And as a start-up founder, you spend an inordinate amount of time fund-raising.
#Big business building series#
Start-ups don’t have that, so they don’t have access to five million or ten million customers.Īnd the second is capitalization, right? As a large company, not only can you fund the seed round, but you can fund the series A, B, C round. That competitive advantage could come in the form of distribution or unique access to customers, or it could come in the form of data or proprietary insight or some form of technology that you’ve developed where you have a moat or IP privileges around that. The first is you’re starting with some form of “competitive” advantage. Vaibhav Gujral: It’s much better than VC, right? And the reason for that, and to your point, the odds of success is, right, there are three things that are fundamentally different about large companies starting these ventures. It could be any initiative, right?Īnd the reality is the odds are somewhere in between, right? Our research shows that the odds of success of Fortune 500 companies or Fortune 100 companies investing in significant new business builds or ventures is about one in six, which is lower than the odds of, on an ROI basis, initiatives that you’re investing in as a corporate but is much better than the odds of success of the average. It doesn’t need to be a disruptive initiative. The way to think about the odds of success in these businesses is what would have the odds been if you were a pure start-up, starting this business in that sector, trying to disrupt the same business, versus what are the odds if you’re a large Fortune 500 company, investing in any initiative. So what do we know about the odds? And also what’s our advice to clients about what are the key things to try andīeat the odds of building a business and getting it to scale? So Vaibhav, I would guess that the odds of success at doing this are pretty low. So yes, it’s not just those sorts of frontline industries anymore.
Simon London: And to your point, it’s not just, you know, the usual suspects in the sense of e-commerce was in the front line of this-you know, publishing, those media-type companies are at the front line of this. Longevity as a successful business is correlated with the ability to reinvent yourself. If you’re an incumbent, you need to think about that, because if you don’t, and if you don’t invest in actually changing your business model, you won’t be able to participate when a new business model comes in. And at the beginning, they will be nascent, but ten years from now, those new models are going to be big. The implication of that is that new models are going to emerge, and they’re going to emerge in the next, you know, two to three years. Think capital and changes over time, but there is a lot of capital right now that goes into industries. The availability of technology to disrupt an industry is becoming faster and faster. The customer expectations are rising and changing very, very quickly. The second thing, I would say, is that the pace of change in many industries is massive right now. What they have done over the years, you know, to their business model. So think about Amazon, started in e-commerce, AWS, just as an example. The second stat is, if you look at the-six of the top ten companies in the largest companies in the world right now are companies that reinvented themselves. So, you know, companies come in and out of the Fortune 500 list much, much faster. The first is, 50 years ago, the average life span of a company in the Fortune 500 was 60 years. Ido Segev: I think the thing is to recognize that longevity as a successful business is correlated with the ability to reinvent yourself. There’s a lot of, you know, literature around this over many years, so maybe, Ido, you take a first whack at this. But people also talk about intrapreneurship within companies, corporate venturing.
We’re going to be talking about business building, I think is how we would frame it. Simon London: So this is in some ways not a new topic. Simon London: Vaibhav and Ido, welcome to the podcast and thank you for being here. Simon London speaks with Vaibhav Gujral, a partner in McKinsey’s New York office, and Ido Segev, a partner who specializes in digital strategies, out of Boston. But how do you build a new business within a business? It could be a new product or service, or maybe it’s the germ of an idea that could transform the entire company. With COVID-19, we’re hearing a lot about how companies need to reinvent themselves, or disrupt.
Diane Brady: Hello, welcome to the McKinsey Podcast.
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