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Interview with a Venture Builder

A Conversation with High Alpha Innovation’s Ryan Larcom

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Welcome back to Business Design School, a twice-monthly newsletter for the creative-business-curious. I call it a school because we’ll learn to master the art of business design, together.

First up: As the year comes to a close I wanted to say thank you to you all for being part of this community of learning focused on business design. I love writing these posts and I hope they’re useful. And to make sure they’re useful… I’d love to hear from you: what questions do you have about business design? Or what are you hoping to learn about business design in the new year? Drop me a note with your questions — maybe they’ll turn into articles in 2024!

In this issue: Venture building — what would a business look like who’s purpose is to envision, start, and launch new businesses? We speak with Ryan Larcom, a Director at High Alpha Innovation, a venture building studio, to learn about his business design approach to launching scalable startups. You can watch the full video of our conversation here (on our new Youtube channel!) or read an edited/condensed transcript of our conversation below.

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Interview with a Venture Builder

A Conversation with High Alpha Innovation’s Ryan Larcom

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Sam Aquillano: We’ve got a great guest this week. We have someone who’s using business design to nurture and grow new startup ventures that connect deeply with user needs so that they can achieve scale, sometimes massive scale. We’re joined by Ryan Larcom from High Alpha Innovation. Ryan loves turning bold ideas into reality.

I’m told his superpower is complexity busting — he’s guiding leaders to make sense of business and industry complexities in order to gain confidence and execute. As a director at High Alpha Innovation, Brian partners with corporations and universities and build partnerships to co-design and structure investments in new venture-backable startups to unlock amazing innovation.

We’re gonna hear all about it. The common thread of Ryan’s career has been a desire to make the world a better place through thoughtfully designed business models, products and experiences. Like me, Ryan attended Rochester Institute of Technology for industrial design. He also majored in mechanical engineering. So I’m super excited to hear how he went from designing and making physical things to designing businesses. So welcome Ryan, thanks so much for being here.

Ryan Larcom: Awesome, great to be here, Sam.

SA: First off, set the stage for us, tell us about High Alpha Innovation and what you all do.

RL: High Alpha Innovation partners with large organizations that could be corporations, universities, even municipalities to help them innovate, specifically by launching startups. We believe that startups are really efficient learning engines, and when you’re trying to enter a new space, access a new market, create a new technology, they’re actually the most efficient way to go about doing those things. So we help them innovate by launching new startups.

SA: Why is that the most efficient approach?

RL: Big companies are really efficient at their core business model. In fact, that’s what they’ve gotten good at over years upon years upon years. They were learning engines once as well. They figured out how do you create a product. How do you bring it to market? And how do you deliver that product really efficiently and effectively? And so they’ve built a ton of knowledge around that. They’ve trained employees to be able to deploy that core strategy. The problem is that when you need to work outside of that core strategy into an adjacency of some sort or another, you’re outside of your common knowledge area. And those processes that make you great at executing on the core actually restrict you from learning in those new areas. And so that’s why we think startups are really, really good to attack that opportunity.

SA: Yeah, drop a little startup in a massive enterprise and watch the magic happen. So would you consider High Alpha Innovation an incubator? right? When I was growing my startup, we were part of an incubator/accelerator that gave us space, a little bit of money, certainly a ton of mentorship. And it was about sort of like getting us through some of the early stage blocks.

RL: We classify ourselves as a venture builder, a brand new category. You think about accelerators being a time-bound cohort of people who have existing businesses that are trying to get access to customers and investors. The venture studio was the next logical kind of movement — a venture builder takes all of the core processes and knowledge and turns them loose in the context of someone else’s business model, so in our case, corporations and universities.

SA: In so many of those parts of your career, you were doing business design. Maybe we didn’t call it business design then, but we’re definitely calling it now. So how do you define business design today?

RL: Yeah, it’s a hard word because I think it’s still an emerging one in many ways. You think about industrial design, which usually speaks about the creation of a product. When we think about business design, I think about it as the creation of a business, so design is a series of intentional choices, and there’s a whole capability set that we’ve built around that — usually in the context of products or collateral or assets, like, like graphic designer, industrial design.

On the business side, I think about a business model having three parts, feasibility, desirability, viability, or how you create, capture, and deliver value. Visual design typically focuses on just the creation of value. On the value proposition itself. Business design incorporates the revenue model and the resourcing of how you actually deploy that in the context of a profitable entity.

SA: Yes, and you can design towards those choices — that makes sense. I get this question lot so I want to ask you given your role: is there a difference between entrepreneurship and business design?

RL: That’s a really good question. I’ve never thought about it that way before. I think that entrepreneurs practice business design in some ways, right? Because as I said, startups are learning engines, and so you’re constantly learning what is your business model along the way. But there’s usually about three big movements I think about from entrepreneurship: you’re de-risking the tech, you’re de-risking the business model, and then you’re scaling the business. And so it’s that middle one where I tend to focus on business design, which is turning assumptions and knowledge around those three pieces of feasibility, viability, desirability, which usually exists, at least in venture backed startups, between zero and series A or B. Once you start scaling the business, technically you’re still designing it, but really all you’re doing is creating a growth engine that powers a business model that’s already been designed.

SA: Let’s pretend I’m a founder of a startup. How is that process happening from idea to partnership with large organizations?

RL: We’re partnering with organizations who want to innovate, and so what we’re first trying to figure out is the theme. Where do we want to focus this opportunity? Is it far enough adjacent that the core won’t accidentally suck it back in? And then is there enough space that you can innovate there and really differentiate from what exists in the market?

From there, we get from kind of macro, really tactical. We all grew up on jobs be done methodology, of which I’m still a huge fan — what we want to understand is for a given customer, for a given persona what are their unmet and priority jobs to be done. So we spend a lot of time trying to understand the functional, social, and emotional needs of users in specific circumstances, and then prioritize them based on which ones are valuable and important, unmet, and widely held, so that we can understand jobs that are yet to be satisfied in the world. And so that becomes the core of our business model. We spend the first six weeks just doing that before we more forward on anything. I think the world in general is really bad at framing problems and really great at solving them. We need to make sure we frame the right problem to solve.

SA: I would say that’s the foundation to build from, right? Because then from there, it’s more of like, what’s our unique value proposition? How are we making money? How are we delivering? Do you use the same sort of iterative discovery approach to those elements as well?

RL: Yeah, absolutely. So that’s a hypothesis when we ship it right out of the gate. And what we want to do is figure out what are the critical assumptions that sit underneath the hypothesis that this customer has an unsatisfied job to be done. And the danger is everybody tests the hypotheses that they know how to test best first, instead of the ones that are most critical, right? I’m a designer. I start sketching stuff on paper. My dad’s a CFO. He starts going to Excel to write the revenue model. My friends are engineers. They start figuring out if you can make this thing. But the problem is if you don’t do them in the right order you end up spending a lot of time where it doesn’t matter.

Really great example of this: one of our friends consulted with a large airline company that was trying to commercialize the Osprey, the vertical takeoff aircraft. The big idea was wouldn’t it be neat if we demilitarized this, you could now ship large numbers of civilians right from heliports right out. And so they spent millions of dollars on architects to design the experience of going to a heliport. They did the interior design to figure out how many people would fit in this thing.

And it was at this point that this individual came in with a consulting company and started looking at it and was like, have you guys talked to any pilots? And it turns out no commercial pilot wants to fly the Osprey because it was made for military pilots in military settings. It’s a dog to fly, it’s rough.

And so as a result, the consumer experience is terrible too. It’s loud and you couldn’t put enough noise isolation into this thing to make a good consumer experience. And so as a result, two key pieces of the value proposition on the revenue model just totally broke. And so we try to go through really rigorously and figure out what can we test and then what’s the lowest fidelity way that we could go about testing those, right? Before you put fingers to keyboard, we’re mocking up product in Figma. Before we mock up product in Figma, we’re hand sketching storyboards. Before hand sketching storyboards, we’re describing it with customers. And you want to just make sure that you’re testing and iterating and every step along the way.

SA: To clarify, are you then literally building a startup from scratch, then recruiting individuals that will then carry that forward? Or are you recruiting folks from inside the partner organization?

RL: Great question. This is where business design becomes venture building in my mind. So business design is shipping the final pitch deck that looks investable that says these are the series of intentional choices that we believe makes for a profitable, venture-backable, scalable business that ought to exist in the world.

Venture building then is snapping together all the other functions to make that work. We’ve got a recruiting team who finds world-class founders who want to found this. We’ve got a finance team who figures out how to turn this revenue model into a set of assumptions they can execute against. Legal folks who can figure out a cap table structure that makes this investable from a corporate partner and a venture perspective and so on. There’s lots of functions to make a functioning business.

And so yes, in our case, we usually go out and find great entrepreneurs from the world. And our specific thesis is that we’re launching these companies alongside often large corporations. And so if you’re going to be in relationship with your first company as big enterprise and first investor, you need an experienced entrepreneur who has been through that multiple times to be able to navigate some of those difficulties. It’s a huge lever and also a huge stick. And you want to make sure that you’ve got experienced folks.

What we want to do ultimately is to de-risk the business to the point that we can attract world-class entrepreneurs. Clearly, there’s a lot of work to get to that point, but the business is going to continue learning. That’s not an inflection point when you hire someone that continues to learn all the way through Series A plus. And so what we want to do is attract world-class founders. So problem number one is how do you get world-class founders to co-found businesses alongside you? And then how do you do it at scale?

SA: How do you break assumptions and build confidence when designing a business?

RL: I think first is it’s an iterative process. You’re coming down the funnel. And so part of confidence building is talking to hundreds of potential folks at the top of the funnel, seeing some of those come back again, who said, I have a problem.

And then we articulated back to them and they say, yes, that’s the correct articulation of that problem. And then another set coming back and us saying, what if we solved it this way? And then saying, yes, that’s the type of solution, the value props we’d want to see. And then us coming back with a product and saying, what if it looked like this? And then saying, yes. And then us coming back with a business model and saying, what if we priced it and packaged it like that? So you just bring folks down the funnel. And then your assets, of course, get more and more high fidelity along the way. What starts out as hand sketches ends up in in beautiful product walkthroughs and mockups and things that you can run user tests on. So I think it’s a lot about just the incremental moving from one end to the other. But I think there are a couple of really key inflection points where we look for traction, right? Not just that people say, yes, that’s really nice all the way down, but that someone’s willing to write a check. That really matters. That an entrepreneur who says, that’s a really neat idea is saying, I’ll leave my job and start this.

SA: Can you share a real case study?

RL: One of our first portfolio companies ended up being one of the early success stories that I just love to tell. We started work with Koch Industries. Koch’s got a portfolio of companies, including Georgia Pacific. We worked with one called Molex, they’re electronic suppliers. And they were having a hard time understanding which of their electronics components were most likely to be late and shut down their factory as a result of the lags of lead time. Now, this was just pre-pandemic. And when the pandemic took off, of course this became even more imminent.

We ended up shaking out a company called Amplio that initially went about identifying those risks so that instead of looking at hundreds of potential parts that could go wrong, procurement leaders could look at the nine that mattered that week and spend their time really efficiently and effectively making sure that they had been dual sourced or expedited or something like that. We were really lucky to get an employee from the Koch portfolio to run this. He was running a corner of Georgia Pacific supply chain and had been in startups before. We paired him with a chief data scientist from a supply chain startup — so he understood the venture space. This became this like perfect little combo that we just dropped in and said start building product.

They created value in 30 days. They were able to find things that procurement officers couldn’t get to in months and months. What’s funny though, for all the success — yay, business design — they hit their biggest pivot right after they launched. They realized that the more electronic suppliers that they got online the more interchangeable those parts were. And so, yes, Molex could expedite a part on a 747 from China, but it turns out that one of their other clients had an electronic supplier just across on the other side of Guadalajara that was producing interchangeable electronics components. And so they effectively became a marketplace. They could tell better where parts were and create interchangeability for these suppliers so that you were saving massive amounts of time and money.

Instead of trying to solve this on an Excel spreadsheet, they were solving it in the context of a marketplace. So huge pivot. That hit right before the hype cycle of VC ended on the far side of 2021, right at the peak of the pandemic. So they raised a massive round of seed funding from some leading venture capitalists that have just set them up for some really early success and continue to go about solving the problem that they were set in place to solve.

SA: I saw like you also work with like academic institutions?

RL: We had a university endowment come to us and say something to the effect of, university endowments are asset managers, right? They are exposed to VC, they invest and they want returns and they want early stage exposure as well to diversify their risk profile. They’re also being pulled by their university is to invest in student and professor intellectual property. That’s really hard to do for a number of reasons. One is it’s super lumpy. You could have a ton of IP disclosure or nothing in a year. Most of it’s not venture-backable. And then a lot of it from a returns perspective are disincentivized from the university model. Meaning universities are great at commercializing devices and molecules, really poor at commercializing software because the skill sets are utterly different. And so the opportunity that they spotted that we’ve now jumped into is if we were to focus on partnering with students and professors at the idea stage rather than at the solution stage, We could avoid the solutions-in-search-of-problems problem, create brand new startups and commercialize them in ways that enable endowments to invest because they’re venture-backable. They have a great entrepreneurial talent in at early stages, but they stay aligned to the mission of the university. We literally are creating the proprietary deal flow that every VC says that they have. We’re building startups on campus. That’s it.

We just launched a fund with Notre Dame, which we’re really proud to announce, of $18 million. The fund is focused on the Catholic social teachings that underpin Notre Dame’s strategy and we’re already kind of digging into our first sprint which will focus on breaking the cycles of poverty. So while you have to be relatively humble, there’s only so many ways that software startups can act there, there are still a ton of low-hanging opportunities that we think that we can make an impact and make for-profit businesses out of that serve all the different actors.

SA: How do you apply business design to the business of high alpha innovation?

RL: We try and dog food as much as we can on our own process, but it’s really hard. I’ll tell you, I have gained a ton of empathy for entrepreneurs. I’ve been startup adjacent in venture capital before, but we ourselves are a startup.

High Alpha Innovation grows through revenue and aligned with our partners in that. We actually just had an offsite recently. Our portfolio management team focuses with founders day one on identifying what their revenue formula is for their business, which is really, really neat. So a revenue formula might look something like price times gross margin equals dollars, and then dollars minus headcount costs equals profit, right? That’s a very basic revenue formula,

When you get the formula correct, though, you can realize what the key levers of growing a business are along the way. And so we just dove in and defined our own revenue formula for our business that helps us to understand: how do we price and package? When you kind of put together the whole formula, you’re like, oh, those are the five levers I ought to be, acting on in my business. What experiments should we put underneath those levers that we can continue to go about unlocking new growth opportunities from?

SA: What tools and frameworks are you using? And then what artifacts are you actually generating beyond the classic slide deck?

RL: The process I want to talk about actually is Sprint Week. One of the things we realized is that all businesses have momentum inside of them that needs to be broken with forcing functions. So funny enough a fund has to start 12 businesses in three years. And yet after we launched business number one, it was easier to support the operations of business one than it was to start business two. And we said, shoot, we need a forcing function. Otherwise we’re never going to yield for our investors what we want to do. And so Sprint Week was born out of that and it has continued to iterate for the last almost decade since then. For us Sprint Week is about taking a really well framed problem and then designing the product and then business model that go around that.

It’s a three day intensive that we kind of deep dive into. And then on the fourth day, we pitch these decks with the idea that on the fifth day, we’re actually deciding which of these businesses that we’ve pitched goes forward. And success is multifold, right? Getting to the far side of Sprint Week and saying, this is an investible concept is success.

The assets that come out of Sprint Week look very, very much like you’d expect in just about any pre-seed pitch deck. We’re looking for a really good understanding of who our customer is. We’ve spoken to, at that point, dozens of folks inside of our ideal customer profile. So there’s something that looks like a persona. We have a really good understanding of what the job to be done is and why that is a priority to them. That usually gets told in a really compelling story that includes kind of a why now for that problem. Why is this moment the moment that customer jobs have become reprioritized in some way or another. What’s the secret by which this business knows something else about the world that other people have overlooked? Then we end up in a product. We really, really like to tell the future state in visuals. I think folks tend to underestimate the power of visual design as well inside large organizations.

We show the product, we show the faces of the people using the product, and we step through click by click, not as the full movie, but as the sizzler rail for the movie, if that makes sense, illustrating the key value props along the way. And then we talk about the economic model.

We have this kind of quirky thing that we call the nautilus, which, if you think about the way the shell expands on itself, we’re asking ourselves questions of how does this business get to 100K in recurring revenue, a million, 10 million, and a hundred million dollars. And some people call that a reverse P&L. But what it forces you to say is, okay, if I have 100K with only two customers, that’s 50K a customer. Great. Who are those two customers? Back to personas. How do we access them? Who buys? How efficient is that going to be? And then 50k, wow, that’s a lot of money in recurring revenue for a product, right? How long will the sales cycle be on that? What does the quality of the product need to do in order to yield 50k in recurring revenue? And so that sets your product roadmap. And then, of course, your product roadmap sets your team capabilities. And then your team capabilities set your investment needs. And so even basic crayon math like that, it’s so funny. You can get so many design decisions.

SA: What’s your advice for people designing businesses, either internally, as we’re talking, within a big organization, or your classic entrepreneur — what would you share to keep them going and to be successful?

RL: Different words of advice probably for different people. So for entrepreneurs, I think the number one thing is, be in market and learn. Build in public, learn alongside customers. It’s totally critical to ship before you’re ready and test your hypotheses, especially the hypotheses that you’re most scared of. And what that requires is forcing functions, that you stop working in the business and start working on the business at a regular pace, which I say with a high degree of empathy, right? Being in a startup ourselves, it is hard.

And then, I think that the idea of these business design skills of product management, of human-centered design are still very radical inside big corporations And I spent a lot of my time inside big Co’s with folks who are not used to emergent strategy. They’re used to deliberate strategy. We’re going here, we’re gonna get there from here to there. And in most of these spaces, we actually don’t know what we don’t know. And deploying tools like this really, really effectively allows you to ship case studies of success in really, really small ways that gets you the permission to be able to go do bigger things.

You’re not walking into the CFO and saying, I need 2 million bucks. You are saying to your direct boss, I need 20K to launch these three experiments. And then I’m back on the other side with data of what we do next as a result.

SA: Thank you so much for being here, Ryan — I loved this conversation. For more info about High Alpha Innovation and their business design work, visit highalphainno.com.

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As always, I’d love to hear from you: what do you think about this approach to venture building? You can simply reply to this email with your thoughts.

If you enjoyed this issue of Business Design School, please share the love on LinkedIn or forward this email to folks you think might enjoy it as well.

Have a great holiday season! Talk soon!

— Sam

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Sam Aquillano is a business designer and writer. In 2009 he founded Design Museum Everywhere, an online, nomadic museum with the mission to bring the transformative power of design everywhere. His new book, Adventures in Disruption: How to Start, Survive, and Succeed as a Creative Entrepreneur, chronicles his team’s startup journey and is available on Amazon, Apple Books, and Barnes & Noble. He's now a Design Director leading business design at Edward Jones. Sam has earned numerous awards for his work, including the Red Dot Design Award, Graphic Design USA’s Responsible Designers to Watch, and Fatherly named him one of the Coolest Dads in America.

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