Starting A Business Within A Business

In today’s marketplace, innovation, creativity, and flexibility are the watchwords for companies that hope to survive and prosper. But how can you help your firm create and develop new ideas that respond to customer’s changing needs?

This article discusses how business executives can learn to design and manage corporate ventures, that is, those entrepreneurial projects that can create successful new products and open new markets.

Why New Venture?

Your company is profitable, your product or service is solid, and any competitor might envy your market share. So why start a new business venture within your firm? The answer is that there is no better way to grow or respond to competitive pressures. New ventures can spark the creative energies of your employees, establish innovation as part of your corporate culture, and enable you to develop profitable new products, services and markets. It can also help you find new opportunities before your competitors do.

You might try to increase your market penetration of your current products within your existing markets. But if the market is mature, competitive pressures will be high and further penetration will be difficult and expensive. What are the more effective alternatives? Develop new products, find new markets, or do both.

Note, however, that there’s a reason to proceed with caution: Corporate ventures have a mixed track record. Indeed, some company’s stumble along with new ventures and others nearly drive themselves into the ground. But some firms, particularly those with ample quantities of experience, skill, imagination, and luck, boost their profits and growth to astronomical levels.

What is a Venture?

Venturing is similar to traditional entrepreneurship, but it takes place under the corporate umbrella. It involves the selection and development of a business activity that’s new to an organization. Among its other characteristics:

Its viability is less certain than that of the base business.
It will be managed separately at some time during its life.
It is undertaken to increase sales, profit, productivity, or quality.
It requires the involvement of corporate managers (to ensure that new business ideas are generated) and venture managers (to direct the individual startups).

Your venture could be based on a new product, the development of a new market, or the commercialization of a new technology. It could be closely related to your other products or services, or it could take you in a completely different direction. And it could be run by a small team of venture managers or by an entire venturing company within your corporation.

Survival Kit and Conclusion

Although risk is inherent in venturing, it’s a factor that corporate leaders can control and minimize. Among the steps you can take to protect yourself and your organization:

Build a track record – Make commitments to reach achievable levels of performance. At the same time, indicate that greater performance levels are possible and hoped for. Then make every effort to go well beyond your original goals.
Weigh risks and rewards – As you move from concept to reality, periodically reassess the venture by asking whether the idea is feasible, what potential gains and risks can be anticipated, and whether the idea fits the firm’s overall goals. Never take the idea’s benefits for granted.
Turn suppliers into allies – Ask your suppliers to lend you materials or equipment for testing. Use the resulting positive data to support your request for funding.
Understand and control organizational politics – Find corporate allies and have them act as your buffers, advisers, or sponsors. Identify potential opponents and find ways to win them over or neutralize them.
Avoid premature publicity – In spite of your enthusiasm for the new venture, don’t sound the trumpets before you really accomplish something.

This article has been extracted and modified from Block, Z. & MacMillan, I. (1993). Corporate Venturing. Boston, MA: Harvard Business School Press.

George Tanewski is Research Fellow in the AXA Australia Family Business Research Unit at Monash University. Dr Tanewski writes extensively on family business issues and also sits on the board of a prominent Melbourne family business. For further information please contact George Tanewski on 61-3-9903-2388 or george.tanewski@buseco.monash.edu.au
First published: 11 September 2001.
Last updated: 17 July 2006.