What to Consider When Building Startups Adjacent to Your Core Business
History shows that businesses that are unable or unwilling to disrupt themselves become increasingly prone to disruptions from external sources.
In the digital age of proliferating software, this is becoming more apparent than ever before — many digital products experience less than a six-month lead time before competitors appear with copycat solutions. The importance of launching new business models is clear. But still, there are reservations:
Outthinker Strategy Network chief strategy officers (CSOs) from a range of industries gathered to discuss balancing the demands of the core business with the need for innovation. From alternative metrics to structure and culture, here is what they shared:
Building Startups Adjacent to the Core Business
1. Look for new ways to use existing resources
In many cases, challenging circumstances can lead to new lines of business. One CSO recalled when a new federal regulation made a long-held pricing model obsolete, posing a major revenue risk to the company.
In response, the company assessed their existing resources and came up with three methods of repurposing them into new lines of business, including data distribution (the company had 30 years’ worth of industry data and had never considered packaging and selling it) and a national partnership strategy, where internal resources and infrastructure were extended to partners in new markets.
2. Set unique metrics for new startups/lines of business
Companies used to recording regular profits often struggle to evaluate startups, which may take years to turn profit, if they ever do. Rather than applying the same metrics from the core business, strategy officers should evaluate startups according to alternative metrics.
For example, a startup whose main purpose is R&D may have an indirect profit impact. Thus, direct profit metrics should not be used as primary indicators of success — a more nuanced metric is required.
3. Tap into external talent
Companies can either found their own startups or take ownership stakes in external startups. The internal approach comes with the benefit of full ownership but the drawback of a long growth lifecycle, where resources will need to be diverted away from the core business for years before the company becomes profitable.
The external approach has the benefit of founders who are dedicated to bringing their ideas to fruition. Tapping into external founder talent can be a major boon for companies looking to bet on disruption.
4. Nurture cultural change
Strategy officers emphasized the need for top-down support (rallying cries from the CEO), champions throughout the organization, a detailed plan, and incentives for teams and individuals to participate.
Some also recommended that dedicated individuals and/or teams act as intermediaries between startups and the core business. A “steering committee” can be useful for debating the viability of new ideas before they reach the CEO. People who speak the language of both the core business and the new ventures will be key to these groups.
Ultimately, launching startups adjacent to a core business is a delicate balance of culture and structure. When pursued and established correctly, they can be a means of protecting the core business and expanding into new markets. Companies must consider resources, metrics, talent and culture aspects to give new ventures the best possible stewardship.