How can Legacy companies build a new Digital business

Building new digital business

We read through the newspapers daily the long list of legacy companies being disrupted by fast moving new digital business.
Many legacy companies in order to withstand disruption are digitizing their legacy businesses and creating new enterprises.
Successful companies divide their capital evenly between transforming their core businesses and building new ones.

How legacy companies can emulate digital business

• Legacy companies have innovative ideas and also invest huge sums in research.They build incubators to get outsider perspective.Some companies also start their own venture funds and invest in startups.
• Inspite of all these, legacy companies struggle to compete against unicorns because of excessive institutional controls and their inability to scale up innovations.
• To overcome the scale up challenges and effectively respond to the threat of disruption, legacy companies need to reorganize their operating model for innovation led growth.
• Companies must establish an inhouse factory for building and scaling up disruptive businesses.This factory will provide the necessary resources and talent to help senior executives start new businesses and navigate the early stages of growth. This factory will be free of bureaucratic burdens that can interfere in the startup ways of working, but at the same time can take advantages of the parent company’s scale.

Understanding the gap between digital business and legacy companies

Startups innovate and scale rapidly compared to legacy companies. The new age startups typically exhibit some common traits. These are:

1. Startups target businesses with large market opportunities that can be unlocked incrementally, a technology model that takes advantage of ecosystems and clear plan towards attractive monetization.
2. Startups build their own technology stack from scratch unlike legacy businesses that are stuck with legacy IT.Their technology stacks are modular and startups can come up with a viable product in 3-4 weeks.
3. Startups founders hire talent that are comfortable managing uncertainty by following trial and error methods.They are open to failures and hence are risk takers.They attract the best talent and are able to provide them career rewarding opportunities.
4. Ability to learn fast is critical for startups because first movers and fast followers gain significant advantages in the digital world. Startups use agile methodologies to iterate their products over many test and learn cycles.
5. Startups scale businesses rapidly using agile methodologies and leverage low cost digital channels to attract and retain customers.Startups ability to iterate offerings and quickly acquire large number of customers is integral to winning market share against incumbents.
6. Startups offer incentives to their talent like equity stake to stay resilient and persevere. These rewarding opportunities help them to attract the best talent as these talent have control over their own destiny and can make a fortune when they really succeed in their engagements.

How legacy companies can replicate the digital business DNA?

• Legacy companies can scale new businesses by establishing a factory based model.This model will nurture portfolio of businesses by evaluating and shortlisting proposals, developing business cases, securing funding from parent company and then hiring a team of skilled resources.
• This factory should be independent and have experienced entrepreneurs hired from outside for building business cases, influential executives from within the parent company who shall serve as startup advocates within the parent company to navigate bureaucratic setups of the parent company and domain experts in disciplines like design thinking, software development, sales and marketing to support starups in their business.
• The factory approach should be devoid of corporate bureaucracy but at the same time should be able to take advantages of the parent company.

New digital business should be free from unnecessary burdens

• The new businesses should be autonomous and be free from any corporate burdens.
• They should be free from any financial pressure because startups invariably prefer market share over margins. If the startups are forced to provide short term returns on investments, then the startup will focus on making decisions that shall limit it’s long term prospects.
• The new businesses should be able to make quick decisions.The parent company should not impose any additional requirements on the new businesses apart from legal and regulatory requirements.
• The hiring decision should rest with the new business so that the startup can hire best talent from the market.

How to unlock parent company’s scale and advantages?

The new businesses can take advantages of parent company that normal startups do not have.

• The new businesses can gain access to existing customer base of the parent company. If the service offerings of the new businesses are complementary to the parent business, then the parent company can cross sell their service offerings to the existing customers.
• The new businesses can also access the existing IP of the parent company to build on their solutions.
• The new businesses can leverage on the brand strength of the parent company to win new customers.

Conclusion

• Legacy companies can emulate the agile and innovative culture of the digital business by setting up new businesses free of bureaucratic burdens but at the same time can leverage the benefits of parent company’s scale and know how.
• This approach can help incumbents to come up with fast growing business models which can sustain the digital disruption from new age startups.