Common Sense Into Common Practice

Egress Solutions Product & Innovation Management Blog

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Build, Buy or Partner: Choosing the right innovation strategy

Product managers always feel the pressure to grow their business through innovation. When they can successfully create competitive differentiation, fill a gap in product technology or offer a more complete solution, they can drive business growth and gain market share.
Buy, Build or Partner

While innovation is key to business growth, so is time-to-market. That's why smart product managers consider all their options for their innovation strategy. Should they develop the solution in-house? Buy it? or would it be best to partner with another company?

Choosing the right strategy is difficult. Making the decision to build, buy or partner will test every strand of your company’s fabric. Each avenue has ample benefits and risks, so the decision must take into account all aspects of your company and its strengths and weaknesses.

The decision requires a thorough understanding of your market, your competition, your current customers and, most importantly, those who have not chosen to be your customer.

Key decision considerations
Going down the Build path requires an investment of time, energy, and commitment, and that requires understanding the tradeoffs. Do you have the resources to pursue this opportunity in-house? Is it the best use of your company's time, money and people? Will pursuing this opportunity divert your focus from higher priorities? Can building the solution allow you to realize its value faster/better/more cheaply?

Knowing when a Buy decision makes the most sense for a given opportunity comes down to an assessment of your company's core competencies and priorities. Is this opportunity out-of-scope for what you do best? Would utilizing another company’s solution enable you to retain your focus on higher priorities? Do you trust that the solution someone else can provide will be good enough for your needs?

Partnerships can often be the best, fastest, cheapest way to create value for customers and enter new markets. But it’s also important to recognize the inherent compromise of a partnership: any deal struck between two companies requires one or more parties to give up some amount of money and control. Understanding the balance of these pros and cons can determine whether a partnership is, in fact, the best path.

Other business considerations
Whether you're embarking on a build, buy or partner strategy, you want to make sure that your existing business is on solid ground. In particular, you want to have a stable management team and one with enough depth that it can focus its attention on an acquisition or a build-out without harming the business you already have.

You also have to determine if you even have the management team to support the growth. The success of your current business is based on your ability to offer your existing clients top-notch service. Any growth strategy could put that at risk, and render any possible benefits moot. There are a lot of stories about companies that grew quickly and then quickly outran what they were doing very well initially.

Then there's the matter of your financial infrastructure. How strong are your financial controls? How well do you measure your cash? If you're getting ready to grow, there's going to be a lot of stress on your working capital and your ability to measure your financial health. A common problem when expanding a business is the underestimation of costs.

As for acquisitions, most will require some outside help, such as lawyers, attorneys, and other intermediaries. That translates to a bounty of fees. And the more complex the transaction is, the larger those fees will grow. Then there are other obvious integration costs such as those for IT and accounting systems.

So back to the beginning, making the decision to expand or enhance your product offering is paramount in your ability to grow your business. HOW you decide to attack this task takes hard work, keen observation, a collaborative approach, real research and a bit of luck.

But done right, it's the key to a healthy, growing business.

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