|Every entrepreneur worth his or her salt knows the only way to continue to expand a growing business is by identifying new growth opportunities. |
Yet according to a study by the Corporate Strategy Board, the failure rate of these new growth opportunities is greater than 90 percent. The bigger and more well-established the company, the higher the probability it will mismanage the new growth opportunity, because management is either too risk averse, lacks the courage to make the tough decisions, has unrealistic expectations, or involves nonentrepreneurial managers in the process.
Conversely, the smaller and more entrepreneurial the company, the greater the tendency to look at the opportunity with rose-colored glasses and unbridled optimism, as opposed to realism. Larger businesses with greater assets can afford a few failures; smaller companies with limited resources can't.
Too many companies operate under the belief that if you keep kissing frogs (translated as launching many new potential growth opportunities), you are bound to eventually find a prince (translated as a winner). What a sad commentary on our business wisdom.
Although it is true that big business culture is a significant deterrent to the success of new growth opportunities, it is equally true that the 'rush-to-launch' mentality of smaller moreagile companies can be equally damaging.
Any company of any size considering a potential new growth opportunity should accomplish the following essential eight steps before giving serious consideration to actually launching the new venture:
1. Define the specific unmet need the new opportunity is addressing. Because consumers are actually purchasing solutions to needs rather than products, you should be able to clearly articulate the need you are solving.
2. Once the unmet need is identified, determine the potency of this need within your addressable market. Do you just have an exciting concept, or are significant numbers of your customers ready to purchase this new widget?
3. Do you have well-established competition (not necessarily in terms of the same widget but rather in terms of addressing this same need)? If so, how will you successfully lure satisfied customers away from them?
4. Have you completely and accurately assessed the barriers to entry? Entering a new market always involves significant costs and other resources, as well as the willingness to operate at a loss for an initial period of time. Do you have the financial resources to accomplish this?
5. Does this growth area complement what expertise you are already recognized to have? Bayer (of aspirin and health-care fame) is fighting an uphill battle entering lawn fertilizer markets, probably because consumers do not equate curing headaches and raising lush lawns as requiring the same areas of expertise.
6. Are your growth projections realistic? Are you projecting conservative growth figures, capturing perhaps one-half of one percent of the market your first year, with reasonable growth (not doubling annually after the second year)?
7. Do you have managers at the helm who are both risk takers and risk adverse? In other words, they should be willing to take calculated risks when the dangers are both identified and bounded, but at the same time they should be willing to walk away from a course of action if the failure odds are too great, rather than continuing to beat a dead horse. At the same time, are these managers sufficiently committed to lead the new venture through the rough waters that lie ahead?
8. Do you have a step-by-step written plan to launch the new business venture, including goals, strategies to accomplish the goals and an action plan to implement every strategy? If you ensure all eight of these tasks have been accomplished with excellence before the decision is made to proceed, chances are you will have far more princes than you do frogs.