The ‘hybrid startup’ combines the best of corporate with entrepreneurship. Here’s how

By Nathan Furr and Kate O’Keeffe

Compared with startups, established corporations have many resources and capabilities that ought to give them a substantial lead: products, customers, operations, licenses, distribution, marketing, and capital. But too often a couple of misfits with a laptop manage to steal a corporation’s lunch. Why? Because corporations lack one critical ability: the entrepreneurial muscle to take an idea from small to big, from zero to one. If its idea is radical enough and sound enough, a start-up can disrupt an incumbent’s value chain.

Leaders try to respond by creating their own corporate ventures, but those typically lack entrepreneurial qualities because they are staffed by people trapped inside the regime. Or they create an arm’s-length spinout to make space for innovativeness, but then the spinout struggles to access the very resources that would give it an advantage. Enter the hybrid startup, which combines the assets of a corporation and the entrepreneurial capability of a start-up.

In this article we will highlight some big companies that have unlocked the value of their assets, defended their markets, and become digital leaders by successfully creating hybrid start-ups. With the help of BCG X’s business-building function (formerly BCG Digital Ventures), we have examined more than 200 such ventures created over the past nine years. They include new businesses created by Commonwealth Bank of Australia (Cheddar), Airbus (UP42), First American (Endpoint), AIA (Snackbox), Mercedes-Benz (RepairSmith), Volkswagen (Heycar), and UPS (Ware2Go). Of the ventures in the BCG X sample, 152 are still active, 14 were sold, and 38 were shut down.