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Accelerate serves as a vehicle for experimenting with those new business ideas.
Roth: Are most of the ventures in GS Accelerate around fintech?
Baker: Yeah, almost all are. At this point, quite a few businesses in our industry are still analog. Anytime you are asked to fax something or are told, “Please call back tomorrow because it’s 5:03 p.m. and the people you need work from 9:00 to 5:00,” you should be thinking: is there an opportunity to build this in a more scalable, smarter, digital way? These ideas represent either better ways for us to serve our clients or they are potential businesses we would set up with a partner, in which we would be the first customer and have a board seat. The theory is that if the ecosystem is not serving our needs, then there are probably others who could benefit from a certain product or service.
Roth: It sounds like a few things came together to create the right context for GS Accelerate. First was the looming disruption from fintech where financial institutions’ business models were threatened by start-ups. Second, Goldman had a history of having phenomenal talent leave to start businesses that then became service providers to the firm. And third, Goldman itself is trying to innovate its business model, recognizing the challenges the financial world faces.
Tanya Baker: Most of that is spot on. I started my career at Goldman Sachs in 2008, a really challenging time in our industry. Now, looking back, it was a fascinating time. With change and disruption often comes innovation, but as any organization grows, it becomes harder to [innovate], especially if you are not in a role that encourages it. The goal of Accelerate is to offer that opportunity to anyone who works at the firm. We hold our failures up just as proudly as our successes because if you are innovating, you can never achieve a 100 percent success rate. Accelerate creates an environment with sponsorship and advisers where it is okay to fail. We have a portfolio view: if the portfolio succeeds but you have a few failures, that is tremendous.
Roth: Accelerate seems to have an almost venture capital–like way of working and learning. How does the program work, and what outcomes do you expect from those who participate in it?
Baker: In the past, we had a five-week period once a year when Accelerate would invite ideas around themes or areas of focus. We would pick a few submissions and these teams would pitch them. We then selected five to ten teams to spend one week on an immersive sprint, taking their business ideas from high-level concepts into fleshed-out business plans: How much would it cost to build? What would be the outcomes? What are the thresholds? What are the risks? Then they would pitch to the investment committee and each year we invested in a few of them. People had the opportunity to hire a team with the funding we provided and to leave their jobs to build these businesses full-time. We put a board of directors around them and a partner would serve as a sponsor and chair the board.
One thing that makes GS Accelerate unique is that we don’t let any business be in the program for more than two years. Our theory is that within two years we should have a sense of whether the business has potential. At that point, it could take different paths: we could spin it out, or a division might want the business to be part of its group. Sometimes we disband the team and sometimes the new business is generating enough revenue that it does not need additional funding from Accelerate. But they all have up to two years of runway to provide some validation.
Roth: How many businesses have exited Accelerate to date, and what lessons have you learned both from those that succeeded and those that did not?
Baker: We have made 15 investments to date, and we currently have five in the portfolio. The biggest lesson is, it is all about the people. Any investor will tell you, “Ideas are a dime a dozen; it really comes down to the people,” and I just cannot tell you how true that is. Ultimately, if you have a great idea and a strong team, that idea will evolve and may look nothing like it did when they pitched it. If the team is not good and the idea is great, there is so much friction throughout the process that it doesn’t work.
Another lesson is that people who have been successful in other roles at Goldman Sachs are not always the same people who will succeed at building a new business. It is a very different skill set. It’s not a comment on their intelligence or capability as professionals, but part of my job is to identify the people we think are able to lead businesses.
Roth: Do you have a heuristic or some other way of identifying a good candidate for Accelerate?
Baker: By the time the team has gone through the sprints and pitched to the investment committee, we will have spent a lot of time with them. There were instances, especially in the first year, when you love the business idea but know in your heart of hearts that these may not be the right people to execute it. During the sprints, the self-starters will come in with a blank sheet of paper, populate it, and say, “We have to do this, this, this.” Others come in and say, “What do I have to do today?” You have to hold their hands and guide them. They end up being more challenging, especially in leadership roles. We do find that certain traits work better. Having the ability to navigate white space, put structure where there is none, and inspire people is non-negotiable.
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Here is a direct link to the complete article.
Tanya Baker is the global head of GS Accelerate. Erik Roth is a senior partner based in McKinsey’s Stamford, Connecticut, office.