According to a recent study by McKinsey, new business building is a top priority for organic growth at companies. New business building helps to:
– Build new revenue streams
– Meet shifting customer behavior and expectations
– Protect against industry disruption
– Increase organizational agility
– Modernize the technology architecture
to name but a few of its benefits.
But new business building is also very difficult, and most organizations are not good at it, as they lack the necessary skills.
How does new business building actually work? Consider the case of ProSiebenSat.1, Germany‘s leading TV media company.
Taking calculated risks
When Thomas Ebeling became the new CEO of ProSiebenSat.1 Media AG (Pro7), he faced a familiar problem: how to grow the business. Pro7 was the leading media company in the German TV advertising market with a core business of free TV financed by advertising. Ebeling’s challenge was how to grow the business and achieve the target of plus EUR1 billion in revenues by 2018, going from EUR2.4 billion to EUR3.4 billion. Resorting to traditional strategic moves, expanding existing businesses and offerings, would certainly not do the trick.
Pro7 crafted a unique strategy for a new business area making TV advertising available to startups and small- to medium-sized companies. These were two customer segments that traditionally couldn’t afford TV advertising, and were seen as unprofitable by the industry. One year after the new business had been launched, it had already generated EUR20 million in profit. Five years later, Pro7 had achieved tremendous success with its new strategy. The strategy had in fact worked so well that Pro7 decided to increase the revenue target from plus EUR1 billion to plus EUR1.85 billion until 2018. This almost almost doubled its total revenues.
As business professionals and scholars, we admire achievements like these. We wonder how Pro7 tapped into new markets and developed new business areas. Finding and seizing opportunities for new growth is, after all, the holy grail of business! And if Pro7 didn’t use traditional growth methods, exactly how did it arrive at new offerings, complete with innovative business models and revenue models to reach entirely new customer segments?
To create innovation, growth, and new markets, companies reframe how they think about strategy. But not only that: they change their approach to the task of developing and implementing new growth strategies.
Finding new opportunites
As an alternative to seeing strategy as a way to position your organization as a low-cost company, or using it as a way to differentiate your company from competitors, growth companies focus on discovering opportunities. These opportunities arise from looking at customers and non-customers, their needs and customer experiences, and the barriers to consumption and hurdles to satisfaction they encounter. By addressing the needs of non-customers in particular, and removing what keeps them from buying and having a satisfying customer experience, new growth is actually pretty straightforward.
Once these opportunities have been discovered, companies design their strategy as the combination of the offering (the products, services and customer experiences they provide), their business model (the activities they perform and how they perform them), and their revenue model (the combination of revenue streams, pricing mechanisms and payment methods).
By doing so, companies make sure their new strategy creates value for their customers, as well as their company and the ecosystem of partners they are embedded in. Only if the strategy creates value for all parties will it be successful and sustainable.
So, what now?
Instead of following the traditional mantra of analysis, planning, implementation, growth strategies evolve constantly. Successful growth companies discover an opportunity, design a first -often very rudimentary- version of their strategy, and engage immediately in business activities on a small scale.
They learn from these activities and use what they learned to further design the next iteration of their strategy. As they go through several cycles of acting, learning, and further designing, the maturity and sophistication of the strategy increases up to a point where companies start rolling out the strategy on a larger scale.
And this is how they achieve rapid and substantial growth.
If you want to learn more about efficient strategies for business building, you can watch our full webinar here:
Author of this blog: Dr. Marc Sniukas