Knowing when to pull the plug - part 2Mar 28, 2022
With any corporate venturing program, one of the most important factors that will determine financial returns is the ability to stop investing in projects that simply won’t work out at all, or will be inconsequential to their parent company, even if they do succeed. Here’s Part 2 of a set of questions to revisit when evaluating your portfolio of new ventures.
7. An offering has unexpectedly been introduced into the market that solves the same problem we do.
Sometimes, the reality on the ground is that someone else has seen the same problem or opportunity and moved on it in a way that makes your offering, if not obsolete, at least a lot less desirable than it might have previously been.
The reality is that very few new ventures, whether created by corporations or by startups, are unique in perceiving a problem to be solved. Just take content streaming. While firms like Spotify and Pandora have made a success of it in music, there are dozens of other firms with groovy names like Rdio, Grooveshark and Crowdmix that didn’t make it.
8. Customers are reporting that a cheaper or lower quality product is “good enough.”
The challenge here is that in the early days of many product categories, volumes are so small that unit economics are incredibly challenging. A new offering, therefore, has to be so irresistible that customers are willing to dig into their wallets to get hold of it. Unfortunately, such deep forms of differentiation are not always easy to pull off.
Your competitors may have different motivations than you do in their pricing, or a cost structure that permits them to charge less at a profit. A poster child for this is Costco’s “Kirkland” line, which covers an astonishing array of goods and is giving traditional consumer products companies a run for their money.
9. A major potential customer has chosen a technological standard that we can’t support
Sony famously lost out to VHS. Circuit City spent some $330 million trying to promote the adoption of a proprietary alternative to the DVD, the DIVX. Blu-Ray, a technology promoted by Samsung and other manufacturers won a pyrrhic victory over HD-DVD, only to see its advantage buried by the rise of streaming. If you are starting to see signs that you are not riding the winning horse in a standards battle, that’s a strong signal to stop.
10. We have learned that we have no way to protect the intellectual property developed in this project
As all kinds of entry barriers come down, intellectual property protections are still one good way to preserve an advantage. Not having the capability to make the claim that the idea was yours can simply teach competitors that there is a market, free for the grabbing.
A sad example of this is the fidget spinner, invented by Catherine Hettinger in the 1980’s and patented in the 1990’s. Sales never took off the way she had intended, and she allowed the patent to lapse. The idea didn’t die, though, and entrepreneurs jumped on the chance to make the things.
As one article reported, “the Fidget360 had a spectacular rise, sparked by Allan Maman and Cooper Weiss, a couple of 17 year-olds using a 3D printer and promotion via Instagram and other social media. For a few months, it seemed that Maman & Weiss’s colorful plastic toys were everywhere. And they were – because shortly after the Fidget360’s ascension into trendiness, hundreds – nay, thousands – off knock-offs appeared in every toy aisle, every impulse-purchase rack, and every digital corner ot Amazon Marketplace and eBay.” Without a patent, anyone could make them, and apparently, lots of people did.
11. Our strategy has shifted in such a way that this project is no longer a good fit
A project begun under the auspices of one strategic regime may well find itself out in the cold in another. Nokia’s near death, burning platform experience as it confronted the rise of competing smartphones led to the fire sale of the handset business to Microsoft and the decision to focus elsewhere.
While it astonishingly is still in the phone business, the main ingredients of Nokia’s turnaround are to lean into networking and telecom infrastructure as 5G telecom products are being rolled out.
12. We have basically run out of funding to continue this project
Sometimes, companies need to make hard choices about which ventures to continue and which to truncate. Even deep-pocketed organizations can find the cost, even of a technically feasible project, is just way too much.
While it is hard to know from publicly available materials, Google’s Loon Internet Balloon venture strikes me as a candidate for this issue. Astro Teller, head of X, said that, “despite the team’s groundbreaking technical achievements over the last nine years, the road to commercial viability has proven much longer and riskier than hoped.” A source reportedthat the project was burning through $100 million a year, which after nine years is a lot of money.
So there you are, some questions to stop and consider as you think about whether it is still worth it to continue with your venture. And remember, deciding to stop without throwing good money and talent away from a pending disaster is a courageous move worth making.
Learning More – on line and in person
We have now launched a set of learning modules around the theme of discovery driven planning and customer insight. They are short, on-demand, based on great research and experience and available now. You can experience what they are like with our demonstration module, which contains two short lessons from my book “Seeing Around Corners.” A link to the demo is here: https://www.valize.com/hub
We’re also getting great uptake for my weeklong “Leading Strategic Growth and Change” course run by Columbia Executive Education. A week to learn about the skills and tools to venture confidently into new spaces. More information here: https://rita-mcgrath.mykajabi.com/lsgcprogram