Creating new lines of business in established companies - part 2: stages of development
Like startups, new lines of business in existing companies typically go through a consistent lifecycle. Comparing these to the stages of a startup can be a convenient shorthand for understanding the maturity of the idea, expected challenges, and level of investment.
For more on creating new lines of business in established companies, see Part 1 for recommendations on setting up these initiatives for success.
“Garage”: from space to idea
Investment: $75k over 6-12 weeks, 1-2 people
Most new business ventures start with a thesis about a space that seems particularly interesting. At the initial stage, the goal is to identify if there is a “there there.” During this stage, the team (which might just be one person) is spending a lot of time with customers and potentially sharing mockups/prototypes to identify user needs. A good team for this stage is one generalist “maker” and one generalist “business person,” both of whom have a strong bias to action and are deeply comfortable with ambiguity. The output of this stage is a document outlining the proposed problem to solve and corresponding user validation & business justification.
“Incubator”: from idea to initial traction
Investment: $250k over 3-6 months, 3 people
Armed with an understanding of the problem to solve and early signals of user validation, a small team can pursue the goal in earnest. This is a high-intensity time, where the goal is to put together an MVP, get the product in the hands of customers as early as possible, and iterate, iterate, iterate until achieving initial traction. The iteration process may result in substantial pivots if the initial idea isn’t finding product-market fit, in which case it is prudent to re-confirm that there is still business justification to pursue the current course (e.g. is the TAM big enough?). The team at this stage should usually have two “makers” who like building quick-and-dirty products, plus one person focused on go-to-market e.g. a PM/marketer for consumer products or a scrappy sales/BD person for B2B.
“Seed round”: from initial traction to steady growth, early business outcomes
Investment: $1.5M over 12-18 months, 5-6 people
Once demonstrating initial traction, the goal for the team is to really solidify product-market fit and bring the product & go-to-market channels from scrappy experiments to fully fleshed out experiences and playbooks. This is where the team will start investing in infrastructure and reliability, building sales/marketing collateral, adopting standard team processes like sprint planning and quarterly planning, etc. The team should also start demonstrating early business outcomes such as growing ARR, increased DAU/MAU, etc.
At the end of this phase, the team should be in a place where it can be re-incorporated into the rest of the organization, and no longer needs to be treated as a “new business development” effort. If successful, there will be a lot more scaling/market capture work to do, but that typically fits in well with the existing growth motions of the core product.