Knowing when to pull the plug - part 1

With any corporate venturing program, one of the most important factors that will determine financial returns is the ability to stop investing in projects that simply won’t work out at all, or will be inconsequential to their parent company, even if they do succeed. Here’s a set of questions to revisit when evaluating your portfolio of new ventures.

A portfolio view of growth options requires the ability to stop!

A big mistake we see organizations make when they try to push into new territory is that they try to apply the same logicto a well-understood, repeatable business that they do to an uncertain new one. One of the most significant ways this happens is that once an idea has made it through the corporate approval process, its proponents and champions assume they are going to bring it to commercial launch.

It’s smarter to realize that many projects that might have sounded good at the drawing-on-a-napkin stage aren’t going to go on to be successful businesses. It doesn’t mean they weren’t useful, it just means that particular direction isn’t going to work out.

So here is Part 1 of my list of 12 topics I suggest you consider as you review the progress of your corporate innovation programs. See also this great article by our friends at Innosight on another approach to dealing with potential Zombie projects.

1. We have learned that it is going to be much more difficult or expensive to achieve our original project goals.

The old joke about venture capital investments is that it always takes twice the time and double the investment that you thought to achieve success. It’s well worth asking whether, given the  new information you are obtaining by working on the project, the original objectives are still attainable.

While its parent companies aren’t saying, this may well be one of the issues that led to the unceremonious discontinuationof the Drinkworks platform.

2. We have learned that it is going to take much more time to achieve our original project goals.

With uncertain projects, its almost impossible to accurately forecast what is going to happen when. And sometimes the passage of time can make an idea that made a lot of sense at the start look less and less appealing as time goes by. Startup Ikos, a platform that connects landlords and real estate owners, grew fast, at first. But the pandemic led to a dramatic falloff in revenue, alternative sources of funding fell flat and as their sources of revenue dried up.

As co-founder Steve Welles said, “Ultimately, inventory was super tight, which means our revenue growth was limited, and then as we started to pivot to make changes to the business that we were ultimately planning to continue under, we just ran out of time to continue to execute and really to continue to build the momentum that we started,” Welles said. “When it became clear that if we were going to somehow continue, it really wouldn’t be in the way that we originally envisioned, continuing and growing everything, and we thought hard about a lot of potential options but ultimately came to the decision to wrap it up, which was tough. Very tough.”

3. The scope of the project has become much more substantial than was originally envisioned but the resources dedicated to it have not changed.

This happens all the time, particularly with projects that are digital in nature or with advisory offerings. The human tendency to pile on more work, features and ideas needs a fairly firm hand to control it, otherwise you end up with huge, but under-resourced programs that are doomed to fail.

Scope creep, or “feature bloat” have been attributed as the reason many major systems projects either fail outright or are less successful in the marketplace than they could have been. Windows Vista is an example that many people will remember. In its effort to create a next-generation operating system, Microsoft fell victim to trying to please everyone in its vast ecosystem with the new software. As one insider recalled, “Windows is a beast.” The sheer number of people who touched the project in some way practically guaranteed that the end result would be a highly complex series of compromises, leaving no one particularly happy.

Apple, on the other hand took a different tack, as the same observer, Ben Fathi, noted. “Apple, having taken a totally different approach, has also shown how the problem space can be constrained to improve overall quality and end user experience. It chose to kill its server and storage efforts, dropped support for earlier incompatible PowerPC architectures, and spawned a whole new operating system, iOS as distinct from MacOS, when faced with a new form factor. Windows, by comparison, tried to be all things to all people.”

4. Despite the misgivings of people with expertise in the organization, the champion for this project is determined to move it forward.

One of the fascinating dynamics of venture championing is that sometimes senior leaders support, which can be awesome for a venture, also ends up dooming them long after it was obvious to everyone that they were going nowhere.

The Iridium project, the spectacularly failed effort by Motorola to circle the earth with low-earth orbit satellites, is a classic example. As Syd Finkelstein writes: “it was no less than Robert Galvin, Motorola’s chairman at the time, who gave Bertiger (the project manager) approval to go ahead with the project. Robert Galvin, and later his successor and son Christopher Galvin, viewed Iridium as a potential symbol of Motorola’s technological prowess for all to the world to see. To the engineers at Motorola, the challenge of launching Iridium’s constellation provided considerable motivation and they continued developing the project that resulted in initial service in 1998 at a total cost of over $5 billion.” Other examples include Amazon’s Fire phone and more recently Zillow’s house-flipping venture.

5. New competitors have emerged since this project began which negatively changes the marketplace dynamics.

Sometimes, though nobody’s fault in particular, a solution you just didn’t conceive of emerges that makes whatever you’re doing less convenient, more expensive, or simply impractical.

SAP ran into this when it tried to introduce its “Business By Design” software intended for the middle market, only to find that it couldn’t compete with the on-demand solutions of rivals such as SalesForce or Workday.

6. The ecosystem of necessary partnership has not evolved as we expected

To create a complete offer for the customer, it is almost always necessary to partner with others around different aspects of the value-delivery mechanism, as Ron Adner points out in his great book “Winning the Right Game.”

An illustrative story of the failure to create customer value is the American Express backed Plenti program. The idea seemed to make sense – create a coalition of merchants that would share points and data with one another. For consumers, the benefit would be that they could accumulate points across different vendors – for instance, buy clothing at Macy’s and get points toward free gas at Exxon and Mobil gas stations. Unfortunately, the program suffered from a lack of common goals and cooperation among members, and eventually saw defections that apparently doomed the concept.

This is the first set of questions to stop and consider as you think about whether it is still worth it to continue with your venture. And remember, deciding to stop without throwing good money and talent away from a pending disaster is a courageous move worth making.

Learning More – on line and in person

We have now launched a set of learning modules around the theme of discovery driven planning and customer insight. They are short, on-demand, based on great research and experience and available now. You can experience what they are like with our demonstration module, which contains two short lessons from my book “Seeing Around Corners.” A link to the demo is here:  https://www.valize.com/hub

We’re also getting great uptake for my weeklong “Leading Strategic Growth and Change” course run by Columbia Executive Education. A week to learn about the skills and tools to venture confidently into new spaces. More information here: https://rita-mcgrath.mykajabi.com/lsgcprogram