incubator Association study found that 87% of U.S. incubator graduates remain viable after three years — as contrasted with most new businesses, which have an overall success rate of 20%.15

Idealab! emerged early to support e-commerce initiatives as both incubator and VC. The need for speed to market has prompted traditional venture-capital firms to create incubators, too. Softbank, for instance, created the HotBank incubator. Management consultants and traditional corporations are forming incubators as well. Bain & Co. opened its London-based BainLab in late 1999 to support three start-ups and one established company moving into e-commerce. McKinsey and Scient have created extra-fast “accelerators” and Andersen Consulting has created dot-com launch centers.

But incubators by themselves are unlikely to be sufficient in the race to scale up fast. Both venture capitalists and professional-services firms are recognizing the need to bring a broader array of resources to new ventures, such as access to channels and customers, and technologies and services beyond those available in the incubator (such as specialized tools for customer-relationship management. Leading firms are looking at the relationships they have with business-to-business channels (ChemConnect’s partnership with Andersen Consulting would be an example) and business-to-customer portals (for example, Yahoo) and then organizing their contacts into venture networks that can give new ventures a one-stop shop.

The CMGI model typifies a new-venture network. The firms in which CMGI has holdings are encouraged to trade ideas and services with one another. CMGI Solutions, for example, can help launch e-businesses; CMGI@Ventures provides venture capital; and nearly 60 other CMGI companies support fast venturing with content, channels to customers, technology assistance or business-to-business and business-to-customer e-commerce capabilities. Nearly every company in the CMGI portfolio has multiple strategic relationships with other companies in that portfolio.

Like CMGI, Softbank is accumulating a number of assets in what the Economist calls the company’s “Internet zaibatsu” (a combine with cross-shareholdings and commercial links) to help new companies launch to scale. Softbank provides venture capital, has incubators to nurture new companies and can facilitate business partnerships with Yahoo — the dominant Internet portal and one in which Softbank has more than a 20% equity stake.16

Major consulting firms are not standing still either. In the business-to-business marketplace, where relationship selling is more prevalent, they are leveraging their extensive relationships to create their own value networks. Similarly, companies such as Microsoft and Cisco are poised to develop their extensive value networks into powerful venture networks.

Such networks can and do propel new ventures to market at scale and speed, but they face certain risks. Holding companies such as CMGI confront the regulatory risk of being classified as mutual funds. Or networks may run the risk that expansion will cause member companies to lose focus and work at cross purposes (the problem for Thermo Electron).Nevertheless, smaller venture-capital funds investing in Internet and New Economy businesses will have to partner with others or scale up to provide the full array of resources in venture networks.

Both full-service incubators and emerging venture networks are increasingly formalizing the processes of fast venturing.17 Going forward, traditional company managers and entrepreneurs will be tapping into such networks more than ever. But they will have to carefully evaluate and select partners. Some venture networks will tightly couple capital, channels, capabilities and concepts into a one-size-fits-all process. Others will be more flexible and will feature an equity or operational partner that has relationships with multiple alternative partners. As incubators and venture networks proliferate, Internet innovators will no longer have to hatch companies in garages. Nor will traditional companies have to undertake new ventures through internal corporate ventures that struggle with internal politics. Innovators that plug in to fast-venture networks will gain the best access to ideas, capital, channels and execution capabilities and will most likely win the lion’s share of new value creation in the Internet economy.18

Fast venturing is a promising new model for launching new ventures. Along with strategic investments and internal venturing, it should be part of the arsenal of strategies used to achieve growth. As Bruce Golden of Accel Partners (the venture-capital firm that helped relaunch put it, “Managers are best off starting with a clean sheet — working to bring the best assets, ideas and resources of the Internet economy to unlock the value of [existing] assets through partnership and alignment with others in the company’s emerging ecosystem.” To succeed in the New Economy, a dynamic environment of fast innovation and value creation, there’s no time to lose. Companies should fast venture and partner to propel their new business faster and farther.


1. G. Hamel, “Bringing Silicon Valley Inside,” Harvard Business Review 77 (September–October 1999): 70–84.

2. For a discussion of how disruptive technologies create challenges for executives, see:

C.M. Christensen, “Innovators’ Dilemma: When New Technologies Cause Great Firms to Fail” (Boston, Massachusetts: Harvard Business School Press, 1997); and for a discussion of how technological innovations require new skills, see:

M.L. Tushman and P.A. Anderson, “Technological Discontinuities and Organizational Environments,” Administrative Science Quarterly 31 (1986): 439–465.

3. Discussion with panel members at the MIT Forum, “Incubators: The Future of Early Stage Venture Capital” (MIT, Sloan School of Management, Cambridge, Massachusetts, Feb. 17, 2000).

4. M. Stepanek, “How Fast Is Net Fast?” Business Week ebiz, Nov. 1, 1999;

P. Bronson, “Instant Company,” The New York Times, July 11, 1999, p. 46;

for a discussion of why first movers often fail to achieve market leadership, see:

G.J. Tellis and P.N. Golder, “First to Market, First to Fail? The Real Causes of Enduring Market Leadership,” Sloan Management Review 37, (Winter 1996): 65–75;

Opinion Research Corporation Survey (Princeton, New Jersey: August 1999); and

for a clear discussion of network externalities, first-mover advantages and lock-in effects in information industries, see:

C. Shapiro and H. Varian, “Information Rules: A Strategic Guide to the Network Economy” (Boston: Harvard Business School Press, 1999).

5. Contributing to the development of those ideas and others in the article were Andersen Consulting’s Edward M. Schreck, Mitch Hill, Doug Kramer, Julia Kirby, Susan Gurewitsh and Paul Nunes. We also acknowledge Ari Ginsberg of New York University, Robert Glen of Prudential Volpe Technologies, Jean Sullivan of Starvest, Jim Coutre and William Mullett of Bishop Rock Partners, and independent consultants Dennis Maroney and G. Bruce Friesen.

6. We broadly define equity partners to include corporations, consulting firms and banks that provide venture capital in return for equity in the new venture.

7. Interview with Andersen Consulting representatives March 2000 and press releases on OneSwoop (

8. Interviews with Dan Cunningham, CEO, Dan’s Chocolates in March and May 2000.

9. “ To Provide E-fulfillment for, the New Web Site that Redefines the Way People Decorate Their Homes,” Business Wire, Oct. 19, 1999;

“Simplement Reduces SAP Implementation Time by 70 Percent,” Financial News, Sept. 29, 1999; and Venture Capital Journal, Sept. 1, 1999.

10. Interview with representative, March 2000.

11. Interview with representative, March 2000.

12. For a discussion on the importance of cultural compatibility and cultural due diligence, see:

R.J. Thomas, “Irreconcilable Differences,” Andersen Consulting Outlook Magazine (January 2000).

13. Interview with Bruce Golden, general partner, Accel Partners, April 2000.

14. In 1999, a record $48.3 billion in venture capital had gone to more than 3,000 emerging companies, most competing in e-commerce. In 1995, by comparison, fewer than half that number of companies had received barely one-fifth of today’s disbursement. Source: Venture Economics and National Venture Capital Association.

15. Janet Rae-Dupree, “How Panasonic Learns from the Hatchlings in Its Incubator,” Business Week ebiz, Aug. 24, 1999.

16. Yahoo Inc. reported in its March 31, 2000, proxy statement filed with the U.S. Securities and Exchange Commission that Softbank held 22.6% of Yahoo shares.

17. Venture funds are explicitly forming to industrialize, or systematize, the venture process for e-commerce and other types of ventures. For example, a group of investors recently formed Incuvest to invest in companies and incubators and launch new e-commerce and non-e-commerce ventures. Interview with R. Bertoldi, president; H. Bertoldi, vice president of marketing; and J. Gold, managing director of Incuvest.

18. Although we recognize that angel investor networks and other structures will support new ventures, we expect venture networks to become the dominant infrastructure creating the most successful Internet ventures of the future.