Building new businesses: How incumbents use their advantages to accelerate growth
By Matt Banholzer, Markus Berger-de Leon, Ralf Dreischmeier, Ari Libarikian, and Erik Roth – For large companies, building new businesses is essential for growth and reinvention. The key to success? Combining the strengths of an incumbent with the agility of a start-up.
With each passing day, established companies encounter valuable opportunities to grow and innovate—along with intense competition, which has made it harder than ever to stay on top. The companies listed on the S&P 500 index have an average age of 22 years, down from 61 years in 1958. One factor that sets winners apart is their ability to build successful new businesses repeatedly. According to our research, six of the world’s ten largest companies might be called serial business builders, having launched at least five new businesses during the past 20 years, and two more of the ten have built sizable new businesses.
This isn’t a coincidence. Established companies possess talent, funds, market insights, intellectual property, data, and other assets that can give their new businesses a decisive edge over stand-alone start-ups. Providing access to an existing customer base, for example, can lower the cost of acquiring customers and speed their uptake, thereby putting the new business on a faster growth trajectory. When established companies develop the ability to integrate their assets with tech-enabled business models, they can continually generate new businesses.
Doing so well requires four elements: strong CEO sponsorship, carefully structured relationships between the parent company and its ventures, the discipline to fund new businesses as they test and validate their ideas, and a skillful business-building team.
Business building is no longer a choice: it is an essential discipline that lets incumbents counter disruptive challengers and sustain organic growth. New businesses can also serve as proving grounds for agile and design thinking, so an incumbent’s executives can gain exposure to these practices before introducing them to core businesses. more>
- The innovation commitment, Daniel Cohen, Brian Quinn, and Erik Roth
- What does it take to help a new business take off?