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Wander down any aisle of a grocery store and you’ll see the impact of venture capital. Functional beverages like Health-Ade and Guayaki. Alternative proteins like Beyond and Impossible. The consumer packaged goods (CPG) industry has seen a wave of innovation fueled by investment in startups.
Innovation is happening outside the grocery store, too. Direct-to-consumer startups like Billie and grocery delivery services like GoPuff are opening up a distribution landscape dominated by retail and Amazon. Working for a CPG incumbent must feel like whack-a-mole.
But big companies in CPG and elsewhere may have a brief window when they can catch a break. As venture capital takes a powder after an era of explosive valuations, existing startups are tightening their belts and new ones may be struggling to find early funding. And yes, innovation really does suffer if venture capital goes on holiday–there is research to prove it.
What does that mean for incumbents? An opportunity to fill a hole in their industry's new product parade. To launch a new brand with a little less background noise. To develop a pipeline of new products that offers moves on the innovation chessboard.
Whether you are an incumbent in consumer packaged goods or some other sector, this is your moment. Don’t waste it. But do avoid the mega-flop. A little de-risking never hurt anyone.

DE-RISKING #1: THE DROP

Limited editions and drops are SO SO hot. The Xbox series x Halo bundle (sold out). The Supreme Airstream (sold out). Travis Scott x Air Jordan (sold out).
Limited editions are a fantastic way to extend the power of a brand or seize a special moment with consumers. Some companies are even building organizational muscle to support them on an ongoing basis. Coca-Cola’s Coca-Cola Creations launches limited-edition flavors to keep things FOMO-lively but no doubt learn a thing or two as well. Space-flavored cola dropped in February, and the brand’s latest, a collab with musical artist Marshmello, launched in June. (We are a little sad that the drink’s flavor is not of marshmallows but of watermelon and strawberry.)
Drops are a great way to manage risk: inventory investment is limited, and partnering with another brand can lift both. But limited editions are, um, limited. They are not really a test of an eventual product–it’s a promotional event meant to attract attention for a relevant but finite period of time. Other than learnings about consumer preferences, limited editions can be a strategic dead end.

DE-RISKING #2: THE PURCHASE

Where within industry incumbents do new products come from? Sometimes from a knock-down- drag-out turf war among business units. Elsewhere, order prevails, and there are tidy innovation arms anointed by CEOs to generate a company’s future.
Most of those approaches take forever. CEO taskforces, for example, often start with a comprehensive market research study that takes months if not years to conduct. Once an idea is finally baked, teams reach out to suppliers, who need even lengthier timelines to build. Thus, many big companies move faster by tapping into external entrepreneurship. P&G Ventures partners with entrepreneurs to get new CPG products off the ground quickly. Touchdown Ventures provides resources so that companies like Avery Dennison and T-Mobile can outsource venture capital operations. Even Christie’s just launched a venture vehicle.
The advantage of these approaches during a venture capital leveling-off is the ability to invest in innovations already well on their way at (maybe) more acceptable valuations than usual. And cozying up during the early stages provides insight for an eventual acquisition.
There is a catch, however. Corporate venture arms are not very good. They are slow, they have weird goals, and corporate culture sometimes snatches defeat from the jaws of victory. Reduced competition for deals will not necessarily improve their investing prowess. And eventual acquisition is never a sure thing, since most acquisitions fail.

DE-RISKING #3: THE TRYOUT

Many incumbents have new products waiting in the wings as part of innovation workstreams. But is now a good time to launch? Is it better to wait until all this talk of a pesky recession is behind us? Will there be demand for something newfangled?
Well, you already know what we are going to say about this. Obviously you should validate demand before you even launch a website, let alone place an order with your manufacturing partner. How? With “in development” or “coming soon” advertising that generates data about levels of interest. Each click on an ad or email sign-up on a coming-soon landing page is an indication that you will have actual customers when you launch.
“Live-action testing” is ten times better than a survey or a focus group because potential customers are encountering your new product in the wild, just as they will when you are ready to launch. Think of it as a tryout to join your new product lineup. Or a way to score “readiness” among your best product ideas.
P. S. We are not the only ones who think this way.

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