Why it’s Important for Big Companies to Regularly Launch New Ventures
As Steve Blank said, “A [big] company is a permanent organization designed to execute a repeatable and scalable business model.” Simply put, this usually boils down to, “Do more and sell more of the same.” Big companies have cash cows and milk them as much as possible. This makes complete sense. It’s hard to argue against doing what’s worked for as long as you possibly can.
But the problem emerges when cash cows start to dry up. Nothing lasts forever…and when performance in a core business starts to drop (reflected in revenues, profits and other key benchmarks), big companies struggle immensely. That’s where new ventures become mission-critical. Even the most successful tech companies, like Google — huge disruptors themselves — work to reinvent themselves and create new lines of business beyond their core.
What is a new venture?
I don’t think of a new venture as adding features to a core product. I don’t think of a new venture as modifying a core product into something “new”, or even working on something adjacent (e.g. a computer manufacturer selling peripherals.) A new venture is about finding new business models to service customers (existing ones or new ones.) Steve Blank defined a startup as, “a temporary organization designed to search for a repeatable and scalable business model.” A startup (or new venture) is temporary because it’s mission is to find precisely what big companies have: a repeatable and scalable business model. Once that’s discovered, a startup ceases to be a new venture and becomes an established organization. The other critical part of the definition is around business models — if your goal in creating new ventures is to sell additional products to the same customer in the same way, it’s not really a new venture that can transform your organization to survive beyond its core value proposition today.
Startups fail a lot. The same holds true for new ventures instigated by big companies. For startup founders this is incredibly tough — all their eggs are in one basket. When a startup fails, the founders have to start from scratch, and they’ve usually sacrificed a great deal personally. That’s not the case for big companies. Big companies can launch many new ventures simultaneously and over time, and when some of them fail it’s still valuable, and the risk to the organization and its employees is minimal. For one, the learnings and insights gained in a failed new venture can be brought back into the core and into future new ventures. Secondly, the employees that participated in creating new ventures will gain valuable experience and training, which they’ll share throughout the organization. The key to leveraging failure in a large organization is to “fail fast” and not overly invest in something that doesn’t work. Historically, big companies over invest in things without validating them enough beforehand. This is why we’re seeing such a huge push for Lean Startup (and other methodologies such as Design Thinking) in the enterprise; we want to right-size the investments made in new ventures so the risk is minimized, and the upside (even in a failed new venture) is huge.
Increasing the frequency and pace of learning and insight is a key benefit to launching new ventures on a regular basis.
What other advantages are there?
- Staying closer to customers: Launching new ventures successfully means engaging with customers actively. That’s a core tenet of customer development and Lean Startup. You can’t launch new ventures properly, with any possibility of success, without talking to customers. And talking to customers is something big companies don’t do well enough. New ventures bring you closer to customers, which increases your level of empathy for them, gives you a chance to improve customer satisfaction, and learn all kinds of things.
- Identifying new markets: In the process of experimenting with and launching new ventures, there’s a good chance you’ll identify new markets to tap into that previously you hadn’t thought of, or couldn’t figure out how to access successfully. You might even discover new markets for your core business.
- Employee engagement: I mentioned this previously, but engaging your entrepreneurial employees in the process of instigating and launching new ventures will keep them more engaged and happy at work. And that will filter into the rest of the organization as well.
You can’t win if you don’t try. And although big companies at some point in their past were startups and won (in turn becoming big companies), they’re being actively disrupted faster than ever. The countermeasure to that is new ventures.