In the first part of this story, we looked at how businesses can grow new businesses.Now we look deeper with Dirk Simon into how companies can go about this, what to do, and what not to do. I asked Dirk how companies should determine how much to invest.“In diversification significant investments should only be approved after successful reality checks.
Furthermore, the diversification can be advantageous for the company, and also for direct customers, or for the customers of the direct customers, or down-the-value-chain for the consumers or even for the society or population.These advantages can generate the willingness of third parties to help the company in its diversification.Therefore, the decision on the level of investment relates to the decision down-the-value-chain to jointly invest in this approach of new products for new markets.
Also public funding can play a role here.In other words, the diversification strategy of a company involves open innovation, with projects with other companies and optionally with academia.” Illustration of the Dunning-Kruger effect, showing the relationship between self-confidence and knowledge.Image courtesy of Dirk Simon.
OK, so what kind of new project would Dirk start? “I like to answer opposite question first, which I find more important: What kind of projects should a company not start? I have seen several diversification projects, which were started because the boss believed in this, by gut-feeling, or by trust in the opinions of the New Business Development Managers.Many failed or had very small and late ROI.The rush to start such projects can be explained by the Dunning-Kruger effect: self-confidence is high while knowledge is small.
Therefore, before investing it needs answers on a set of questions, with understanding what the company doesn’t know, and classifying information into validated knowledge and what we ‘believe we know’ derived from a certain rationale.” I like the points laid out here.It seems crazy, but I’ve seen so much work being done on what is basically a hunch or a feeling.I’ve seen considerable amounts invested because “Bob feels that this is the way to go.” On PowerPoint and in Excel, everyone seems rational, but when it comes down to brass tacks, much of the business world is governed by emotion, cliques, and personalities.
Sometimes, on the surface, something looks well thought out, but it ends up being a tarot reading.And getting to the roots of these beliefs, thoughts, and mantras that live in companies is so important.Asking where knowledge and ideas come from is a great way to get to a more truthful basis for reality.
Also, which questions need to be answered? Dirk Simon Dirk says “This depends certainly on the company’s position in the value-chain, the business model and also on the NBD-idea.I can give you a general response of which questions should be addressed before the substantial investment decision: Strategic fit; this is most important, i.e.the fit with the company’s strategic intent Fit with megatrends, in economic terms, but also socio-political Level of innovation required for serving the new market, technically, with the potential of generating IP, and also regarding the business model (who will pay for the product), and the requirement of attempting business model innovation in parallel Value of the new product idea in the new market compared to the next best alternative approach to solve the assumed market need; describing how to perform a reality check without significant investments Outlining the potential interests of partners to enter joint development agreements, with co-financing the diversification project; including the idea of how to generate a market pull “The art is to find at least indicative answers to such questions without becoming an expert in this new market.
When a company starts a diversification, often many NBD-ideas are generated, and it’s impossible to become expert in all these new markets.Moreover, gaining market intimacy doesn’t work theoretically.In other words, companies gain real deep expertise by actively selling products into a market.” Megatrends sound boring, but all the numbers will fall into place if your orthopedic implant idea coincides with a time when people live longer, want to be more mobile, want to move more, and can afford these implants.
You can make a small paper sailboat and end up in an ocean or a puddle, or make a meter-long ketch for a swelling ocean.A lot more people will come along for the ride if they see the stars aligning, too.Many people focus on the business model, but in this case, looking more broadly at partners’ interests and the broader market really makes a difference.
You don’t want to end up with an imagined value chain needing to fall into place around something that simply isn’t in their interest.So if Dirk was doing this for himself or a client, to what would he pay particular attention? “As I find the strategic fit most important, I prefer to start with the strategic analysis of the company.I developed a holistic approach, which I call the ’37Q.’ It needs the answers of 37 questions from the company, and from some of its suppliers, peers, competitors and customers.
These answers are analyzed deeply.This strategic analysis is the basis for elaborating company specific next steps.“As an example, what I have done with one of my clients is to understand how megatrends can disrupt existing end-products and value-chains, and how the company’s strengths can help in these disruptions.
This is a top-down approach to generate many NBD-ideas.“Bottom-up, I analyzed the scope of the existing technologies of this company, and how advancements of these technologies could be of interest in markets new to this company.Based on client specific constraints, I described four target markets for its diversification.
Currently, I’m working to get some validation that these markets will need such products, and which downstream partners might be willing to co-invest, and describing how sales can be generated within two to three years.” I too have a questionnaire; maybe it’s like a consultant thing? I like the idea of looking at strengths and megatrends in combination.I can really see how this could quickly lead to applicable ideas.From that lens, you could start with some strong discussions around competences that could matter in the end product.
And often people don’t really believe anything will change, but taking them on a journey to see how things could become completely different seems valuable.I really like Dirk’s systematic approach to New Business Development.I think we need a lot more system and a lot fewer hunches when it comes to growing new businesses.
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