Using Lean Startup Practices for New Business Development in Big Corporations*

by Qingxi Wang

The core of lean startup practices is hypothesis testing process, a systematic approach for validating a new business’ proposed business model. With appropriate adaption, this systematic approach could and should be used for new business development in big corporations. Meanwhile, there is likely to be significant extra challenges during the process.

There are generally three main stages in developing a new business in a big corporation – concept stage, design stage and launching stage. During the concept stage, a new idea is proposed and basic technical and economic analysis is done. In the design stage, a business plan is drawn, which includes the team structure, operational process and solutions, sales model and detailed economic analysis. After winning some buy-in of the business plan, the new business might be launched. During the launching stage, hypothesis for the new business model need to be tested. A systematic approach for validating and revising assumptions in order to find a viable business model, the lean startup practices, would shorten the time to reach break-even and increase the probability of the new business’ success.

So what are the major differences between lean startup and developing new business in big corporations? I will focus on the resource constraints and organizational heritage here.

On the one hand, the key feature of startups is constraint of resources such as capital, talents, production capacity, distribution channels, etc. A big corporation may be well equipped with many of these, if not all, and may be able to ramp up any shortcomings of these in a comparatively short period of time. Unfortunately, these endowments oftentimes disguise a big corporation to waste a lot of investments unnecessarily before finding a viable business model. However, in certain circumstances, big corporations should leverage their rich resources. If there is strong first mover advantage, large benefit of economy of scale, large potential for network effect, or potential incoming competitor, a big corporation may want to invest fast and heavily in a new business, on the condition that there is decent chance of finding a viable business model or the potential long term profit increase for the corporation is large. Admittedly, there is risk for the big corporation to incur losses. However, a big corporation is able to take such risk. Even if the big corporation loses, it would still have another chance to continue to play; if it wins, the gain is big. At a casino, a rich player with more chips can make a bigger bet than a poor player with same cards. Besides, a big corporation can also manage this risk by investing in a portfolio of new businesses and diversify the risk.

On the other hand, because of the existing culture, organizational structures, process, and talent pool, big corporations may encounter many challenges to have new businesses emerge and develop. The established priorities, budgeting process, performance metrics, incentive structures, short term focus, and lack of experiences and skills oftentimes kill new businesses in big corporations. One solution is to have a separate unit, which is free from the existing system, to incubate new businesses. During the incubating process, systematic hypothesis testing approach of lean startup can be used. After a competitive business model is found by this separate unit, the new business may be returned to the corporation system.

*Reference: materials from classes of Launching Technology Ventures, General Management: Processes and Action, and Building and Sustaining Successful Businesses.

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