Late last year (2014), Coke started the Coca-Cola Founders, which it describes as a new model for creat­ing start-ups. “First, we partner with experienced entrepreneurs around the world. Then we immerse them in the power of Coca-Cola – our rela­tionships, resources, and reach – before they create a start-up. Together we focus on big problems lots of peo­ple have. Using lean start-up meth­ods, they grow the start-up with Coca-Cola as the lead backer. Once the business model is proven, Coca- Cola becomes a minority shareholder. We collaborate from the very start to create more speed, more scale, and more impact.”

While Coke accepts that a large organisation would find it difficult to develop intrapreneurs, PepsiCo doesn’t agree. “We have incredible tal­ent inside the company, and we work hard to foster a culture that embraces creativity and innovation at every level,” says Dahncke. “At the same time, we’ve always looked to learn from innovators outside the company
who can complement our internal capabilities and further strengthen our ability to grow our business.”

“I wouldn’t say the consumer goods sector needs more innovation,” says Feller of Yummly. “But they have been slower to innovate online and digital over the past 10-15 years. That appears to be quickly changing.”

Other companies are using crowd­funding platform CircleUp as an intel­ligence provider. Start-ups come to CircleUp to raise funds. “We’ve had over 5,000 companies apply,” says CEO Ryan Caldbeck. “This gives us an amazing data set and allows us to more thoughtfully screen companies, and trends. We identify specific com­panies that are interesting for larger retailers and strategies that are in the consumer space. We have raised more than $50 million.” The company, which was founded in October 2011, already has a prestigious list of MNC clients, including Johnson & John­son (j&j), Procter & Gamble (P&G) and General Mills. “The success we are most proud of is that the companies (the start-ups) themselves are doing well,” says Caldbeck. “The average company is growing revenue at 80 per cent per year since we raised money for them.”

What exactly will CircleUp do for J&J? According to Caldbeck, several thousand companies have approached it to raise finance on its platform. Cir­cleUp will give the data – products, plans, finances – to j&j. If j&j finds a fit, it can step in as an investor. It’s a win-win situation. CircleUp has an elaborate privacy plan to protect the metrics of individual start-ups.

CircleUp is concentrating on the consumer and retail arena. “It’s a sec­tor that is vastly underserved,” Cald­beck says. “The issue isn’t the lack of innovation; it’s that there are very lit­tle resources for the companies. There is too much funding in tech; VC firms all focus there and the returns over the past 15 years have been horrible. In consumer, the returns have been very strong (3.6x in 4.4 years aver­age to angels). But it’s hard to find the companies as they are spread out across the country. There are fewer resources for those entrepreneurs; that’s why we focus there.”

But the consumer sector has other problems. “For a long time, the con­sumer goods industry seemed to lead other sectors in innovation,” says a study by US-based enterprise inno­vation management consultancy Sopheon. “However, in recent years, while it appears that consumer goods firms are launching more new prod­ucts, fewer of the offerings being introduced are high-business-impact, game-changing innovations.”

Take p&g. r&d as a percentage of net sales is down from 4.5 per cent three years ago to 3.5 per cent now. The company claims that “P&G R&D is now much more effective and effi­cient”. Critics, however, say that the Cincinnati-based company has had hardly any new categories to show over the past few years.

P&G has strings to its bow beyond in-house R&D. The University of Leeds, which has been working with P&G for several years, has signed an agreement with the company to har­ness academic research to develop high-tech products.

Harnessing ideas

P&G also has a Connect+Develop pro­gramme. This is a way “to harness the ideas and strength of people outside the organisation to make improve­ments to internal processes or prod­ucts… Open innovation is also a way for companies to avoid the stale, repetitive thinking that can happen when employees are accustomed to their internal ways of solving prob­lems/’ Both Leeds and CircleUp are involved in the project.

In the US, P&G is collaborating with several statewide university systems. These include Cincinnati, Ohio 120101 and Michigan (2011). Globally, it has tieups with Durham University in the UK and Fraunhofer in Germany.

Not to be left behind, J&J is setting up urban innovation centres to iden­tify and finance start-ups. “By working together with scientists and entrepre­neurs at universities, academic insti­tutes and start-up biotech companies, and by employing collaborative and flexible deal structures, we seek to identify and invest in a wide variety of ‘prior to clinical proof of concept’

Caldbeck: win-win situation

innovations,” notes the company.

Others too have added to their weaponry. Unilever launched the Unilever Foundry in May this year. The Foundry is “a platform that will help early stage companies to con­nect and collaborate with Unilever,” explains Sponiar. Mondelez Interna­tional has flagged off a Mobile Futures initiative. It has chosen nine start-ups in the digital arena (out of 126 appli­cants). They will help create applica­tions for Mondelez brands and one or two will eventually become stand­alone tech companies. Kimberly- Clark has a KChallenge which awards the winner $15,000 and the chance to join hands with the company in key markets. Early last year, McDon­ald’s launched a digital incubator in San Francisco.

Is there a danger that the MNCs are creating monsters that may one day compete with its own products? Coca-Cola has solved the problem by acquiring the brands it supports. Apart from the earlier-mentioned successes, there is illy issimo (‘Italian taste. Posi­tive energy’), Core Power (‘Supermilk proteins: We fuel Spartans’), Simply Orange (‘Honestly simple’) and Gla- ceau Vitaminwater (‘More muscles than Brussels’). PepsiCo and some others are looking at digital market­ing innovations, so they can never rear cannibals.

“We typically don’t invest in con­sumer products companies that operate in one of Unilever’s exist­ing categories, though we do invest in companies in adjacent categories that Unilever may one day seek to enter,” says Sponiar. “The consumer products companies we invest in are not likely to compete with Unilever later or tie up with competition. We invest in them because we are add­ing value to them by leveraging Uni­lever in some way (like providing R&D expertise or access to distribution). We wouldn’t provide this, or invest in a company, if we felt there was a threat of competition from them. We also look to invest in consumer prod­uct companies that Unilever may seek to integrate into its portfolio down the track.”

Amid all this action, there are some signs that not everything is going according to plan. PepsiColO was expected to reach Asia by now. There has been no action since Bra­zil. “The PepsiColO model is one way in which we’ve gone about looking at new technologies and platforms,” says Dahncke. “While we’re not currently running a PepsiColO programme, we remain highly focused on evaluating new technologies all across our business.”

P&G appears to have got disen­chanted with the Lift Conference for start-ups. The New Lift, scheduled for February 2015 in Switzerland, has a whole new bunch of partners.

Coca-Cola has started acceler­ators in San Francisco and Sydney (and a Firehose start-up competition in the latter city.) The plan was to set up accelerators in nine cities includ­ing Mexico City, Rio de Janeiro, Buenos Aires, Bangalore, Berlin, Sin­gapore and Istanbul by the end of the year. Instead of accelerating the pro­gramme, there appears to be a slow­down. The other accelerators are yet to see the light of day and we have instead the Coca-Cola Founders.

For those developing billion dollar brands outside their system, will the corporate establishment allow prod­ucts that lack the company’s DNA to grow? Can a 100-year-old soft drink manufacturer also sell coconut water with the same enthusiasm?

♦ PARTHASARATHI SWAMI feedback@businessindiagroup.com