Grow or die. It’s a common enough business mantra, but easier said than done.
How can established companies create and launch successful new growth ventures?
We spoke to Dr. Marc Sniukas, a global expert on strategic innovation and corporate entrepreneurship, author of The Art of Opportunity, and cofounder of The Business Model Gallery, to find out.
Two Approaches to Growth – and Why Both Are Failing
In Marc’s experience, companies can be divided into two groups based on how they approach growth.
The first group rely on the more traditional approaches like selling more of the same through aggressive pricing, entering new geographical markets, expanding their product range or via mergers and acquisitions.
“I wouldn’t say that these things don’t work anymore – it depends on the context – but what I increasingly hear from people is that these traditional approaches have their limits,” says Marc. An example: the head of strategy at a French industrial company told Marc that although in the past the company has grown through mergers and acquisitions, they now need to find new ways as there is nothing they could buy that would have a significant impact on their revenue at this point.
The second group of companies are trying new approaches like design thinking, business model innovation or lean startup.
But, says Marc, these approaches don’t necessarily succeed in creating new million dollar ideas for existing companies.
“IBM has been very strongly trying to go into the design thinking area, hiring 1000 design thinkers. The CEO has been very keen on emphasizing that she wants to see ideas that will generate a billion of revenues within five years,” says Marc. “But they are still struggling to find these growth businesses although they do design thinking.”
So why are companies struggling? Although promising, most of these approaches have not been developed for the task at hand – creating new growth – and not for the particular contexts and challenges established organizations face.
Sometimes it’s because the approach they’re using isn’t a good fit for their business or industry. Marc points to the example of Ravensburger, a German family board game and puzzles producer, who has been trying to add a digital component to their traditional, analog business for a number of years.
Despite using agile, lean startup and design thinking, the move to digital has not been easy. The company found that even building a minimum viable product for app development can be a significant investment, seeing as they are an established brand and unwilling to put out a low quality product that might damage their reputation.
As well, trying to merge the traditional and the digital using lean has proved problematic. For physical products, the lean startup “build-measure-learn” approach does not work well, because of the production process.
“These products require moulds, which are one of the most expensive parts in the production process. Once you have the mould, you can’t iterate on it any longer. It’s there and then also once you start production, you are likely to do thousands of units. It’s not something where you just do 100 units and then you can change the production again and do something else. There are limits for using these methodologies,” says Marc.
GV – the venture capital arm of Alphabet – notes some of the limitations of the “launch and iterate” model as well:
“You may start with a bad idea (obviously you don’t know it’s bad yet). Building it takes longer than expected — it’s tough to fix all the bugs, make sure it works in production, and get the details right. It’s difficult to “un-launch” a feature, especially once you have people using it. Real-world results are rarely as clear as you hope. And there’s always the temptation to move on to the next shiny object instead of diligently iterating on the original idea.”
But if not only traditional growth methods have limits, but also so do approaches like design thinking and lean startup, what’s a forward-thinking company looking for growth to do?
Opportunity comes knocking: a Human-Centered Approach
The Art of Opportunity, Marc’s book co-written with Parker Lee and Matt Morasky, attempts to address this very question: how can established companies successfully create new growth businesses?
“It starts first of all with understanding the customer and the non-customer and trying to figure out what is really the need,” says Marc. What’s behind their motivation when choosing a product or not choosing a product?
“You are trying to formulate a problem statement. Say, this is what we are going to solve for.”
This human-centered approach is key, says Marc, and can be more successful than other approaches, pointing to evidence from an annual innovation study by Strategy&, PwC’s strategy consulting business. The 2007 study identified three different approaches to innovation:
- need seekers, who engage with customers directly to inspire new ideas
- market readers, who focus on incremental innovation using a second-mover strategy
- technology drivers, who use R&D to drive breakthrough and incremental innovation
“What the study actually says is two things. The first thing is that each of these strategies can work, but they require different capabilities and a different organizational system. But the second thing they say is that the ideas the need seekers come up with – using this human-centered approach – have a higher degree of innovation and these innovations are more sustainable in terms of financial returns,” says Marc.
Once you understand the needs of your customers and non-customers, you can discover opportunities for growth.
“Usually or very often if you have a very good understanding of your customer’s problem, the solution is self-evident. At least what you do is self evident. How you do it then might be more difficult, but usually you don’t need a lot of ideation because you have the solution already.”
Then, companies can look at designing for these opportunities. Marc recommends taking a holistic approach to defining your offering – including products, services and the customer experience – and then combining that with your business model and your revenue model in order to develop a strategy.
But instead of following the traditional approach of analysis-planning-implementation, or the lean startup approach of build-measure-learn, Marc advises validating your idea long before you start building by first designing a rudimentary version of your product or strategy.
Think in terms of a prototype instead of a minimum viable product.
“Google has their design sprints where they have a week to work on something and then on Friday they show a prototype to customers. It’s not the minimum viable product. It’s really a prototype. It could just be a screen shot, a mock-up, or even a simple drawing or something like that,” says Marc.
When German media company Pro7 decided to move into a new business area – TV advertising for start-ups and small- to medium-sized companies – they put out a press release before they had spent much time formulating the details of the idea. There was no contract for new advertisers to sign, and the company really didn’t know what this new business would look like for them.
“I think the important thing here is, the difference from lean, is that there is nothing. You really haven’t built anything yet,” says Marc.
Three Phases for Growth (Don’t Rush)
Validating your opportunity and putting out your prototype is part of the Inception Phase, the first of three phases that a new growth business goes through, according to The Art of Opportunity.
The second phase is called the Evolution Phase, during which you develop the next iteration: you act, you learn, and you keep on designing based on the information you gather.
According to Marc’s research, the first two phases often take about two years. He admits that though the companies in his research proved successful with this approach, it can be a frustrating period. “Most of [the companies from the research] struggled and had their doubts about if it was going to work out. What was really important was to have key people who really believed in it and kept on pushing it,” says Marc.
After you go through several cycles of this, your strategy should be ready to roll out on a larger scale. This is the Diffusion Phase, which is all about scaling up your business.
Though it might be tempting to put all this innovating into a dedicated business unit, Marc advises that you don’t rush into that.
“With Pro7, according to traditional thinking and the prevailing common sense, they would have needed to build an organization to be able to do it and test it which is something that they did not do. They used the resources they had internally and only once they found an idea that was working well enough to justify building a dedicated organization did they shift.”
Taking this approach also means you don’t need to worry about reintegrating the new organization with the existing company, something that many corporates have struggled with. For example, eMobility is an Austrian startup founded by the Austrian national railway company. The goal for the startup was to develop mobility solutions beyond the railways.
“They are struggling now with bringing the startup back into the corporate because you have completely different cultures. It has been somewhere as a completely independent unit and these guys just operate completely differently than the traditional corporate highway.”
Traditional approaches have their limits, especially when it comes to the changing marketplace and the experiences of businesses today. By taking a human-centered approach, validating early and then actively iterating as needed, you can find new growth opportunities and scale your business.
Interested in understanding how this works for your organization? Marc Sniukas is hosting an online session on “The Art of Opportunity” on 20 October 2016, 11:30am London time.
Based on his research of companies that successfully build new growth businesses, reaching revenues of 1 billion within a couple of years, Marc will outline the necessary steps in the volatile and fast paced business environments of the 21st century.
Together we will look at the journey these companies took and extract a roadmap and the lessons learned, which are valid for, and can be applied by any company, no matter how young or old, big or small, and irrespective of the business domain or industry.