Business building is at the top of corporates’ agendas.

A recent McKinsey report finds that eight in ten surveyed CEOs report new business building as a top five priority despite recent heightened economic volatility. And in 2023, this trend is likely to increase further.

Beyond the hype, are we seeing investments in "business building" paying off? What makes this approach different from other vehicles? Why can it be so hard for corporates to launch substantial new businesses?

As part of our recent The Innovator’s Handbook 2023 launch event, we discussed this (and more) with Frank Mattes (CEO at Lean Scaleup), Sean Sheppard (Managing Partner at U+), and Susana Jurado (Head of Wayra Builder at Telefónica). Here’s a summary of the conversation we had.

Business Building: Pros and Cons

50% of the S&P 500 from the year 2000 no longer exists. This means that corporates need to urgently find new ways to stay on the cutting edge. Earlier McKinsey research found that companies prioritizing business building perform better, grow faster, and are more resilient to volatility and disruptions.

Building new businesses seems beneficial for corporations in many ways: it can be the key for them to diversify revenues, grow organically, avoid disruption, and meet the needs of new and old customers rapidly. In general, business building allows incumbents to blend startups' agility and rapid growth potential with their resources and established wisdom.

“If our startups grow, we grow”.

In turn, the new businesses have much to gain from their relationship with big corporations. They typically get access to incredible assets such as customers, platforms, infrastructures, technologies, and networks of experts.

Susana shares more about Telefónica, a Spanish multinational telecommunications company that employs more than 100,000 people that has been investing in startups since 2006- for a total of 1000+ startups. Through Wayra, the Telefónica's Venture Builder, the corporate accompanies and supports its startups from ideation to founding. Telefónica's entrepreneurial ecosystem and expert workforce the new businesses have access to dramatically increase their chances of success.

Of course, there are some cons we need to consider. By definition, corporations don't have the same flexibility and speed as VCs, which is the reason why the new businesses have to comply with organizations’ pretty rigid processes and requirements. Furthermore, corporates don’t always know how to approach business building. So let’s focus on what companies need to do and set up to launch and scale new businesses successfully.

Business Building: Here’s How To Be Successful

Building a new business is not an easy task. Franks, Susana, and Sean share some tips for leaders looking to create new ventures.

Balancing the ‘Now’ and the ‘New’

According to Frank, balancing the 'now' and the 'new' is a must-have for every corporate that takes business building seriously. Obviously, any leader wants to maintain the ‘now’, keep the engine running, and deliver margin safely- “that's what they’re paid for”, adds Frank. Yet leaders should take care of the ‘new’ as well. In other words, balancing these two dimensions – the ‘now’ and the ‘new’ – is the trick for leadership to succeed at building businesses. Easier said than done.

Franks refers to leaders working in the running business and managing the ‘now’, like CEOs and CFOs, as the “red shirts”. They work with many ‘knowns’ (customers, value proposition, value chain, and partners), exploit the existing business, have short-term horizons, and focus on processes, repeatability, efficiency, and productivity to eliminate variance and mistakes.

On the other side, the "blue shirts" – e.g., heads of innovation centers, leaders of corporate startups, and corporate venture CEOs – look for new, repeatable, and profitable business models. They face many unknowns and have three to five-year horizons.

These two factions are under the same roof and typically don’t fit well together. They have different metrics and governance schemes: if the red shirts have silos and cross-silo committees, the blue ones prefer a flat and lean hierarchy. “The lack of collaboration between the reds and blues is one of the deeper root causes of the success rate to be only 10-15% for the new businesses”, affirms Frank.

And so, what does it take to balance the ‘now’ and the ‘new’? According to Sean, it all starts with onboarding the right people and giving them space to work differently. More on this in the next paragraph.

Onboarding and Empowering the Right People

It’s no secret, business building is a team effort. And so, you need to have the right people with the right skill set, entrepreneur experience, mindset, attitude, and behaviors onboard. If Frank refers to them as “red shirts”, Sean calls them "stage-relevant people".

“Many people in large organizations love to optimize and grow what already exists. But you actually need people that love and have a real passion for taking something someplace new, whether that's an existing thing to a new market, a new thing to a new market, or a new thing to an existing market", adds Sean.

“Their role is not about filling out canvases. They must go out in the field with a scientific attitude, willing to burn the midnight oil to spot new opportunities”, says Frank. And Sean replies: “they must have an ‘ownership mindset’, not an ‘employee mindset’. Only people with an ownership mindset are 100% committed to what's going on, can embrace ambiguity, love the new, and have a growth perspective”.

However, entrepreneurial-minded people don't necessarily want to work in a large organization as these are usually slow, heavy, and too bureaucratic. To attract and retain them, business leaders need to set up a safe space, a ‘bubble’, where they can move quickly, cheaply, and quietly while testing their ideas and learning from these experiments.

Aligning With the Corporate Strategy

Last but not least, every business building initiative needs to be aligned with the overall strategy and priorities. Otherwise, it won’t address the corporate's fundamental needs nor create value and is likely to fail.

"When there's no clear objective of what and why you're pursuing a specific business building initiative, it usually fails".

And according to Frank, this alignment has to start as early as possible by answering crucial questions, including: what kind of innovation are we targeting? What's our objective, and why are we trying to reach it using the venture Building approach?