Whether it’s those endearing Bob Hoskins ads or teenage memories of huddling in a phonebox in the rain, for most British people, BT is synonymous with telecoms.
But that’s something the business, which can trace its roots back to 1846, is on a mission to change, as it attempts to shift from being a telecoms business to more of a technology business.
Innovation isn’t new for the company. It holds more than 5,100 patents and patent applications, its renowned BT Labs are approaching their 50-year anniversary and its Martlesham innovation hub claims to see more than 60,000 visitors a year. And during fiscal 2021, the group spent more than £720m on R&D, despite the economic turmoil brought on by Covid-19.
But BT is planning to further up its game — the company has created a new incubation unit for nurturing internally created ventures, hiring Tom Guy as a new MD of incubation, and is changing the way it sources and works with external startups.
A new growth ambition
To be clear, BT is hardly a business on its knees. More than £21bn in annual revenue, £1.8bn in profit before tax, 19 successive quarters of net promoter score (NPS) growth and a workforce almost 100,000 strong.
But many of the company’s core markets have become more challenging as they’ve matured.
Broadband is both saturated and highly commoditised, difficult to differentiate and competitively turbulent as multiplay operators have tightened their grip. The mobile game is fiercely competitive, with loyalty lying firmly with handset manufacturers rather than operators, and all carriers arguably driven to compete on little more than price as connectivity and speed has become good enough for most (hence margin-eroding). The content business is dominated by bigger players such as Amazon.
And while its global services business, which provides cloud, cyber and networking solutions for enterprises, is doing its best to move past costly missteps and scandals, the division is in an equally aggressive competitive set.
It’s hardly surprising that it sees its future growth beyond its telecoms roots, with CEO Philip Jansen spearheading an organisation-wide transformation under the brand-banner of “connecting for good”.
“We’re lucky to have quite an altruistic purpose,” says Neal Herman, BT’s director of healthtech incubation. “We’re looking at the biggest challenges in healthcare, and asking how we can address this with all the might of BT.”
“Big challenges” include the significant backlog in care and secondary care in the UK, where more than six million people are on NHS waiting lists for consultant-led elective care, a 43% increase from the start of the pandemic. Or that one in three adults in England are living with a long-term health condition
“We’re asking how we can help to create better outcomes for patients, for clinicians and for the healthcare system as a whole, in order to make health something that’s sustainable for the next century.”
Why a standalone incubation unit?
To look beyond the core business, BT recognised that its incubation team would need both freedom and focus.
“In any sector, to really change what you do is tough,” says Ash Roots, the former chief digital officer for BT Consumer, who helped establish the incubation team. “The key thing we identified is that we needed a unit that could focus 100% on identifying the opportunities beyond the core business that we need to invest in, and to do that collaboratively and in a part of the business that can actually make stuff, and get it in front of customers.”
There is also a recognition that products and platforms need to be managed very differently depending on what stage of life they are at.
Where the markets aren’t established, those management disciplines won’t work
“The products that generate most of BT’s returns today tend to be products in a more stable lifestage, where markets are more established,” says Jingru Yang, BT’s product incubation director. “When the bulk of a business is based on those predictable streams of revenue, it knows how to control them, how to forecast and plan for demand, and how products will likely perform in the market over the next couple of years.
“The same doesn’t apply to products in much earlier lifestages, where the maturity isn’t there and where the markets aren’t established — those management disciplines won’t work.”
More than startup friendly
Tom Guy joined as MD of Incubation BT earlier this month, a self-styled “product guy” and end-to-end designer by background, previously one of the founding members of Hive (the British Gas-owned smart thermostat launched in 2013) and most recently chief product officer for Vodafone Smart Tech.
“We want to ensure the unit has a startup and founder approach,” he says. “We don’t want this to be another incubation unit being run like a corporate, in a corporate.”
Guy highlights his own experience as a founder, and acknowledges the stigma around that corporate innovation and venture initiatives often attract.
We don’t want this to be run like a corporate, in a corporate
“We can’t waste people’s time,” he says. “It’s just not fair. I’ve seen it myself going round the larger VC firms and corporate venture capital funds. We need to make sure that what we say is what we deliver.”
At just over two weeks into the job, and very much in a “listen and learn” phase, Guy doesn't commit to details at this stage, except an aim to do “10-20 things really well in the short term, not 1,000 things badly”.
At the same time, he believes that — done right — an incubation unit inside a company like BT could have a better chance than a startup. While acknowledging that there’s work to do behind the scenes to ensure that promises made are delivered, Guy is also keen to highlight the potential value of an incubation unit in a corporate like BT.
“In the startup world you lose so much of the board... so much of the magic of the CEO and CTO is lost because they’re focused on rounds of funding and making sure the business can continue,” he says.
“The beauty of a startup built from within, is that the founders, the people with the ideas, the designers — they can actually focus on the product and the experience.”
Focus on IoT, healthcare and drones
One of the keys will be focus. Product managers and product designers tend to share a common trait — trying to do too much.
“Think about roadmaps,” says Guy. “The hardest thing isn’t deciding what you’re going to build, it’s what you’re not going to build. We all know what an MVP is, but perhaps what we need is to do an MVP on our strategy.”
He highlights three major categories which the BT incubation team are focused on — IoT, healthcare and drones, and acknowledges that it would be easy to become overwhelmed or distracted by the sheer scale of what’s possible.
Perhaps what we need is an MVP on our strategy
“These are three huge areas… we’ve got to be single-minded on what we’re going to be doing, just like a startup,” says Guy. “I want to be famous for solving a problem, and I’m going to focus all of our energies on solving that problem.”
Corporate innovation and incubation labs are often criticised for drifting into the realms of interesting and exciting, but lacking becoming detached from impact. It’s a brush that Guy doesn’t want BT’s incubation unit to become tarred by, and he’s emphatic that everything his team will do will have to have a clear purpose, whether that’s within BT’s core businesses or in adjacent markets.
Changing how BT works with startups
“I’ve found this really cool startup — we should do something with them.” — These words make most innovation leaders groan.
This kind of statement, or variations on the same, are frustratingly common within large, established enterprises. And while, on the one hand, you may want to commend colleagues for looking outside of the organisation and sharing opportunities, ad hoc and unstructured “scouting” isn’t something which most people would encourage.
“The problem with aiming for serendipity, where you stumble across a startup that happens to be a perfect fit, is that you end up starting with a solution, not a problem,” says Meg Blight, BT’s startup growth director.
Over the last year, Blight’s team have been pivoting their approach to working with startups — one which aims to root everything in customer problems and the needs of the business.
We don’t talk to any companies where it’s entirely speculative
“There always has to be demand internally and an end-customer in mind, even if it’s a new strategic initiative within incubation, they’re still my stakeholder. We don’t talk to any companies where it’s entirely speculative.”
If there is real customer need and a defined business problem, BT’s startup growth team jumps into action, working with partners to scout for multiple potential startups.
“We aim to be robust, focusing on the problem we’re solving for the end user, while also being much quicker and more decisive for startups,” says Blight. “By starting with the customer issue, we already have line of sight to funding, opportunity and strategy so can be much faster in giving startups a constructive no or a positive yes.”
Open to investment
Making smarter (and arguably more strategic) choices about who to partner with is one thing, but the question of how to partner also needs addressing.
“In the past it was quite binary,” says Blight. “We’d either invest cash and take an equity stake (but that was still quite rare), or, as was more often the case, we’d pursue a partnership to jointly take the product or service to market.”
Winning over in-demand entrepreneurs means offering more flexibility and creativity. Blight says BT is now “much more open to new ways to invest in startups, such as hybrid partnerships with equity stakes or sweat equity opportunities”.
The first example of this flexible approach was last month’s announcement of a £30m investment into the on-demand talent platform Distributed. The investment is reportedly a “first of its kind” for BT, and secures both a board seat and an equity stake in the startup.
Moving forwards, BT is particularly interested in Series A startups, for whom distribution partners and scale is a greater priority. “One of the things changing culturally,” says Blight, “is an excitement at seeing ourselves as a platform to give opportunities to startups to reach customers.”
Keeping track of the nos
No one wants to turn down a future unicorn, but equally, there isn’t time and energy to investigate every opportunity.
“We’ve built a new internal tool, a simple front-end app which allows our team to keep track of any interesting companies that we’re not ready to talk to,” says Blight. “It helps us to keep an eye on the many opportunities that aren’t the right fit just yet, or that are in areas where we don’t yet have clear demand.”
Buy vs partner vs build
Anchoring everything in customer needs has helped the innovation team work more closely with customer and market-facing teams.
“Because we’re starting with customer needs and problems, we’re working with product, proposition or go-to-market teams as key stakeholders,” says Blight. “The conversation is likely to be much more open to buy vs partner vs build, than if we were working with technical teams. If you go to a builder, they’re going to want to build something.”
If you go to a builder, they’re going to want to build something
This approach has also changed the focus of the startup growth team from pushing things onto the business, to being led by strategy, opportunities and the customer.
“We used to be 50:50 push-pull,” says Blight. “Now there’s much more pull from the business. That doesn’t mean we don’t challenge them, but we’re challenging them on how they’re approaching a solution, rather than the underlying need and problem itself.”
This, according to Blight, has helped avoid a “not made here” mentality and struggles to secure buy-in with the business.
Concerns about Europe’s ability to compete
The question that keeps Blight awake at night is whether the UK and Europe will be able to compete with the US and Asia in talent and capital.
“I think we have a solid flow of founder talent,” she says. “It’s whether we’ll see a brain-drain to other markets where capital is easier to access, or whether those businesses will potentially fail.”
“There are a lot of benefits to being in the UK and Europe, and things are improving with more VCs setting up over here,” says Blight. “But it remains the case that if you’re looking to scale, it’s harder to fundraise and harder to secure follow-on talent.”
If you’re looking to scale, it’s harder to fundraise.
“It makes me doubly conscious about making best use of their time,” she says. “Founders are also my customers.”