We get asked quite a bit about how The Combine operates, what’s our model, how it works, etc. Our model is different. People compare us to and contrast us with incubators, accelerators, venture capital firms, consulting firms, and fractional C-suite models. We do exhibit some of each of the aforementioned models at different stages of our cycle. Here’s how The Combine works.
Partner with the Enterprise
First, we partner with medium to large enterprise corporations. These organizations are typically in the sweet spot of the partners of The Combine. The prime example is our partnership with global construction engineering firm Thornton Tomasetti. Our partner and co-founder KP Reddy is an expert in the Architectural, Engineering, and Construction (AEC) space. KP’s expertise in the space enables the relationships with firms such as Thornton Tomasetti. His knowledge and experience also provides go-to-market expertise for the products born of that relationship. Service providers are excellent at their business model, but do not have the experience or structure necessary to launch software or device driven startups.
Discover the Most Promising IP
The first engagement with the enterprise client is a deep dive into the client’s IP portfolio. During this engagement, our goal is to discover the most promising ideas, products, patents, and other “interesting” IP. During this stage of our engagement, we are looking for those artifacts that have an unfair advantage in the marketplace. That unfair advantage may be a patents, a massive head start, key relationships, or the client’s brand equity in an industry. Whatever the advantage may be, we intend to build that advantage into a high value business.
Put the Best IP Through Severe Diligence
Despite an unfair advantage, no idea is feasible without a market in which to sell the product or service. Once we choose one or more pieces of “interesting” IP, we put them each through approximately 90 days of deep diligence. This diligence includes customer discovery, during which we speak to hundreds of potential customers to validate the problem(s) we intend to solve and the size of the market in which we intend to solve those problems. We create a pro forma budget and go-to-market plan, down to the nth employee in the 2nd and 3rd years of operation. We crunch the numbers every way we can in order to get to the next point in the cycle.
Thumbs Up or Thumbs Down?
After the 90-day diligence period, we gather with the client and make a simple call: do we move forward with this concept or do we not? The Combine business model is based the time to develop, time to bring to market, and estimated first, second, and third year revenue, and potential exit outcomes. We take all of these factors into account, and get a thumbs up or thumbs down. In the case of a thumbs down, we deliver to our client all the diligence that went into that decision. That data and understanding of the decision serves our clients as they create and evaluate new IP within the organization.
Co-create a New Startup
When we give a thumbs up, we create a new business entity. The Combine owns a small equity portion of the new company, and our client owns a large equity stake. We reserve approximately 20% of the equity for future employees of the new business. It’s at this point that we create a brand and the go-to-market plan for the new business. This stage is at which we create a new business entity as a startup, and our team’s experience starting, growing, scaling, building, and operating startups becomes our unfair advantage.
Run the Startup, Build the Team
Running a startup is fun for some, torture for others. Our team has created dozens of startups and run them through exit or dissolution. That experience is what enables us to maintain a dispassionate mindset as we operate of all of our portfolio companies. We are the c-suite of each portfolio company. We get the business off the ground. That means we discover the best customers, best marketing channels, and best tools and processes. Ultimately, we want to build a scalable, repeatable customer acquisition machine. During this time, we are heavily recruiting for the new team, especially an industry savvy leadership team.
Work Ourselves Out of a Job
Ultimately, it is our job to lose our jobs. We must replace ourselves as the c-suite of our portfolio companies. If we do not build a team, then our business model doesn’t work, doesn’t scale, and we bog down in each company. In an ideal scenario, we would have the new leadership team – primarily the CEO – on the payroll prior to raising a Series A funding round. From that point on, we take on a more advisory role to the business leadership team, as well as a seat on the Board of Directors.
When we execute well in each of these steps, the next step in the cycle is that much easier, and the step after working ourselves out of a job is either massive growth of a profitable, sustainable business or a liquidity event of some kind.
Why This Model?
Our thesis is that enterprises around the globe hold trillions of dollars of dormant, neglected IP. As a byproduct of their business models, these enterprises are really good at what they do. However, they are not structured to create, start, operate, or scale a technology startup. The Combine business model comes from several years of diligence working with enterprises to discover the best way for them to monetize the IP that is created as a result of their successful business models.