Learning

How to successfully build a new business venture within your organization?

Learning
09/12/2022
12 minutes read

Everyone knows the saying ‘standing still is going backwards.’ This is especially applicable in the corporate world. Despite the challenging times of global uncertainty, companies these days must present more and larger growth figures than ever before. Across industries, the accelerating pace of change, the rising customer expectations and the available disruptive technology have intensified the pressure on businesses to innovate. The question is, what are the continuous growth forces that companies use to ensure this innovation? We, from Stretch Innovation, were beyond curious and did some research to provide you with useful insights.

A shift in customer demand

A recent study by McKinsey shows that more than half of business leaders believe that the biggest increase in growth will come from new products, new services or new businesses. Moreover, they acknowledge this as a top-three priority. New business building will account for more than half of the business revenue in five years’ time.The reason C-level directors identified new products and services as the biggest growth drivers is because they believe that current products do not meet today’s standards for addressing disruptions and ensuring a sustainable future. A new urgency has emerged that causes a shift in customer demand, a technological change and new sustainability goals.

Search for new opportunities accelerated

Companies feel the need to respond to these new needs by diversifying the sources of their revenues. Without losing their core activities and identity, they are looking for new opportunities to match these changing demands. At a later stage, these new revenue streams may run alongside the core business and reinforce each other. On some occasions the new venture could even outgrow the core activity of the organisation, and eventually take over this key postion.  

Based on these findings we can conclude business building is extremely important, as it is at the heart of all organic growth strategies. Venture building is vital to a company’s survival capacity in the long term, as it forces companies to reinvent themselves. In this way, companies can innovate their business model and keep up with competitors. This is a given across different regions and sectors. Even when times are difficult, business builders are recorded to be more resilient during COVID compared to their peers.

"Thirty-four percent of the companies that prioritised business building experienced no change or an improvement in growth as a result of COVID-19”

Venturing allows companies to test product and service innovations in a rapidly changing digital environment, as a response to competitive threats. The pandemic has accelerated this trend by making digital presence an absolute must and by often pressuring the traditional company activities.

High risk, high return-on-investment

Building a new business is not as easy as it may sound. Despite the increased pressure on enterprises to create new avenues for growth, success stories are rare. Figures learned that three out of four built businesses failed to scale, meaning that they failed to deliver value to their parent company. Furthermore, at least 80 percent of all new businesses have not scaled beyond $50 million in annual revenue after four to five years. And only 24 percent of new businesses launched in the past ten years are viable large-scale enterprises today.

Given this low success ratio, one might think there are other available options to establish growth. Corporate venturing or creating an M&A-strategy are two approaches that can also be used to generate new revenue streams. The first one implies an investment in a separate start or scale-up that already exists. The latter means additional growth is accomplished, in which corporations buy or merge with one another. However new business building, despite being the most difficult strategy of them all, when executed well it can generate tremendous value. It is the strategy that can generate the most sustainable growth since it uses existing assets and capabilities of the core organisation. Compared to the other approaches, new business building is the only strategy that can join the perfect balance between the strengths of the parent company and the typical agile way of working at a start-up. To sum up: Although the higher changes of failure in creating new products and services from your core company, it is the one strategy with the highest possible Return-on-Investment (ROI).

A skill that can be learned!

The good news is that business building can be learned; you practice it by doing. Business building is a muscle. Literature shows serial business builders had a five times higher ROI compared to less frequent business builders.Part of this success can be attributed to a serial effect. Frequent business builders often invest in a series of new products and services instead of betting on one single new idea. This diversified approach lowers the risk and increases the likelihood of success. On top of that you create the right mindset and skills within your core organization to launch and scale new businesses quickly, spot opportunities and do not bounce back from new initiatives or change. Another aspect of the higher success ratio of frequent business builders is the learning curve that comes along with it. After several attempts you know what kind of mistakes to avoid, what to look out for and consequently, you are also aware of what the crucial aspects are of launching a new idea. Since we cannot help you with training the business building muscle, we will focus on the tips and tricks to set you up for success.

Business building and scaling: key considerations

As previously mentioned, when building a new business within an existing business it is important to find the right balance between leveraging the competitive advantage of a larger company, and the agility and culture of innovation that is typically associated with a start-up. Finding this balance is a really hard task and is often overlooked.  

First of all, we need to consider what we can learn and absorb from the parent company.

Transfer these important strengths!

  1. The first opportunity is the ‘access-advantage’. Large companies typically have access to a relatively large group of customers. This makes it easier for the new business unit to test products or services and gather feedback from this large audience. As a result, products can be adjusted faster and better to the needs of the customer. When acquiring new clients, the new venture can count on the loyalty and maturity of the incumbents’ client base. Therefore, a certain competitive advantage can be reached compared to other companies who start from scratch. Another aspect of the ‘access-advantage’ could also come in the form of available data insights or specific technology that has been developed by the parent company. These are valuable assets that typically cost a lot of time, effort and money if you cannot rely on an established parent company.
  1. The second strength of the current business which can help the new one to succeed, and scale, are the ‘available assets’. Big enterprises usually have cashflow which they are willing to invest. This means that fundraising or getting the right amount of investment to kick-off the new business is less of an issue. In addition, multiple smaller funding rounds can be used when the new unit hits certain milestones. This is in stark contrast to the start-up scene where there is often one large capital injection round, and the risks are therefore greater. Another asset that can be utilised from the large enterprise is the invaluable talent of human capital. This knowledge and expertise can effortlessly be used in the new branch.
  1. The third advantage of creating a new business within your existing business lies in the ‘synergies’ between them. Rather than stand-alone companies, the new products and services can use multiple aspects of their big corporation in their scaling phase. The two companies can by all means feed each other. The new business building is vital to the company’s longevity and the reinvention of the organisation. It keeps the large company sharp, competitive and flexible. Vice versa the incumbent can accelerate the scaling phase of the new venture by the deployment of certain departments where it is useful. Depending on the type of product and the differences with the core activities of the main company, sales force, digital distribution channels and sales funnel can be shared for example.  

Behave like a start-up

When we look at the new business itself, its strength lies in the fact that they can operate and think as a start-up. The parent company must however support the new venture on the above-discussed properties.

Operating as a start-up has many advantages. In fact, it brings new skills and talents in the company. This provides new insights and, as a result, new growth and innovation opportunities can potentially be discovered.

Startups have a lot of advantages. For example, their agile working methods make them more capable of anticipating new emerging disruptive technologies.

Common pitfalls to avoid when aspiring new business builds.

Apart from the key ingredients to increase the likelihood of building successful new businesses, there are a couple of frequently recurring arguments why business building has failed in the past.  

One highly ranked reason for failure was the lack of adaptability and strategic alignment. The ability to pivot when new circumstances or information arise is crucial. Research showed that companies who started with a clear understanding of their strategic goals and vision succeeded much better in this. They could change course more quickly without deviating from their predefined need that they wanted to solve.  

The second misstep is setting low expectations. This needs to come from the top, when the initiative is taken to create a new product or service. This requires real commitment to success and a three- to five-year horizon perspective. The new venture should not be thought of as an experiment. On the contrary, bold ambitions should be stated and there must be a common understanding that this a multiyear journey. Clear communication to internal and external stakeholders is absolutely vital to set the right expectations. First, there should be alignment on the big bet the company is willing to take. Second, a right time frame should be enforced. It is logical that it takes a couple of years before the new product is up to speed and contributes to the revenue streams. Therefore, other metrics like growth rate or customer acquisition should be implemented.

Do not prioritise short term goals

This goes hand in hand with our next common reason for failure: short-term gain is pursued. The financial independence of the new venture radically improves the odds of success. First of all, a certain willingness to invest a significant amount in the new branch is crucial. This investment should completely function as a separate asset from the main business. It is almost unavoidably when building a new business that certain problems will arise, or changes will be necessary. When this occurs, it is important that short-term goals are not prioritized over the long-term perspective. Funding should be protected from attempts to touch it and let it flow back into the core activities. Near-term profitability should not interfere with the continuity of the new product or service. Since the high odds of failure with new business building, we understand that a certain level of risk hedging is preferred. A possible solution may be to provide a sort of ‘staircase model’ when it comes to funding. Protection of a part of the investment must be pursued with stage gates, whereby funding tranches are unlocked when the new business hits certain milestones.

Implement a holistic customer approach

Another common reason for unsuccessfully scaling new businesses is the lack of customer involvement. What helps new businesses succeed, is a well-known understanding of the customers’ needs. What is their opinion of your initial product or service idea, what do they like and dislike, what is their decision journey when buying an item, etc. It is important to take all this information into account when a concept is generated, in early scaling phases and beyond. A holistic customer approach should be used within the different stages of product development and it is very important that the product is launched in different phases. The implementation of a “fast, fail or adapt quickly” way of working is recommended. As a result, customer feedback can be collected in an efficient manner. This allows the product to be adapted to the customer's needs, requiring the least amount of time and expenses. This is also referred to as the agile way of working (the method that start-ups usually employ).  

Do not push to the background

Lastly, another pitfall when starting a new venture is that it is treated as a separate island. The new business should be strategically aligned with the parent company. To capture its full opportunity, active support from the incumbent should be foreseen. When needed CEOs should not hesitate to push forward decisions, provide technology assets and hire a significant number of people. The latter is extremely important. The right processes for attracting new talent and support from the existing workforce is crucial. They should embrace a culture of innovation and change so that they can perform as a dynamical driven team.

Ready... 1,2,3 let's go!

If you got inspired by reading our thoughts on this topic and can’t wait to get innovation on the map in your organization, let us know how you want to make it happen and how we can help you in achieving your innovation ambitions.  

Do you have ideas concerning building a new business? Innovation (digital) agency Stretch Innovation can assist you in the process of brainstorming and ideation, in order to find and maximise opportunities and subsequently turn them into strategic action points!

Are you ready to innovate and ensure that your business remains relevant in the future? Then don't hesitate to contact us!

Learning

How to successfully build a new business venture within your organization?

Learning
09/12/2022
How to successfully build a new business venture within your organization?

Everyone knows the saying ‘standing still is going backwards.’ This is especially applicable in the corporate world. Despite the challenging times of global uncertainty, companies these days must present more and larger growth figures than ever before. Across industries, the accelerating pace of change, the rising customer expectations and the available disruptive technology have intensified the pressure on businesses to innovate. The question is, what are the continuous growth forces that companies use to ensure this innovation? We, from Stretch Innovation, were beyond curious and did some research to provide you with useful insights.

A shift in customer demand

A recent study by McKinsey shows that more than half of business leaders believe that the biggest increase in growth will come from new products, new services or new businesses. Moreover, they acknowledge this as a top-three priority. New business building will account for more than half of the business revenue in five years’ time.The reason C-level directors identified new products and services as the biggest growth drivers is because they believe that current products do not meet today’s standards for addressing disruptions and ensuring a sustainable future. A new urgency has emerged that causes a shift in customer demand, a technological change and new sustainability goals.

Search for new opportunities accelerated

Companies feel the need to respond to these new needs by diversifying the sources of their revenues. Without losing their core activities and identity, they are looking for new opportunities to match these changing demands. At a later stage, these new revenue streams may run alongside the core business and reinforce each other. On some occasions the new venture could even outgrow the core activity of the organisation, and eventually take over this key postion.  

Based on these findings we can conclude business building is extremely important, as it is at the heart of all organic growth strategies. Venture building is vital to a company’s survival capacity in the long term, as it forces companies to reinvent themselves. In this way, companies can innovate their business model and keep up with competitors. This is a given across different regions and sectors. Even when times are difficult, business builders are recorded to be more resilient during COVID compared to their peers.

"Thirty-four percent of the companies that prioritised business building experienced no change or an improvement in growth as a result of COVID-19”

Venturing allows companies to test product and service innovations in a rapidly changing digital environment, as a response to competitive threats. The pandemic has accelerated this trend by making digital presence an absolute must and by often pressuring the traditional company activities.

How to successfully build a new business venture within your organization?

High risk, high return-on-investment

Building a new business is not as easy as it may sound. Despite the increased pressure on enterprises to create new avenues for growth, success stories are rare. Figures learned that three out of four built businesses failed to scale, meaning that they failed to deliver value to their parent company. Furthermore, at least 80 percent of all new businesses have not scaled beyond $50 million in annual revenue after four to five years. And only 24 percent of new businesses launched in the past ten years are viable large-scale enterprises today.

Given this low success ratio, one might think there are other available options to establish growth. Corporate venturing or creating an M&A-strategy are two approaches that can also be used to generate new revenue streams. The first one implies an investment in a separate start or scale-up that already exists. The latter means additional growth is accomplished, in which corporations buy or merge with one another. However new business building, despite being the most difficult strategy of them all, when executed well it can generate tremendous value. It is the strategy that can generate the most sustainable growth since it uses existing assets and capabilities of the core organisation. Compared to the other approaches, new business building is the only strategy that can join the perfect balance between the strengths of the parent company and the typical agile way of working at a start-up. To sum up: Although the higher changes of failure in creating new products and services from your core company, it is the one strategy with the highest possible Return-on-Investment (ROI).

A skill that can be learned!

The good news is that business building can be learned; you practice it by doing. Business building is a muscle. Literature shows serial business builders had a five times higher ROI compared to less frequent business builders.Part of this success can be attributed to a serial effect. Frequent business builders often invest in a series of new products and services instead of betting on one single new idea. This diversified approach lowers the risk and increases the likelihood of success. On top of that you create the right mindset and skills within your core organization to launch and scale new businesses quickly, spot opportunities and do not bounce back from new initiatives or change. Another aspect of the higher success ratio of frequent business builders is the learning curve that comes along with it. After several attempts you know what kind of mistakes to avoid, what to look out for and consequently, you are also aware of what the crucial aspects are of launching a new idea. Since we cannot help you with training the business building muscle, we will focus on the tips and tricks to set you up for success.

How to successfully build a new business venture within your organization?

Business building and scaling: key considerations

As previously mentioned, when building a new business within an existing business it is important to find the right balance between leveraging the competitive advantage of a larger company, and the agility and culture of innovation that is typically associated with a start-up. Finding this balance is a really hard task and is often overlooked.  

First of all, we need to consider what we can learn and absorb from the parent company.

Transfer these important strengths!

  1. The first opportunity is the ‘access-advantage’. Large companies typically have access to a relatively large group of customers. This makes it easier for the new business unit to test products or services and gather feedback from this large audience. As a result, products can be adjusted faster and better to the needs of the customer. When acquiring new clients, the new venture can count on the loyalty and maturity of the incumbents’ client base. Therefore, a certain competitive advantage can be reached compared to other companies who start from scratch. Another aspect of the ‘access-advantage’ could also come in the form of available data insights or specific technology that has been developed by the parent company. These are valuable assets that typically cost a lot of time, effort and money if you cannot rely on an established parent company.
  1. The second strength of the current business which can help the new one to succeed, and scale, are the ‘available assets’. Big enterprises usually have cashflow which they are willing to invest. This means that fundraising or getting the right amount of investment to kick-off the new business is less of an issue. In addition, multiple smaller funding rounds can be used when the new unit hits certain milestones. This is in stark contrast to the start-up scene where there is often one large capital injection round, and the risks are therefore greater. Another asset that can be utilised from the large enterprise is the invaluable talent of human capital. This knowledge and expertise can effortlessly be used in the new branch.
  1. The third advantage of creating a new business within your existing business lies in the ‘synergies’ between them. Rather than stand-alone companies, the new products and services can use multiple aspects of their big corporation in their scaling phase. The two companies can by all means feed each other. The new business building is vital to the company’s longevity and the reinvention of the organisation. It keeps the large company sharp, competitive and flexible. Vice versa the incumbent can accelerate the scaling phase of the new venture by the deployment of certain departments where it is useful. Depending on the type of product and the differences with the core activities of the main company, sales force, digital distribution channels and sales funnel can be shared for example.  

Behave like a start-up

When we look at the new business itself, its strength lies in the fact that they can operate and think as a start-up. The parent company must however support the new venture on the above-discussed properties.

Operating as a start-up has many advantages. In fact, it brings new skills and talents in the company. This provides new insights and, as a result, new growth and innovation opportunities can potentially be discovered.

Startups have a lot of advantages. For example, their agile working methods make them more capable of anticipating new emerging disruptive technologies.

Common pitfalls to avoid when aspiring new business builds.

Apart from the key ingredients to increase the likelihood of building successful new businesses, there are a couple of frequently recurring arguments why business building has failed in the past.  

One highly ranked reason for failure was the lack of adaptability and strategic alignment. The ability to pivot when new circumstances or information arise is crucial. Research showed that companies who started with a clear understanding of their strategic goals and vision succeeded much better in this. They could change course more quickly without deviating from their predefined need that they wanted to solve.  

The second misstep is setting low expectations. This needs to come from the top, when the initiative is taken to create a new product or service. This requires real commitment to success and a three- to five-year horizon perspective. The new venture should not be thought of as an experiment. On the contrary, bold ambitions should be stated and there must be a common understanding that this a multiyear journey. Clear communication to internal and external stakeholders is absolutely vital to set the right expectations. First, there should be alignment on the big bet the company is willing to take. Second, a right time frame should be enforced. It is logical that it takes a couple of years before the new product is up to speed and contributes to the revenue streams. Therefore, other metrics like growth rate or customer acquisition should be implemented.

Do not prioritise short term goals

This goes hand in hand with our next common reason for failure: short-term gain is pursued. The financial independence of the new venture radically improves the odds of success. First of all, a certain willingness to invest a significant amount in the new branch is crucial. This investment should completely function as a separate asset from the main business. It is almost unavoidably when building a new business that certain problems will arise, or changes will be necessary. When this occurs, it is important that short-term goals are not prioritized over the long-term perspective. Funding should be protected from attempts to touch it and let it flow back into the core activities. Near-term profitability should not interfere with the continuity of the new product or service. Since the high odds of failure with new business building, we understand that a certain level of risk hedging is preferred. A possible solution may be to provide a sort of ‘staircase model’ when it comes to funding. Protection of a part of the investment must be pursued with stage gates, whereby funding tranches are unlocked when the new business hits certain milestones.

Implement a holistic customer approach

Another common reason for unsuccessfully scaling new businesses is the lack of customer involvement. What helps new businesses succeed, is a well-known understanding of the customers’ needs. What is their opinion of your initial product or service idea, what do they like and dislike, what is their decision journey when buying an item, etc. It is important to take all this information into account when a concept is generated, in early scaling phases and beyond. A holistic customer approach should be used within the different stages of product development and it is very important that the product is launched in different phases. The implementation of a “fast, fail or adapt quickly” way of working is recommended. As a result, customer feedback can be collected in an efficient manner. This allows the product to be adapted to the customer's needs, requiring the least amount of time and expenses. This is also referred to as the agile way of working (the method that start-ups usually employ).  

Do not push to the background

Lastly, another pitfall when starting a new venture is that it is treated as a separate island. The new business should be strategically aligned with the parent company. To capture its full opportunity, active support from the incumbent should be foreseen. When needed CEOs should not hesitate to push forward decisions, provide technology assets and hire a significant number of people. The latter is extremely important. The right processes for attracting new talent and support from the existing workforce is crucial. They should embrace a culture of innovation and change so that they can perform as a dynamical driven team.

Ready... 1,2,3 let's go!

If you got inspired by reading our thoughts on this topic and can’t wait to get innovation on the map in your organization, let us know how you want to make it happen and how we can help you in achieving your innovation ambitions.  

Do you have ideas concerning building a new business? Innovation (digital) agency Stretch Innovation can assist you in the process of brainstorming and ideation, in order to find and maximise opportunities and subsequently turn them into strategic action points!

Are you ready to innovate and ensure that your business remains relevant in the future? Then don't hesitate to contact us!

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Learning

How to successfully build a new business venture within your organization?

Learning
09/12/2022

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