Customer expectations are increasing and changing rapidly, while the availability of disruptive technologies is becoming faster and faster. For this reason, business reinventing is vital to company longevity, but it is not an easy task.

In recent years, a considerable amount of capital has been injected into industries and the implication is that new business models are going to emerge. At the beginning, they will be nascent, but in the next 5-10 years from now, some of those will become relevant.

Incumbents need to consider this point and invest in actually innovating their business model, otherwise they will not be able to participate to the competition.

The odds of success of these business innovation initiatives are not comparable with those of a pure start-up launching a new business and trying to disrupt the business itself, but not even with those of a company investing in a traditional initiative.

According to a recent research, the odds of success in business reinventing are somewhere in between, and particularly it ranges between 10% and 20%, depending on the specific business sector.

This result sounds pretty good, even when it is compared with venture capital. There are at least 7 factors that differentiate an incumbent reinventing its business model from a pure start-up.

An incumbent starts with a competitive advantage. It typically falls into either a distribution-type advantage having unique access to customers, a data-type advantage due to proprietary information, or insights that competitors do not have, a regulatory/structural-type advantage based on the sector the incumbent is operating in, or a technology-type advantage related to specific technologies where the company has IP privileges.

The second point is about capitalization. A start-up founder spends a large amount of time fund-raising, while an incumbent can fund both the seed round and the series A, B and C rounds.

Moreover, an incumbent has access to unique expertise and talents, considering that often these new businesses are truly new ventures, but they’re not in domains that are completely detached from what the parent organization is doing.

It is important to note that business reinventing is a multi-year journey and these initiatives should not be considered as an experiment. When they start with a real commitment to success driven by the CEO and the management team, taking an adequate horizon (3 to 5 years), it radically improves their odds of success.

Furthermore, these initiatives cannot be evaluated using a standard annual budgeting process with a return-on-investment type lens because many of them surely would not cross the bar. However, most digital and tech-led initiatives, which tend to be, could create real long-term sustainable businesses and generate, in the long run, a healthier margin than most traditional businesses.

It should be noted that a new business within the traditional business could create a cultural clash between people from very different backgrounds. It is important to create the right process to integrate talents and embrace cultural change.

Finally, at some point along the way, companies have to make a deliberate choice, considering if they have the capabilities, talents, and assets that are going to make the business successful, or if it is more appropriate to develop the new business in partnership with others, to benefit from the expertise of bringing others in.

What happens in reality is that companies have a pipeline of diverse initiatives at different stages of maturity, and they implement a specific process to evaluate the progress of the ventures. Sometimes, truly new businesses arise, which companies could potentially separate from the parent over time, and they take on a life of their own.

All in all, the magic lies in the ability to leverage the strength of incumbents while fostering the agility of start-ups.