Why Europe's Labs Are Closing and What Comes Next

Europe’s corporate innovation labs are closing, one quiet LinkedIn post at a time. The lab era optimized for activity: sprints, demo days, wall art. What comes next optimizes for something labs rarely produced: revenue that survives contact with the P&L.

Let's talk about something that's been quietly unfolding across Europe—innovation labs, once the shiny new toy of corporate strategy, are closing their doors.

What's going on here? Why are these labs, once seen as the future of innovation, now being put on the chopping block?

Let's dive in and see what's really happening.

The Rise and Fall of Innovation Labs

Remember when innovation labs were all the rage? Companies eagerly set them up, dreaming of industry disruption and groundbreaking technologies. People thought these labs would be great for creating new ideas.

They were seen as places where companies could come up with lots of new and exciting ideas.

Fast-forward to 2024, and we're witnessing a different narrative—many of these labs are shutting down.

So, what's the deal?

Does this mean corporate innovation is dead?

Not at all.

It's actually changing and getting better. Companies are finding smarter ways to innovate that fit better with their main business goals.

Why Cheap Money Killed Innovation Labs

The economic environment has shifted drastically. Money isn't as cheap and easy to get as it used to be. Interest rates are higher now. This means companies have to think more carefully about how they spend their money. They're looking closely at where they invest to make sure it's worth it.

Simply put, there's no longer room for initiatives that don't have a clear path to profitability or a higher Return on invested capital (ROIC).

This is one of the contributing factors to why we're seeing a decline in innovation labs. It's not that these companies no longer value innovation—in fact, it's more important than ever.

Big companies like Walmart are focusing on what they do best to make money quickly.

For example, Walmart is concentrating on its main business areas that bring in money right away.

Amazon is doing something similar.

Instead of trying new, risky ideas, Amazon is now trying to make money from things it already has, like its Alexa technology.

This shows that many companies are moving away from risky new projects. Instead, they're choosing to work on things that are more likely to make money soon.

At BW Ventures, we've always believed in validating the willingness to pay as soon as possible. We think it's important to start making money from new ideas quickly, and we want to ensure customers are willing to pay for new products or services as soon as possible.

When gaining traction, you can develop radically new technologies that better serve these same customers.

All in all, we see that companies have not stopped trying new things. Instead, they are figuring out how to allocate their capital wisely and making sure they can create a return on their investment because, as mentioned earlier, capital isn't free anymore.

Innovation Labs: The Unspoken Strategic Misalignment

Here's another big problem: innovation labs often suffer from strategic misalignment. They start with great intentions, but if they're not aligned with the company's core strategy, they end up feeling like an awkward project.

Let's look at an example. Intel, the computer chip giant, launched a program called New Business Initiatives (NBI). It aimed to drive new business models and technologies. However, because it didn't align well with Intel's core semiconductor business, the project failed. I've even seen a utility company develop a wine-delivery service—talk about misalignment!

What can we learn from this?

If your innovation lab doesn't align well with your company's long-term and short-term strategy, it might be shut down when money is tight.

The Double-Edged Sword: Mastering Both Quick Wins and Future Growth

Everyone wants to see fast success, right? But here's the catch: for innovation labs, that pressure can be a double-edged sword.

These labs often work on projects that might take years to pay off. But at the same time, they need to show some quick results to justify their existence. It's like trying to grow a tree while also picking fruit every day.

This puts innovation labs in a difficult position. They have to balance two very different goals: coming up with big, new ideas for the future and showing some immediate benefits to the company.

Take retail innovation labs, for example. These labs often struggle to prove their value quickly enough. Walmart and H&M, for instance, ended up closing their labs because they needed to focus on core areas that could deliver immediate financial results.

So, what's the takeaway here?

Do you have a strategy that balances both short-term gains and long-term growth? If not, it's time to rethink your approach.

Moving Forward with a Strategic and Spawner-Driven Approach

Innovation labs in Europe are closing down, but this isn't all bad news. It's actually a chance for companies to find better ways to innovate.

We're developing a new framework for this, which we call the "Spawner Framework." This new approach can help businesses grow and innovate more effectively. To learn more about the Spawner Framework, download our mini-book here.

Develop a Spawning strategy:

When creating your spawning strategy, it's important to match it to the type of spawner your company wants to be. The spawner framework describes five different types of spawners, each with its own approach. Here's how to create a strategy that fits your type:

1. Adjacent Spawners:

As an Adjacent Spawner, your plan should focus on creating new business ideas that are closely connected to what your company already does. This means looking at your current products, services, or markets and finding ways to expand on them.

The main goal is to use what your company is already good at and the customers you already have to create new opportunities that can grow quickly. Your team should look for areas where your company's strengths can be used in new but related ways.

This approach is less risky because you're working with things you already know well. At the same time, it helps your company grow and come up with new ideas. It's like building on what you're already good at rather than starting something completely new.

2. Embryonic Spawners:

For companies that are Embryonic Spawners, the main goal is to support brand-new, experimental ideas. These companies act like nurseries for very young ideas. These ideas might not fit the market yet, but they could grow into big innovations. Embryonic spawners have a higher risk appetite.

The strategy for Embryonic Spawners should include:

• Creating a safe place for new ideas to grow
• Understanding that not all ideas will work out
• Recognizing that successful ideas could greatly change the business

It's important to give these new ideas time and support, even if we're not sure they'll succeed right away. The ones that do succeed could become very important for the company's future.

3. Cloner Spawners:

If your company is a Cloner Spawner, your main goal is to copy successful business ideas or products and use them in new markets. Here's what this means:

• Find ideas that work well: Look for business models or products that are already successful.
• Adapt these ideas: Change them a bit to fit new markets or areas.
• Grow them quickly: Once adapted, these ideas grow fast in the new markets.

Your team should focus on finding what has worked well in other places. Then, use those ideas in new markets or business areas.

The good thing about this approach is that it uses ideas that have already worked. This makes it less risky than trying completely new things.

4. Non-Adjacent Spawners:

Non-adjacent spawners create new businesses that are very different from what the company usually does. This involves:

• Category Design: They focus on creating entirely new categories or markets that don't exist yet or are just emerging. For example, the video-on-demand category about 10 years ago.
• Independent operation: These new projects have significant freedom to experiment without being constrained by the main company's rules.
• Problem-solving focus: Category Design isn't about developing groundbreaking technologies right away. Instead, it's about understanding how to solve problems in new ways before investing in specific technologies.

The goal is to launch, invest in or buy completely new initiatives that could open up new categories for the company's future growth.

5. Apex Spawners:

An Apex Spawner is the best type of innovation strategy. It combines all the other approaches we talked about earlier. These companies are very flexible. They're good at balancing different types of innovation:

• Improving existing products or services
• Developing new businesses
• Copying successful ideas from others
• Creating completely new categories

By using all these methods together, Apex Spawners builds a strong system for constant innovation. This helps them lead their industries by allowing them to adapt quickly and grow in many ways. However, Apex Spawners are a rare breed.

Aligning Strategy with Spawner Type

Each type of spawner—whether Adjacent, Embryonic, Cloner, Non-Adjacent, or Apex—requires a strategy that fits its specific strengths and goals. Here's how to align your innovation efforts for success:

1. Orchestrate an Innovation System: Your system should help generate, test, and refine ideas quickly. For Adjacent Spawners, this means building on what you already do well, while Embryonic Spawners should focus on nurturing new, risky ideas until they're ready for the market.
2. Develop a Capital Allocation Framework: Invest in projects that can grow and potentially stand on their own. Cloner Spawners should focus on proven models that can be adapted to new markets, while Non-Adjacent Spawners should explore entirely new areas. Make sure your resources go where they'll have the most impact.
3. Create an integrated business development ecosystem: Break down barriers between R&D, innovation, external investments, and M&A. Apex Spawners, in particular, benefit from combining these elements to create strong, high-impact ventures across different areas.
4. Validate willingness to pay quickly: Speed is crucial. Regardless of your spawner type, swiftly test and validate customers' willingness to pay for new ideas. This approach teaches you which projects have the highest chances of success early on.

Innovation isn't dead—it's just evolving.

If you're ready to move beyond the innovation lab model and adopt a spawner-driven approach, let's connect.

Sincerely,

Maarten van Kroonenburg.

Don't create Unicorns,Breed Blue Whales.🐋

Related reading: Innovation is Capital Allocation. Everything else is theatre.

What comes next, we believe, is Revenue Engineering: commercialization with the same rigor as the build, held to the revenue line. We validate by commitment in PreXLR and install the go-to-market in XLR. Book a discovery call.