As the global leader of GS Accelerate, Goldman Sachs’ internal incubator that identifies, invests in, and develops new businesses, Tanya Baker has been instrumental in helping the financial services giant establish sustainable innovation capabilities. In this episode of the Committed Innovator series, part of our Inside the Strategy Room podcast, Baker shares her experience evolving the program and fostering entrepreneurial ventures within the firm. This is an edited transcript of her discussion with Erik Roth, who leads McKinsey’s innovation work globally.
Erik Roth: What innovation challenges does Goldman Sachs face?
Tanya Baker: I will say, with humility, that when we started GS Accelerate, we didn’t think we had an innovation problem. We are always trying to do things better, smarter, faster, more scalably. But every large organization is divided in different ways, with certain line jobs and accountabilities, and we were seeing new business ideas either crossing multiple divisions or they were so new that they had no natural place to sit. Stephanie Cohen, who previously spearheaded GS Accelerate, always said that we don’t have a chief innovation officer at Goldman Sachs because innovation is everyone’s job. With Accelerate, we are looking to unleash creativity from anyone at the firm regardless of what business they are in.
Erik Roth: When did Goldman Sachs notice this pent-up internal drive to create new ventures?
Tanya Baker: For the past 15 years, we have seen this nascent fintech ecosystem emerging and some of those ventures were started by GS alumni. We love to work with these companies. We use them as vendors. We sometimes take them public. We advise them on M&A. We take strategic investment positions in them. And we were starting to see an opportunity for disruption. Oftentimes, when you are in a job for a long time, you become a little stale. You’re efficient but you may not be the person who will come up with a creative new way of doing it.
Accelerate serves as a vehicle for experimenting with those new business ideas.
Erik Roth: Are most of the ventures in GS Accelerate around fintech?
Anytime you are asked to fax something, you should be thinking: Is there an opportunity to build this in a more scalable, smarter, digital way?
Tanya 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.
Erik 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.
Erik 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?
Tanya 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.
Erik 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?
Tanya 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.
Erik Roth: Do you have a heuristic or some other way of identifying a good candidate for Accelerate?
Tanya 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.
Erik Roth: How often do you re-form the teams? Or do you find that the entrepreneurs self-select?
Tanya Baker: In the first year we didn’t change the teams, and some of our failures were due more to the teams than the substance of the ideas. The subsequent year, when we had the wrong team, we simply did not invest. This year, we plan to tell people, “We will invest but on the condition that we hire a CEO who will oversee your team.” People then have the opportunity to take it or leave it, but we will not commit to funding leaders if we do not have confidence in their ability to lead the business.
Erik Roth: Any other lessons you can share from your experience with Accelerate?
Tanya Baker: This is a pretty common lesson but it’s hard to follow: you have to hold the team back from building too soon. We often find that these teams are raring to go and want to start writing code. In almost every case, that is the wrong move. I almost want
to make a rule that in the first three months, unless you are doing throwaway prototype code, it’s
pens up. Talk to people; do a mock version so you can put something in front of potential users;
do surveys. Because even if you know in your head that you will have to pivot, you start to get too wedded to an idea when you put it into code.
Erik Roth: So you are encouraging them to work backward from the customer? You must have run into the mindset that customers don’t know what they are looking for. What do you tell participants who insist that they know what to build?
Tanya Baker: In an industry like financial services, people tend to be quite sophisticated and know what they want. Unless you have done their specific job, it is hard to be in their shoes. One piece of advice we give everyone is that if someone knowledgeable thinks what you are doing is a bad idea, make sure they have a seat at the table. Put them on your board; make them one of your advisers. We often see entrepreneurs become obsessed with their solution rather than the problem and their view is, “Oh, this person doesn’t get it.” But if someone who knows the space is really banging on the table, and saying that this is not a good idea, then as challenging and potentially uncomfortable as it may be, make sure you truly understand where they are coming from so that it can inform your next steps and don’t have any blind spots.
If someone knowledgeable thinks what you are doing is a bad idea, make sure they have a seat at the table. Put them on your board; make them one of your advisers so you don’t have any blind spots.
Erik Roth: Is speed important in getting these ventures moving?
Tanya Baker: I think speed is important. It’s good to get momentum and there is a certain recency effect: if you go to someone with a prototype and then they don’t hear from you for a year, you become a bit forgotten. But speed is not important in a vacuum—you have to weigh everything else.
Erik Roth: Do you think incubators like Accelerate are appropriate for every organization?
Tanya Baker: Most corporate accelerators and incubators fail, and we were very conscious of that when we created it within Goldman Sachs. You often get into the innovator’s dilemma of the problem being too small to devote the right level of focus to and yet it could become big. You also have to get the right level of proximity to the organization. If the accelerator is too far, then you will not get any benefits. It may as well be a stand-alone organization; if it is too close, the negatives will outweigh the benefits. Other larger organizations have their own accelerators and their structures are all different. We all have different pain points and some of it is cultural. We have a unique structure that gives GS Accelerate a tremendous amount of air cover from the top, and we establish strong relationships with the firm leaders.
Erik Roth: How do you engage those senior leaders in Accelerate?
Tanya Baker: Our senior-leadership sponsorship is critical to the success of Accelerate. There has to be trust that if you go through the Accelerate program, spending nights and weekends working through an idea, the funding and support will be there if it is a good idea. Without that sponsorship and encouragement from senior leaders, people who are in big jobs would have a hard time stepping out and saying, “It’s really late but I’m passionate about this and will spend a few more hours to make it better.”
Accelerate is managed by a board of very senior people across the firm. They are accountable for the investment decisions and make sure we have the right level of sponsorship around the organization. Additionally, every business we fund has a board composed of managing directors and partners, and the partners who chair those boards put their names behind the ventures. We also have regional engagement and sponsors. We sit down with all these people regularly to talk through their priorities: What are they focused on? What are the potential disruptive forces to their businesses and how can we help support them? At the end of the day,
we look at this not as a cost center but an investment opportunity and a way to better serve our clients. And we are transparent about how we measure success. Every quarter, leaders have the opportunity to raise their hands and say, “This is not working. I thought it was going to deliver X but we are delivering Y, and we should reconsider whether this investment makes sense.”
Erik Roth: Does Goldman Sachs ever offer investment opportunities in Accelerate businesses to its customers?
Tanya Baker: We are definitely open to creative investment structures. We are looking at businesses that we would not intend to own in perpetuity. The view is, let’s start it and if it is successful, we will spin it out, or we look to partner with other corporations or peers on Wall Street.
Erik Roth: How has the COVID-19 pandemic affected the Accelerate program? We have all come through an extraordinary time when everyone has had to pivot and innovate.
Tanya Baker: We launched Accelerate 2020 in February of last year and were set to close our submissions the Friday before we all went into quarantine. I did not appreciate how much and how quickly things would change, so we pushed back the deadline a month, moved everything to digital, and did 60 pitches virtually. Although there are advantages to being in a room with people, there were also advantages to being on videoconference. The biggest is that while Accelerate has been global from day one, our team has primarily been in New York, so there were always the people in the room and the people on video. When everyone is on video, it becomes a more level playing field. I don’t know who is in Asia or in San Francisco so it eliminates any inherent bias. We then saw the teams were also dispersed because, again, there was no advantage to being physically in the same location. One business we funded has its headquarters jointly in Birmingham, the UK, and Dallas.
Erik Roth: What lessons have you personally learned from your experience with Accelerate? In some ways, you are an entrepreneur building a business called Accelerate, which is a platform for growing new businesses.
Tanya Baker: We talked about the importance of sponsorship. The beginning, when you are a new shiny object, is a lot easier than down the road when you may have had some failures or the world has changed and there is a next new shiny object and you are not as shiny as you were before. Managing your stakeholders, being open to feedback, and changing is something that I continue to learn every day. The structure of Accelerate was originally designed for Goldman Sachs of 2018. When we finished the 2020 program, we stepped back and asked ourselves, “If GS Accelerate did not exist, how would we structure it to solve tomorrow’s problems and not yesterday’s problems?” We made some changes as a result. I would say that when you have found something that works, don’t get too comfortable. Every few months revisit and ask, “This worked amazingly last year, but will it still work next year?”