Being opportunistic isn’t enough to consistently deliver top-line organic growth. There’s a better way to approach new business creation.
In today’s struggling economy savvy companies are looking for ways to create new value. To do this, many create internal venture teams. Sometimes referred to as corporate venture groups, corporate entrepreneurs or skunkworks operations, these groups are responsible for getting the organization into new businesses. One part start-up, one part venture capital firm and one part strategic business unit, they play a unique, hybrid role. Often required to enter new and uncharted territory, these explorers find themselves with plenty of opportunity and advantages. At the same time, they are faced with numerous unexpected and daunting challenges.
The unique challenges of corporate venture groups
Corporations often tie goals beyond ROI to new ventures, such as capability-building or driving traffic to the core business. Unfortunately, sometimes these intentions aren’t clearly articulated and the new venture team gets mired in conflicting opinions and scattershot decision-making. Working from the inside, corporate venture groups find it hard to consistently generate a high deal-flow, or stream of opportunities. Groups are forced to rely on whatever ideas happen to present themselves, bubbling up through the company, rather from connections from a wider network of entrepreneurs. Teams who are lucky enough to find themselves with an abundance of promising opportunities have trouble evaluating them, as separating the good ideas from the bad can be even harder than coming up with new ideas in the first place. When an opportunity begins to have legs, there is a particularly awkward time when the business is too small to continue to function under the radar, and not yet big enough to matter.
Transitioning the business from the venture side of the house to a mainstream business group requires special management and leadership. Throughout the journey, it’s essential to have the right team. These groups must foster a culture of entrepreneurship, incentivizing and rewarding individuals who can move fast, champion ideas and fight corporate inertia. Yet most entrepreneurs would rather be their own boss than choose to work within a large organization.
With all of these challenges, corporate venture groups also have tremendous advantages over independent start-ups. These teams benefit from leveraging the strengths of the parent organization. Established brands and customers can help to build awareness and fuel adoption. Proprietary knowledge from existing patents, technologies and projects are valuable fodder for new ventures and quickly be commercialized. Delivery systems, including channel, sales and manufacturing capabilities can help quickly scale ventures. Existing accounting systems and purchasing processes can help to quickly establish supply networks. Groups that strategically tap into these assets will be well suited for scaling and successfully rolling out new businesses.
To succeed, corporate venture groups must capitalize on the best parts of small, nimble start-ups as well as large established corporations. To survive, groups often find themselves needing to develop entirely new ways of working. Lacking a systemic approach, groups are forced to rely on one-off ideas and processes. While there’s nothing wrong with being opportunistic, this just isn’t enough to deliver large-scale growth opportunities. When looking to consistently deliver results, there’s a better way to approach new business creation. The following five tenets can help.
A new approach to new business creation
Articulate your mandate
The overall mission is corporate venture groups is clear – top-line growth. Yet when it comes to making trade-offs, many groups struggle to articulate the nuances of what success looks like. Can we sacrifice short-term return on investment for longer-term viability? Do we need to drive traffic back to the core business or create entirely separate revenue streams? How much risk is the organization willing to take on for greater returns? Are we willing to invest in building new competencies to bring new business ideas to market? The team needs more than a mission. It needs a plan to deliver on these goals in a measurable way— a mandate. A mandate is what the team does and why. It helps to develop shared understanding and alignment across the organization A mobile telecommunications company recently sought to grow by creating new businesses. Throughout the discovery process the team aggressively pursued ideas that required competencies well outside of their organization’s expertise. In the end, all the new business ideas were shot down by their CEO as they were too far removed from their core. The team had come up with viable opportunities. They just weren’t viable for their organization. The team didn’t have a clear vision of what they were after, and as a result, they lacked explicit criteria for evaluating which ideas to pursue and why. A clear mandate surfaces assumptions early and sets the team up to deliver success, as defined by corporate leadership.
Envision new opportunities
Many corporate venture groups take an ad-hoc approach to identifying opportunities, soliciting ideas from the entire company, or perhaps working on a pet project that doesn’t have a home. While these activities can be effective, a systems approach that considers the larger goals of the company, beyond ROI of that venture, can yield far greater returns. At Jump Associates, we help our clients target new sources of organic growth by creating Opportunity Maps. These maps are tools to explore the vast landscape of potential opportunities areas, select the most compelling ones, and craft strategies for how to best approach them. The group at Nike responsible for expansion into sunglasses, watches, MP3 players, and sports apparel used such an approach. This helped them consider opportunities that it might have otherwise overlooked such as partnerships that marry sports and digital entertainment like the wildly successful Nike + iPod platform.
Connect with people’s needs
While traditional market research can help develop offerings in well-defined spaces, it’s less useful when venturing into uncharted waters. To create new-to-the- world businesses, it’s essential to leave the confines of the office. Get out into the world. Talk to ordinary people. Find out what their lives are like and what’s important to them. Over the years, Harley-Davidson has launched a range of new ventures, including the Rider’s Edge Harley-Davidson Academy of Motorcycling, by fostering empathy for their customers and their needs. Similarly, when Target wanted to transform its back-to-school sales from good to great, they identified going off to college as a key moment that resonates with parents and their kids. Tapping into this insight about people, they introduced product platforms that changed the face of the Back to School season. In the first year of the program, Target’s third quarter sales grew 12 percent while competitors’ sales remained flat or dropped. Offerings that tap into people’s needs help increase adoption and the likelihood of long-term success.
Roadmap a system of solutions
A lot of new business activity is focused on creating a single winning concept. People go out and study other people to get some inspiration, brainstorm a bunch of ideas and test the best ones. Ultimately, they’re hoping to come up with the next Big Idea for their business. Unfortunately, Big Ideas are like a high-carb diet. They spike your energy, get you hyped up, and then make you crash as quickly as you started. The whole point of developing new businesses is to create a sustainable competitive advantage – which often requires a lot of good ideas, working in concert to create something that’s incredibly hard to copy. That’s why you won’t put Starbucks out of business just by creating a better tasting cup of coffee. New business development requires identifying key areas of activity, develop families of offerings ranging from the near-term to the far-out, and plan those products and services within the context of a roadmap that’s designed to help you learn at every stage along the way. In growing their music business, Apple did just this. They mapped, planned and tested how to best integrate the iPod device, iTunes software and online store, entertainment content and partnerships, over time. Along the way, Apple positioned itself to support people’s digital world by building the category steadily over time.
Craft viable business plans
Operating in environments of tight margins and even tighter timeframes, corporate venture groups often find themselves under incredible pressure to scale fledgling businesses. And yet, moving into unknown markets can be fraught with uncertainty. Recognizing this, new business developers need to craft flexible plans, rather than static pitches, for new business ideas. A simple business plans is great ways to ensure that new concepts are viable at the outset. Not just a way to document an idea after the hard work has been done, a business plan should be used as an active tool throughout the process. Each aspect of a business plan can be used to generate, refine, and evaluate ideas. It helps to make insights tangible and offer a forum to share ideas with others. Moreover, a modular structure for capturing ideas, such as a seven point plan, helps the team develop the building blocks of numerous potential new businesses over time. New ventures are always risky. But failures can be managed with the right business planning tools.
While it can be daunting to be on the hook for contributing to top-line organic growth, taking a systemic approach can help. Articulating a mandate, envisioning new opportunities, understanding people’s needs, and building a platform for offerings will help to avert some of the challenges of charting new territories within the confines of established organizations. This, in addition to leveraging the strengths of the parent organization, will insure corporate venture groups can deliver top-line growth, time and time again.
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