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How Coca-Cola Uses Entrepreneurs (And Keurig) To Jump-Start Innovation

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This article is more than 8 years old.

This article is by Brad Power, a partner at FCB Partners, an advisory, education, and research firm.

Last week’s fanfare over the arrival of the Keurig Kold soda-dispensing machine glossed over a far more interesting story that’s been bubbling for some time: Coca-Cola Company is investing in businesses like Keurig Green Mountain to bring radical innovations to Coke’s distribution and marketing processes. The really big news  is this: Many large companies like Coke now realize that process innovation is as important as product innovation, and that some of their best ideas will come from startup entrepreneurs.

With the average lifespan of a big global company, 40 to 50 years, half that of a person born in an advanced nation today, it’s a crucial lesson: Antiquated business processes kill big companies. That’s the lesson Blockbuster learned at the hands of Netflix (which offered a superior way to market and distribute movie rentals). And it’s a lesson that many now extinct retailers (Borders, Caldor, Bradlees, to name just a few) discovered after being strangled first by Walmart (superior store replenishment systems) and later by Amazon (superior e-commerce processes).

While a beverage industry product leader like Coke is much harder to displace, the company takes nothing for granted, especially in rethinking the ways it markets and distributes its products. To help bring the Kold machine to market, Coke bought 16% of Keurig Green Mountain for more than $2 billion starting a year ago. But Coke’s investments in outside companies don’t end there. Through its Coca-Cola Founders Platform, the company has also been investing in a number of promising entrepreneurs from the start, even before they have business plans. The Founders Platform has a portfolio of 12 startups in 10 countries, creating two potential benefits: future financial growth for Coke, plus solutions to thorny business problems like product restocking and marketing to millennials.

Coke’s differentiating strategy is not to try to integrate or big-foot these start-ups. It maintains them as separate, independent entities. Coke provides seed funding, becomes the first customer, and then takes a minority share if and when the business becomes viable.

That's a much different model from buying a startup or pushing an internal process innovation program. What can other companies learn from Coke in the dicey game of investing in startups to make radical improvements in marketing, distribution, and other key business processes? I see three big lessons:

1. Separation equals speed. When Coke originally launched the Founder’s Platform, in late 2012, the idea was to bring teams of startup founders inside the Coke organization, paired with mentors. The goal was to address existing challenges, like product restocking, through innovation. Coke hired two startup founders in Australia as internal entrepreneurs, Jason Hosking and Franki Chamaki. But as employees of Coke, the two found themselves constrained by corporate bureaucracy. For example, it took them months to get a vendor contract signed. That's just the way it is in a giant organization. Where startup teams thrive on speed and flexibility, Coke’s rules and processes slowed them down.

So in 2014 Coke set Hosking and Chamaki, and other startup teams, free to be their own organizations.

2. Tackle big problems the business has to fix. Another core part of Coke's formula was that it wasn’t looking for quick returns from any old startup; it wanted to solve problems related to Coke's main business. In this way, it answered the question why do it at all?

To find the right ideas, Hosking and Chamaki talked with bottler networks and partners. In July 2014 the team came up with a breakthrough for restocking vending machines. Collaborating with big data software experts at the nonprofit organization National Information and Communications Technology Australia, they figured out how to reduce the number of empty vending machines. In three pilots, the team increased vending machine revenue by 15% and reduced restocking deliveries by 18%. In more recent pilots, revenue per machine went up 27% and restocking deliveries fell by 21%.

Their startup, Hivery, a joint venture with NICTA, created another firm called Vending Analytics. Coke has installed its software across Australia and plans pilots this year in the U.S., Europe, and New Zealand. The software tailors the mix and frequency of restocking in each vending machine, instead of, for example, treating all the restocking requirements in vending machines in sports stadiums the same way.

Who benefits from fully-stocked machines? Coke.

Another Founders Platform startup, Wonolo, addresses the problem of lost sales from products being out of stock in retail stores. Ideally Coke would like to restock a shelf as soon as it’s empty, but retailers' staffing models don’t often allow for that. San Francisco-based Wonolo, launched in May 2013, matches merchandisers that need stocking assistance with people seeking temporary work. Retailers post an offer for temporary help using Wonolo. Then pre-screened workers accept and get paid through the app. Retailers can also rate the quality of worker performance much the way consumers rate Uber drivers. Wonolo now has 70 customer companies and has matched some 2,500 workers with more than 10,000 on-demand job openings. Those numbers promise to increase with Wonolo’s recent expansion into Los Angeles and New York. Along similar lines, Savasti, based in Singapore, helps distributors and retailers manage inventory with a cloud-based tool.

Who benefits from well-stocked retail stores? Coke.

3. Seek fresh ideas about marketing challenges. Coke is no slouch when it comes to advertising and marketing. In fact, many marketing veterans loved that Mad Men used an iconic Coke commercial to end its farewell episode. But startup founders bring with them fresh marketing ideas and, as Coke learned, fresh paths to desirable customer segments. A startup named Winnin is helping Coke reach and charm millennials in Brazil.Winnin, based in Rio de Janeiro, targets teenagers looking for online videos. Winnin does this through “battles,” where teens compete to create the best playlists. The Winnin app was the brainchild of Gian Martinez, who had been an entrepreneur inside Coke, and Wilton Neto, who had bootstrapped two startups outside Coke. Winnin aims to offer a better video search option than sites such as YouTube, Vine, Instagram, and Facebook . It had its first birthday on April 1, 2015, and already boasts 20 million unique users, with an average visitor spending 14 to 15 minutes on the site. Winnin also helps companies create original branded content with little to no production fees.

To market in new ways to millennials, Coke has funded several other startups. Tobuy, a social site based in Buenos Aires, helps teens make shopping decisions. Home Eat Home, based in Berlin, provides pre-packaged meals that can be ordered online and picked up from convenient locations. Truu Mobile, based in Mexico City, lets millennials customize mobile phone plans based on needs and usage.

How does Coke make its formula work in the field? First, it gets its own people invested in the startups' success. Coke agrees with a regional Coke business unit president to split seed funding and appoint a senior-level manager as adviser. Next , Coke gets the word out to the local startup community that it’s seeking proven founders or teams. Coke identifies potential big winners, and then the startup founders do what they do best: build products, win customers, and grow the business.

As the first customer for the new services the founders create, Coke gains a leg up on its competitors, getting answers to tough operational and marketing challenges. And with its minority stake in each venture, Coke sees a financial payoff if and when the business takes off. Coke’s investment to-date has returned an estimated four times multiple on the value of its portfolio, according to David Butler, Coke’s vice president of innovation.

Coke also expects that other investors will want to fund the best startups. To date, Wonolo is the only one to win venture capital funding, but three more are currently trying. "We feel like at least half of our portfolio will make it, with one or two generating a huge return," says Butler.

Does your company have core business problems and marketing challenges that you'd like to point creative startup minds at? Of course, it does. With the Coke formula, the hard part will be winnowing the list of your wants and needs. Once you do, the innovators will beat a path to your door.