If a traditional enterprise needs any incentive to “go digital,” there’s plenty to learn from what the tech monopolies are doing. Facebook, Google, Amazon, Uber, and other giants have become platform conglomerates, successfully spinning out multiple high-value platforms from the original brands.
How can companies whose core businesses aren’t rooted in tech get in on this? Some are going the corporate venture studio route, in which enterprises partner with outside teams to funnel resources, expertise, personnel, and strategic guidance into new ventures. Regardless of whether you try this on your own or with a partner, the two keys to early success are to provide enough autonomy to the new startup business and find ways to get kick wins through real market validation.
Walmart’s 2009 foray into online marketplaces was the too-aptly-named Walmart Marketplace. It failed because the marketplace was too close to Walmart’s core business. Two of the numerous contributing factors, which I’ll call out here for context, were:
As a result, wary customers abandoned their carts and many suppliers chose to sell through Amazon instead, where they could gain more exposure sooner.
These were the downstream symptoms of a foundational illness. The marketplace was too integrated with the Walmart brand when it needed to be able to move quickly and try new things, and as a result, the core transaction remained riddled with problems. That left users on both sides unhappy and left no chance for network effects to take root.
Keeping a tight leash on innovation just doesn’t work. Venture-building success tends to happen when the new business is entirely separate from the core brand when starting out, which is part of the much-better economics of Walmart’s Jet.com acquisition. Jet.com had existing traction, so Walmart could integrate its advantages and cleanly take over the upside.
So M&A is one way to do it if the purchased platform already comes with its own proven model and sustainable network effects. But for homegrown venture building, the first step is still to validate the core transaction and provide sufficient autonomy
Aside from a focus on autonomy and the core transaction, there are a few factors that help companies win at corporate innovation, such as a fragmented market, amenable consumer expectations, a big product catalog, favorable unit economics, and simply the right timing.
For a platform startup that had some of these things to its advantage, take Handy. Co-founders Oisin Hanrahan and Umang Dua disrupted the home services industry by honing in on a workable core transaction between service “pros” and the people in need of their services. They stood up a very simple landing page to let customers order home cleanings. In the early days, customers would simply fill out a form with what they wanted and the desired date for the service. Handy’s team would find a professional to fulfill that service within the promised seven days. There was no smart scheduling integration to check if a service provider was actually available at the time the customer was booking the service. Instead, Handy’s team used a bunch of manual hacks to solve for supply after receiving a customer order.
That way of operating wasn’t scalable in the long run. As the industry matured, consumers started demanding quicker turnarounds. But by creating the central functionality of a platform, Handy was able to remain agile, endure lots of bumps on the road to profitability, and optimize transactions over time.
Enterprises with an open mind to that kind of “entrepreneurial” path are primed to do great.
The great thing about validating a platform business model versus a SaaS business model, for example, is that platforms have two customers: consumers and producers. So, if you are able to connect a consumer and producer together in a very quick and raw experience, that validation is quite powerful. You can start by simply answering a few questions:
Define and achieve those things, and you’ve planted the seed of a platform.
The first few suppliers could be smaller ones, instead of large corporate entities whose red tape will close them off to this kind of rudimentary partnership. And for the first few customers, you can tap into a demand that’s not being seamlessly met by existing options.
The backend initially doesn’t have to be smooth or even close to scalable. It can consist of taking orders from customers and then doing the legwork to fulfill them: making the calls, sending the emails, or manually hacking the process in any other legitimate way to connect with producers and get those early transactions completed.
This kind of rapid business model validation — which works for many platform types, but especially for marketplaces — can be done long before building out an MVP (minimum viable product), hiring developers to cook up fancy code, or putting out a ton of capital. It can even be done without a full-fledged website, as Handy proved with a simple landing page, or without any digital IP at all.
As long as you can show the basic value is there for users on either side, and conditions like timing and market maturity will favor the takeoff of network effects at some point, you have a potential winner. A validated model and a good business plan can get the C-suite and key stakeholders to buy in, and hopefully grant the autonomy needed to reach product-market fit.
It’s often hard for traditional large enterprises to break out of entrenched ways of doing things. But barring M&A, embracing a shift in thinking might be the only way to go, if competing with the tech platform conglomerates and ambitious industry peers is the goal.
The sooner enterprises see autonomy as the key to failing fast and failing forward — and start thinking more like venture studios, essentially — the sooner they can create platforms that are defensible and disruptive, and that achieve real digital transformation.
A new platform can take up to about seven years to reach scale. That makes venture building an exercise in patience. But confidence in platform innovation comes when new ventures are given space to breathe and the room to find their footing.
Filed under: Innovation Leadership | Topics: enterprise hacks
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