Now, let’s get into it!
Shot 1. Comparisons to large business
Let’s start with the classics. This one is based on human psychology, so it never loses its relevance.
Say, you are a good company with new products or startups. Therefore, you are not a newcomer and your team has been working for a long time, since you built such a large and successful business. At some point, your team members look in the mirror, at other startups, back in the mirror, and there comes the realization: they don’t like what they see.
“Why does our startup have no established system for sales? Why is our marketing ineffective? Also, the reporting is not up to IFRS/MSFO standards, and the management system is subpar — no clear KPIs, no system of incentives.” Conclusion: everything sucks. Such a product won’t survive. It must be closed NOW.
Some of these points might be true. But one thing is commonly overlooked:
- A company that has a clear management system, reporting, and processes is not a startup. It’s just a successful or established business.
Shot 2. Financial metrics
The creation of any new product or company is divided into 2 stages: before reaching Product Market Fit and after.
But Product Market Fit is an abstract thing, no one can say for sure if you hit it. In general, it’s the moment when you have validated your business model. You’ll get Product Market Fit when you find a niche in the market, discover channels to reach new customers, and learn how to make them satisfied and willing to repeat their orders.
Here’s the thing: if a startup hasn’t reached its Product Market Fit, it makes no sense to call it out on its financial metrics. They may be complementary, but certainly not the basis for decisions. After passing this milestone, however, it is crucial to treat financial metrics as the ground for making decisions about a startup’s future.
The most common trouble is when a startup has not figured out its business model, customer acquisition tactics, and retention, but the management is already wondering, “Where is the growth?” And if it’s not there, the project might get closed. Don’t do that!
First things first: stabilize your product metrics and confirm who needs your startup, where you can acquire customers from, how you can retain them. Then you can think about growth and money.
Shot 3. Shared processes. Legal restrictions
If a product is developed within a corporation while sharing legal entities and services with it, then a startup shares not only costs, but also risks.
For example, a small company can put the entire holding in a huge trouble for mishandling of personal data. If these two companies are one legal entity, they will be held accountable as one. Whereas the attitude towards mistakes of a separate small business would be much more forgiving.
There’s one more thing I want to say about shared processes. If you are a large company with fine-tuned workflows, you might be thinking: why not throw some new projects into the mix? In theory, you can do it. But in practice, your processes are a completely different thing. For years, you’ve been adapting and optimizing them for the needs and risks of the core business. So this approach most often leads to suffocating or at least slowing down the new product/company.
If possible, the product should have its own processes and its own legal entity.
Shot 4. The cycle of changes in strategy
Building startups takes time. The company must accumulate a fair amount of problems and ways to solve them. On average, it takes 18 to 24 months to create a product and grow it to something decent.
Unfortunately, during that time, the strategy of the parent company can change. So the previously-supported projects are not needed anymore. It will take another 1.5–2 years for new projects to appear and draw a corporation’s attention.
In addition to changes of strategy, another common problem is changes in leadership. Might be a new CEO, board member, or a whole decision-making team — either way, it boils down to this: the parent company no longer wants whatever was in the works of their predecessors. They need something else. But again, developing it takes time.
It’s not uncommon for companies to go through this cycle again and again for decades without creating anything noticeable. Not because they failed to but because in those conditions, it was doomed from day one.
Shot 5. Expectations of scale and growth: quickly, without investments
Let’s imagine that we have a big company. It is not interested in small, humble projects. It wants unicorns that one can see in the holding’s P&L from afar.
There are two troubles here. Problem number one repeats the point above: it can take 1+ year to grow a startup to the desired scale. Not everyone is willing to wait that long. Problem number two: when a company is obsessed with creating a super-cool project that will be better than anything present in the market, it misses an important thing — the amount of investments needed for such growth.
For example, our imaginary company has a competitor that burned through $50M of capital to get where it is today. If we are eager to create a strong analogue, we need no less and often 2–3 times more money. But it’s scary to take risks and invest $100M, right? We would be more comfortable with investing little by little, hoping that one day, our unicorn-wannabe will miraculously happen to make a hit. So we keep feeding the parent business because it’s understandable and safe, even though it slowly becomes outdated with each passing year.
When launching a new business, it is naive to expect that it will grow faster than its market. For this to happen, you need either a strong advantage over your competitors (which is rare) or a lot of money. Most often, corporations provide a teeny-tiny amount of funding while expecting unprecedented growth. But it’s as realistic as the realm of fairies.
Shot 6. Lack of internal customer
It’s quite a simple thing, but it kills new products on an annoyingly regular basis.
You should avoid at all costs such scenarios where a corporate startup, product, or initiative does not have a customer within a company. They are crucial because they need your project and are ready to look after it, supporting you with resources and expertise. Even if you managed to build something good without an internal customer you might as well start looking for a place in the graveyard of corporate initiatives.
Any project or process in a corporation must have an owner, a beneficiary. If your product managed to survive but then found out that no one in the company is interested in it, that’s it. This is the end.
Shot 7. Low tolerance for mistakes and risk
If you want new products, startups, and initiatives, you must have a culture of error tolerance. If you are working on something where you know the answer, then it’s not innovation — it’s a routine. Anything new always walks on the edge of your knowledge and expertise, which means that the mortality rate is high and there will be many mistakes.
If you are not ready to accept it, consider saving your resources. Do not get involved in the creation of something new. Your path is M&A. Buy innovative products when they are developed, safe, and already calculated.
Shot 8. Being blinded with success and expertise
Sometimes corporations believe that if they succeeded in something once, it means they know how it’s done and what consumers need.
Corporate management usually consists of intelligent people with good tracks — otherwise, they simply would not end up at the top of their corporation. But their success was often in a different industry, at a different time, in a different segment. One can think that it doesn’t matter. Or does it?
Alas, more often than not, a person that can sell aircrafts to nation states will not show good results with selling B2C services for house repair. A person who is phenomenal in chess will not necessarily be a genius in everything else.
It’s the same thing here. Top managers should remember that they are not gods. There’s a lot they don’t know. Instead of forcing product teams to cater to their ideas, top corporate leaders need to study their suggestions profoundly. This is bound to show better results.
There is a good rule for resolving disputes. It doesn’t matter how high in the hierarchy people are. If there are data, figures, and facts, then they are more decisive than a person’s opinion. In the absence of data, the decision is made based on intuition of the person who is higher in the hierarchy.
Shot 9. Treating employees like slaves
Honestly, this point speaks for itself. Despotic employers scare away innovation. Truly innovative products and companies can only be created by employees who have a choice and a freedom to act. Work slaves have no free will and only act as puppets for authoritarian leader. So by definition they can’t be interested in dealing with tasks when they have no say in it in the first place.
To treat your employees fairly, you need to encourage them to proactively choose working for you. They need to be interested in their results and see how their contribution changes the company. You also need to pay fair salaries (as assessed by external parties, not you).
By the way, you can learn more about shares and incentive systems from this article.
Head shot. Why bother?
I often see how people open labs, incubators, startup studios, accelerators, venture funds, project offices, R&D departments, and so on and so forth… And then they pause to think, “Wait, why am I even doing this?”
There are different goals. For example, you can
- Create new products to complement the core business
- Build a separate company for diversification
- Earn money, simple as that!
- Relieve the development team of its load
- Launch an HR project to attract talent
- Launch a PR campaign to show how hype you are
- Do an IPO or buy out other companies during IPO
- Make money on capitalization, stocks, net cash
- Secure your core business
This is probably only 10% of the possible options. Each has its own models and innovative tools that determine your strategy of creating, developing, and scaling a startup.
First, you need to clearly understand your goal. What do you want? How will you make money on it? How will you finance it? Who will manage everything? And only then can, together, you choose the tools and formats to build something new.
This is your strategy. Tools are tactical. All you need to know about their difference was said 2,500 years ago by the Chinese military strategist, Sun Tzu:
“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.”
Good luck on your journey towards innovation! Don’t abandon your dream. Remember: when you are building something new for the future, you are building what will become your Here and Now in 2 years.
Without the future, you are doing nothing but dying slowly. I hope it’s not your goal.