One question that I have been asked a few times his how long does it take before the innovation or a new business initiative starts to deliver substantial revenue. Or the variant of this question how big can the new initiative grow to in the short term, and the inevitable follow up well in the scheme of things the revenue contribution isn’t really material so why should we invest.
There are a couple considerations to take into account.
Many traditional or incumbent businesses that are looking to innovate into new markets or verticals have got to their size and scale due to one or many of the following reasons, they beat or acquired the competitors, have a technology advantage, natural monopoly, patent or license protection or other barriers to entry that were significant in a previously inefficient market. And undoubtably when they started they had a (steep) “J” curve, whereby they burnt cash for a number of years before they turned cashflow and then profit positive.
Likewise may of the barriers or natural advantages that the traditional business had do not transfer in full to the new marketing that they are seeking to compete iI and they are entering a much more level playing field. This results in a mismatch of profit margins that the incumbent enjoys today that may not be realistic in the new market due to the different pricing structure in the new market as discussed here.
Finally an Overnight success might not be the overnight success you think it is
- You Tube: is 10 years old and has one billion views $14 billion revenue disrupting terrestrial TV but still no profit.
- Mobile Data: Took about 5-6 years from the launch of 3G before it started to gain revenue traction and even longer before it became meaningful compared to the core services.
- Netflix: Was actually started in 1997 as a DVD delivery service before beginning streaming 10 years later.
This will all lead to an obvious impatience by the executive for faster growth from the new business and innovation units. It will take a strong vision, belief and leadership to continue with the initiatives if the initial results aren’t as expected but if the initiative truly matches the 5 C’s then the business needs to continue to push hard.
If you are being disrupted then your impatience is so much more heightened and if you are lucky enough to yet to be disrupted then you need to begin now as your overnight success will take many years of experimenting, pivoting and trial and error before you see rewards.
Key Takeaways: You have to start now, you have to have a clear vision and strong leadership and you have to have urgency mixed with patience.
KS.
