The corporate context

This article is the third installment in our series focusing on achieving excellence in the early stages of new-business building. If you haven't already, be sure to check out the first part, where I introduce our mission and ourselves here and the second part, which outlines the key components of our success formula and the 6 Big Ideas of the Lean Scaleup, that helps companies to become better in new-business building here .

In this post, we will explore the challenges often encountered in corporate new-business building and discuss strategies to navigate the corporate landscape effectively.

Four approaches to new-business building

When a company aspires to expand by commercializing cutting-edge technology or by creating new businesses, it has four primary options. Each of these routes has its unique characteristics and challenges. Let's take a closer look at them:

1. The Startup Route: The startup route is about acquiring startup technology and talent. While it holds immense promise, it can be a complex journey. Only 1 in 12 companies finds their relationships with startups very satisfying. Moreover, successfully integrating acquired external startups into the corporate framework is no easy feat, with statistics showing that roughly 50 percent of top talent from acquired startups depart within two years.
2. The M&A Route: Alternatively, companies can opt for the M&A (Mergers and Acquisitions) route, where they acquire innovative, established businesses. However, this approach comes with a significant price tag and substantial risks. Studies reveal that M&A ventures have failure rates ranging from 70 to 90 percent. Over the long term, it's important to note that organic growth tends to generate more value than acquisitions.
3. The Outsourcing Route: The company also could decide to sign up an external Corporate Venture Builder (CVB) to build these new businesses. While some stats show promising success rates in launching new businesses, many potentials are left on the table. By the nature of a CVB, it can't leverage the corporate assets and capabilities needed for rapid ans substantial Scaling-Up to the same extent as a corporate startup and re-integration is a tough challenge - 'Not Invented Here.'
4. Building In-House Capabilities: A fourth option is for the company to develop the capabilities needed to create new businesses from within. Statistically, this approach offers the most promising organic growth option. As mentioned earlier, organic growth often delivers more value than M&A. In fact, this approach has been found to generate the highest Total Shareholder Return over the long term, according to McKinsey research.

Don't forget the corporate context in corporate business building

The fundamental challenge that companies face when attempting to build new businesses alongside their existing operations is the struggle to bridge the gap between two distinct value-creating systems that exist within every organization.

On the one hand, there's the 'NOW' system, which encompasses the day-to-day business operations. 99 percent of the staff work in this system. This system is short-term focused, heavily process-driven, and inherently risk-averse. On the other hand, there's the 'NEW' system, responsible for exploring and developing new business opportunities. This system takes a long-term perspective, thrives on agility, and actively embraces uncertainty and calculated risk.

The Lean Scaleup framework offers a solution for integrating these two systems seamlessly. You can find more guidance on this framework in my LinkedIn posts, here and by joining 100+ pf your peers in the co-creation of the next edition of the framework .

In this post, I'd like to zero in on a particular aspect that significantly amplifies the challenge. The existing frameworks that companies employ to conceptualize, validate, and scale new businesses often fall short of being fit-for-purpose. They tend to lean too heavily on Lean Startup principles, which were originally designed for a different purpose and usually have three dimensions:

• Desirability (is there a large number of paying customers?),
• Feasibility (can we make and industrialize the product/service?), and
• Viability (can we create a sizable, profitable business from it?).

Notice something? There is no corporate context. Strange, if you discuss corporate new-business building, corporate innovation, corporate startups, etc. And that may be one of the reasons why Steve Blank, often regarded as the 'father of the Lean Startup,' aptly points out, "if you apply the Lean Startup methodology within a corporate setting, you may find that it results in little more than innovation theater."

Effective frameworks for new-business building need a fourth dimension which deals with the corporate context. I call this dimension 'Contextuality.'

Where do I need to consider the corporate context?

The corporate context is much more than just ticking a box that says, "Aligned with corporate strategy?" The corporate context extends across the entire journey of an individual new-business initiative:

1. Search fields and Ideation: From the very beginning, the corporate context is vital in defining 'meaningful search fields' and fishing 'meaningful ideas' valuable ideas from an ocean of ideas.
2. Validation: Throughout the validation phase, it's essential that new business initiatives align with the company's functional strategies to ensure harmony with the broader mission and operational goals.
3. Transition to Scaling-Up: This phase marks a critical juncture where the alignment between 'NOW' and 'NEW' is vital. Success in Scaling-Up depends on a deep understanding of the corporate context.
4. Scaling-Up: In this phase, the corporate context is vital. In this phase, corporate assets and capabilities are strategically leveraged to create a distinct competitive advantage, turning a validated concept rapidly into a thriving, sustainable business.

How do I define 'meaningful search fields'?

'Meaningful search fields' are defined boxes (in scope / out-of-scope) n which corporate explorers create ideas for new businesses and other out-of-the-box innovations. You find them by filtering the many impulses (see left column of the visual) through four filters:

• Does this impulse relate to a megatrend (see for example, https://bit.ly/3rS8obJ )?
• Can we use our corporate assets to create an unfair advantage? Or, alternatively, is this an opportunity to build the capabilities that we will need (for example, Artificial Intelligence) and have our customers pay for it ?
• Is the emerging market attractive in the sense of Michael Porter's framework (see https://bit.ly/3ttSp4p ) ?
• What would be the decisive positions in the future market's value chain / ecosystem? Is there reason to believe that we could achieve this?

And which assets and capabilities should I look at?

Of course, there is no one-size-fits-all statement. But often, a company has more bases to create an unfair advantage than it thinks. Apart from funding, you may want to look into 6 categories:

• Operational and functional capabilities such as Sales and Supply Chain Management
• Advanced expertise and know-how such as deep market insights or how to model risk and fraud detection
• Growth-enabling capabilities such as large-scale contracts or access to interim mangers that fill capability gaps
• Privileged assets such as brand, access to customers or points-of-sales in great locations
• Technology and IT that the new business could use
• Transactional data to train Large Language Models (in the AI context)

What comes next

This 8-part series designed to offer you valuable insights into achieving excellence in early-stage new-business building. Upcoming topics include:

• When is an idea a ‘meaningful idea’?
• What is needed to have a solid business foundation?
• How to validate a ‘meaningful idea’ in a corporate context?
• What to consider when arranging structures, funding and governance?
• What exactly is the role of Leadership in the new-business context?
• How could the innovators handle the main objections when we call for a change?

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