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Defining the parent company’s role

Although the growth engine should function as a separate entity, executives at the parent company have an important role to play. It is critical for parent companies to first define success for each venture and then use these criteria to tailor the growth engine’s support across all three launch phases. To determine which ventures graduate from one stage to the next, C-level leadership must co-develop with the growth engine’s leaders a vision, investment strategy, and financial targets. This exercise should create a simple framework for ongoing assessment of each venture’s potential growth and strategic fit.

Governance is then usually delegated to the overarching venture-building layer, supported by regular performance check-ins with each business’s board (or proxy for earlier-stage start-ups). Trigger points for further approval on major decisions should be standardized by the parent company. This way, the governance is oriented around each venture’s major decisions while supporting the necessary incentives and ownership structure for the founder team.

Avoiding common pitfalls

As executives embark on their business-building journeys, they should be aware of five common pitfalls:

  1. No North Star. An organization with ambitious goals but an unclear vision and incoherent strategy often makes poor choices when it comes to choosing and prioritizing opportunities. After all, how can you tell which bets to make or how big they should be without a clear strategy for achieving your vision? As one survey respondent explained, “If the strategy is poorly crafted or articulated to the markets, then the expected return along with future investment levels will decline.”

  2. Soft measures for defining success. The organization may be able to articulate its goals, but its metrics for measuring the success or progress of a new venture do not reflect how that business is valued. In our survey, 44 percent of respondents stated that they don’t assign value to companies that cannot show hard evidence points, even if they demonstrate product innovation.6

  3. Ambitions of a start-up, culture of an incumbent. The single biggest challenge in scaling new ventures is getting talent and culture right.7 Too often, corporations expect unicorn-level success but are unwilling to implement the do-or-die incentives that encourage private founders to take the necessary risks. Similarly, without these incentives, the best and most proven talent is not attracted into the new business.

  4. Stakeholders first, customers second. The world’s 50 largest companies have close to 200,000 employees, on average.8 A workforce of this size creates an extensive network of stakeholders who can exert a significant gravitational pull on business-building efforts and slowly suffocate initiatives. For the most successful start-ups, the most important validation comes from the customer. High performers rely on the vision of founders while listening closely to customers.

  5. A focus on planning, not execution. Planning is important in any business build, but companies often obsess over creating a perfect plan. The path to building a business is never clear at the beginning. The only practical way to move ahead quickly and effectively is to have a broad plan that provides some basic structure for the team and leadership, and then execute through rapid iterations and adaptations based on what is learned from customers.

Article has been taken from McKinsey&Co please see the original article below:


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