“I Can See Clearly Now… Gone Are the Dark Clouds that Had Me Blind.”
This post is a bit different than the others in my Digital Disruption Playlist; it features two tracks. Why? Because there are two key questions for defining the probability that a corporate startup will succeed: “Are you experienced?” and “Can you clearly see all obstacles in your way?” Cue Hendrix and Nash…
Everyone knows that starting a new business is challenging. Most startups are unable to secure funding. Even when they do, 90% of them still fail. If you think those odds are bad, they get much worse when the new venture is launched within an existing enterprise. According to Rubicon Intelligence, 4% of new ventures will ever reach $1M in yearly sales, and only .4% ever reach $10M. That doesn’t even begin to move the needle for a large corporation.
Startups must deal with uncertainty for a very long time. Successful startups embrace this uncertainty. They have an intense sense of urgency and can pivot quickly. They are skilled at executing Plan B — because Plan A seldom occurs. They don’t have to follow a lot of rules. Startups have no market share or existing revenue stream to defend. They don’t have to worry about upsetting existing customers, partners or distribution channels. Successful startups have an experienced team with an unwavering commitment. They don’t ‘celebrate’ failure. Instead, they believe failure is not an option.
Startups within large enterprises have none of these advantages. And typically, the management team for the new venture is selected from within the existing enterprise’s own ranks — i.e., those with no startup experience. No wonder most of them fail.
Large companies can provide a startup with capital, customers, distribution, management, talent, market presence, global coverage, facilities and much more. With all of the resources available within a large company, why aren’t the odds better? Shouldn’t these pre-established advantages make things easier?
It’s just the opposite.
Rubicon Intelligence reports that the success of a new venture is inversely proportional to the amount of corporate help it receives.
The solution is not as simple as firewalling the endeavor or connecting it to a corporate incubator. In my experience, successful corporate startups must pass through four stages of development, each with its own set of challenges:
· Stage 1 – Launch;
· Stage 2 – Finding your First Customer;
· Stage 3 – Scaling the Business; and,
· Stage 4 – Reintegrating with the Enterprise.
Launch protects the new venture by firewalling it, and establishes the rules of engagement for interacting with it. This stage begins by identifying key roles, defining the organization structure, and recruiting the initial team. The new team must decide, and get approval for, their governance model and corporate engagement protocol:
· How do budgets get set (and reset) at the pace startups require, and what resources are committed?
· How are hiring and compensation decisions made? Must new positions be posted on the corporate job board (potentially delaying key new hires for months)? How will exceptions to the corporate salary guidelines get fast-tracked?
· What are the reporting requirements, and what is the IT infrastructure that must be used to allow for their implementation?
My definition of a startup is a venture in search of a repeatable and scalable business model. Stage 1 is complete when the startup team defines their initial business model and customer value proposition, and successfully pilots their new product or service.
Finding Your First Customer targets a successful lift-off. It is the most difficult stage, and typically requires several pivots to get right. This process begins by defining:
· Who is the buyer that owns the problem you are attempting to solve, and what is their profile?
· Does a budget exist for solving that problem, and who owns that?
· Are there competitive offerings? And if there are, can you describe yours as “we are just like Company X, but __________”?
· What brand will capture the attention of your target buyer, and how should you build that?
Next you need to explore how you can reach that potential buyer:
· What is the sales process and go-to-market model?
· Are there new skill gaps that must be filled?
· How do you qualify and prioritize prospects?
· Are there opportunities for client partnerships or technical collaboration, and how do you establish those?
Stage 2 is complete when you can point to several reference customers, and have evolved to a defined and repeatable sales process and go-to-market model.
Scaling the Business builds on a successful lift-off by identifying the keys to successfully scaling your venture, and then implementing them. Stage 3 addresses:
· When and how should you consider geographic expansion?
· Are there partnerships that will drive scale, and how do you establish and manage them?
· Are there opportunities for expanding your product portfolio?
· Can you build customer annuities?
· Do you have the right management team to successfully accomplish all of the above?
· How do you fund that, and do you need to rethink your budgeting process?
Growth typically signals success, but how do you know if you are growing too fast?
When growing rapidly, beware the Icarus Effect. Icarus was the son of an Athenian master craftsman named Daedalus – who fashioned wings out of wax and feathers to enable them to escape from Crete. Overcome by the giddiness that flying gave him, Icarus ignored his father’s advice and flew too close to the sun, too quickly. The wax melted, and he plunged into the sea. Avoiding the Icarus effect means growing without breaking quality, or culture, or the financials of your startup. Successfully Scaling the Business requires developing — and monitoring — a dashboard of early warning indicators that can caution against flying too high too quickly.
Reintegrating With the Enterprise, Stage 4, encompasses all the key drivers that enable a new venture to successfully meet on-going competitive threats and continue to scale the business. This chapter explores the timing and scope of ‘reintegrating’ with your corporate parent so that you can leverage the resources it has to offer.
Startups are not successful just because their founders had a fantastic idea, or built a great product, or launched a world-class marketing campaign. Success may take many years, and during that time a startup must evolve to accommodate progressive stages of growth. At each stage, there are new sets of questions to answer and landmines to avoid. Startups are successful when their leadership is able to anticipate these new challenges and address them without making critical mistakes. Experienced entrepreneurs know where these landmines lie, and how to deal with them. But the new venture team may not.
In closing, there are two telling factors that significantly contribute to the probability of a corporate startup’s success:
1. “Are You Experienced?” Corporate startups need a seasoned management team with startup experience so they know where they are going, what they should focus on, and what to do when they encounter a landmine.
2.“Can You See Clearly Now…All Obstacles in My Way?” Startup teams also need early warning indicators that highlight those landmines in advance, so they can be anticipated and avoided.
Without a “yes” answer to these questions, a corporation cannot expect their new ventures will beat the odds.