ARTICLES
New business building is a top-five agenda item
Corporate leaders are increasingly focused on building and scaling up new businesses, with eight in ten executives considering it a top five agenda priority. They’re right to prioritize it: companies that focus on building new businesses significantly outperform their peers. They outgrow their markets more often and by greater amounts than competitors pursuing organic growth strategies. In fact, over 45 percent of them outperform the market, while only 30 percent that don’t make new businesses a top three priority do the same. McKinsey’s research suggests that if made during early periods of turbulence, these kinds of investments can have an outsize impact on a company’s recovery later on.
We believe now is the time for industry incumbents to embark on business building strategies. A variety of mobility trends indicate that the industry has reached an inflection point that fosters growth due to the accelerated changes to the ecosystem that have occurred over the past few years.
Business building for incumbents is not easy
While long-time industry players enjoy some key advantages over start-ups in understanding the automotive “lay of the land,” our analysis shows that many will likely fail to build successful new businesses that scale for several key reasons. These include failing to exploit the incumbent’s core business strengths in the new enterprise, failing to secure the needed capital or talent, and short-circuiting longer-term success to capture near-term profitability. Other reasons involve dragging down the new business with bureaucracy and failing to instill a risk–reward culture.
Some examples of these struggles include a major technology company’s launch of smartphones and a firearm manufacturer’s expansion to off-road cycling. The former struggled with identifying clear customer needs. Their smartphones focused on flashy features the company assumed would be desired by customers, though they often lacked the compatibility and simplicity of competitors’ phones. For the firearm manufacturer, off-road cycling equipment seemed far-fetched. The company’s branding efforts failed to build a clear connection to the core offering, resulting in an unsuccessful product launch.
Where to begin
he good news is that incumbents have access to a proven approach to innovative business building (see sidebar “Success stories” for examples). We refer to it as the five B’s: 1.Breakout: generating and prioritizing new business ideas 2.Blueprint: defining the minimum viable product (MVP) and road map 3.Build: bringing the MVP to market 4.Boost: hyperscaling the business 5.Branch: maximizing enterprise value from the business
Breakout: Generating and prioritizing new business ideas
There’s a saying that a great business is 10 percent idea and 90 percent execution, but even identifying, and more important, prioritizing, new business concepts can be early stumbling blocks for incumbents. Below are some suggestions for how to be successful in making this critical first step in the business building journey (for more information, see sidebar “How it’s done: A case study”):
Use your company’s overall strategy to scope out the ‘idea’ space. Starting from an entirely blank sheet of paper for new business ideation can be a pretty daunting task that can lead to stalled momentum, or worse, an idea that is too far afield from the core that there’s no “right to win.” Our research and experience show that the best new ventures are rarely a 90-degree turn from the core; they are most often found in adjacencies that leverage an existing strength of the business in a new way.
Spend time understanding unmet customer needs in the market. Take a customer-centric approach from the outset to identify where there are unmet needs in identified markets and themes. This will require incumbents to learn about the audience for whom they are designing and ask what customer needs and behaviors are important through quantitative and qualitative approaches.
Blueprint: Defining the MVP and road map
Once the incumbent has prioritized a business concept, it needs to rapidly and iteratively plan how to build, measure, and learn to bring the product vision to life. Three suggestions can help. (To see these steps in action, see sidebar “Blueprinting the business before it is built: A case study.”)
Define and prioritize your customer segments, then deeply understand them. Establishing focus and attention for a specific segment of the customer base is critical to create capacity to go deep in really understanding the targeted value proposition, feature set, and willingness to pay for a new product. Start by developing a clear understanding of how customer segments break down and where the intersection of desirability, viability, and feasibility is strongest. Then use this specificity to inform your go-to-market strategy, including understanding purchase decision journeys, engagement points, and marketing/brand strategies.
Build: Bringing the MVP to market
Once the company has defined the MVP and its rollout plan, it is time to build and launch the business, which should include the following considerations.
Establish new ways of working. Moving at speed will often mean creating a significantly different mindset and process for product development and business building than exists traditionally for incumbents. Creating separation from the core so that the new team can operate independently is critical, balanced by clear governance and funding mechanisms that create transparency and derisking along the way.
Build alongside your future customers. Bringing one or two lighthouse customers “into the tent” to codevelop the first version of your product is a great way to ensure that you are not building in a vacuum. As an added benefit, these customers can become your first evangelists who advocate for your product early and build momentum.