Confusion was once considered Startup company trademark. Incumbent companies are now actively seizing opportunities to reinvent themselves. In boardrooms and executive sessions, directors and leaders frequently chase dreams of building unicorn companies, but the results of these ambitious pursuits are mixed. Only 16% of executives report that building their companies has been highly successful.
When building a business, being the incumbent has both advantages and disadvantages. Leaders often underestimate the difficulty of starting a new business within an existing environment of processes, culture, and behaviors. To maximize your ability to build new business, you need to find the right balance between short-term and long-term success, play to your strengths, and understand your customers.
Based on our experience, we've distilled five key lessons to help established companies avoid the most common pitfalls in venture building and significantly increase the chances of new business success.
Staying close to the customer until the end
Incumbent companies often create a wish list of features or ask stakeholders to guide product development. Instead of focusing on the “what,” incumbent companies must build their product vision around the “who” – the customer.
Building a new venture begins with defining a strong customer value proposition that communicates your product vision. The first step in this effort is to identify your target customer segments, discover their pain points and unmet needs, and select key segments to prioritize. From there, start-up teams can hone in on key personas, map user journeys, conduct user testing to gather feedback, and confirm purchase intent (Figure 1).
Throughout the product development cycle, employees (especially leaders) must spend time personally with customers (e.g., through exploratory interviews or focus groups with target customers). Employees have a sense of “going out” from their first week and aim to continually interact with customers as often as possible. The work of listening and understanding your customers is never-ending as their needs continually evolve (at an increasingly faster pace). It may seem obvious, but after focusing on the customer first, teams often get distracted and overwhelmed by other factors, leaving the customer on the back burner. there is.
Focus on strengths instead of trying to act like a startup
Incumbent companies should not try to imitate startups simply because they are not startups. People who think they can move faster than emerging competitors in any area of business are usually wrong.
Rather than trying to compensate for their own weaknesses, incumbents should leverage the strengths of their parent companies and take advantage of their unique advantages. These include brand recognition, existing store and logistics infrastructure, access to customer data and regular customer interaction, large supplier base, and strong sourcing capabilities. By doubling down on their strengths, incumbent companies can accelerate the creation of new business and differentiate themselves from competitors more effectively.
However, this should not be at the expense of leveraging strengths and mitigating potential risks. Leaders must proactively identify and address existing constraints that may hinder the success of new ventures. In our experience, this can include entrenched ways of working, cultural norms and mindsets, and overly complex processes. Existing companies that tackle these issues head-on and modernize their underlying infrastructure can smooth the path to new business while avoiding many of the pitfalls that often derail them.
Focus on learning, not perfection
Many established companies chase the “perfect” product for their new venture and wait until everything is ready to launch. However, despite the additional time and effort, we often realize that the underlying assumptions are wrong and have to fix and rebuild the product anyway.
The goal is not to achieve perfection, but to learn as quickly as possible. Nothing helps you learn faster than a minimum viable product (MVP) that customers actually like. The best time to launch a product is the moment it is available for use, when you anticipate there will be gaps and areas for improvement. Everything is theoretical until we get customer feedback. At the same time as launching an MVP, companies should begin building and iterating on a “minimum lovable product” that can address some of the gaps that exist at launch (a practical example of a phased rollout and release plan). (see the table below).
During this iterative test-and-learn process, incumbents can take three actions to ensure customer centricity and achieve product-market fit in the shortest possible time.
- Form a panel of customers to provide regular feedback and test your product.
- Use data to measure and track everything, and iterate based on what you learn.
- Experiment using evidence-backed techniques, especially A/B testing.
An iterative rollout process creates a strong feedback loop.
“Family and friends”
|1 city release
|10 cities released
|Number of bases
|Seller on the platform
|200 or more
|pilot 2-3 high frequency categories for traction
|scale 5 to 10 other high value pools or high frequency categories Expand to test release category
|Expand the complete target list for the category
Build to scale from the beginning
Starting a new business requires day-to-day attention, but leaders cannot lose focus on the long-term strategic vision. While launching an MVP and achieving product-market fit are important short-term goals, incumbents should also focus on scale from the beginning. Otherwise, as often happens, promising products fail to reach the scale needed for true success.
From the beginning, leaders need to develop aggressive go-to-market plans, test the scalability of customer acquisition channels, and maintain an active backlog and updated research plans to enable scale. Additionally, incumbents must strike a healthy balance between developing new capabilities, building long-term solutions, and optimizing existing capabilities. A focus on short-term quick fixes can lead to the accumulation of technical debt and make scaling down difficult (Exhibit 2).
Avoid the traps of established culture
New businesses require fresh energy, fresh approaches, and meaningful changes in thinking and behavior. “Established” cultures do not bring such characteristics. Incumbent companies should instead focus on establishing a cultural identity that is related to, but distinct from, the parent company. To do this, new business leaders must define strong values, separate existing processes and ways of working that don't serve the new business, and model the new behaviors they expect.
In our experience, successful venture leaders build integrated, cross-functional teams and leverage agile principles in day-to-day business operations. For example, leaders can transform regular steering committee meetings from a traditional “report and oversee” agenda to an agile ceremony focused on aligning, clearing roadblocks, and moving the business forward. I can. Additionally, successful ventures often employ flat hierarchical structures and pragmatic communication cultures that delegate decision-making to the lowest possible levels, allowing for increased speed and accountability across the organization. I am.
Launching a new digital venture is not easy, and existing companies face certain challenges that can ruin their chances of success. By taking a customer-centric, agile, and scalable approach, leaders can avoid common pitfalls and lay the foundation for long-term, sustainable growth.