We spend a lot of time with founders/CEOs who are looking to digitise their business. In our early stage conversations with them, there are typically six major talking points and things you’ll need to think about before starting this journey.
We’ll cover each one in turn, but they really need to be thought about in parallel, not in sequence, as the answer to one will affect the answer to the next one!
How far are you going in changing your business model?
Imagine a continuum. On one end of the spectrum, you are simply taking your current business and adding an online component to it. At the other end, you are ripping up the old business model and rebuilding it entirely as a digital platform, even if the core proposition remains the same. The first scenario could involve, say, adding a self-service dimension for existing customers.
In the second scenario, you might have a traditional business based on manual, paper-based processes and face-to-face meetings. Digitising means moving to electronic documentation and introducing meet-me rooms where all the clients in your value chain can come together online. It might also mean totally rearchitecting your org chart and the skillsets in your business.
What brand are you going to use?
There are a few scenarios here too. If you are adding a digital capability, it might be better for you to retain the same brand. That way, all your existing customers can benefit and you don’t need to launch something completely new.
For others, you might be looking to leverage your core competencies by moving into an adjacent market with a new digital product. In that case, you might consider a new business unit, with a new name/brand, but slotting it under an existing group. That way, a new division/BU/brand retains a halo effect from the larger group, and the new play benefits from your broader capabilities, but you can still bring something totally new to market.
A third scenario, if you are completely reinventing your business, is to launch it under a new brand. A clean break with the past will allow you to demonstrate the strategic leap forward that you are making. Equally, a new proposition may resonate with prospects that would not previously have worked with your old brand.
How are you going to fund it?
If you’ve been running your own business for a while, or have always been bootstrapped, you may never have raised external finance. Your preference, therefore, might be to use retained cash already in the business. If you’re looking more at an add-on digital platform or hybrid offline/online model under your current brand, that might be the best option for you.
For an established business, with strong revenues, retained customers and healthy cash generation, bank finance could be a good option. An injection of new money via senior debt would allow you to retain control of your business whilst providing you with a lump sum to make new digital platform investments.
A third alternative is to look at SEIS/EIS-eligible equity funding – which could include your own money – via a new company (or your own if it is less than three years’ old and you have not done SEIS/EIS before). There may be significant tax advantages to this route, as well as the potential to bring in both new capital and new investors, especially if you are going to launch a new brand.
What’s the company structure?
The answers to the previous three questions will largely determine how you answer this question. If you are attracted to the idea of starting something new, and bringing in SEIS-eligible funds initially, then it has to be a Newco. And it must be a standalone business, it can’t be under an existing holding company.
If you are looking at a new brand or new product, you might consider forming a new business under your existing holding company. That’s one to get proper legal and tax advice on but it would potentially allow you to share costs more elegantly across a broader group of businesses under a single Topco.
Simplest of all, especially if you are looking to use retained funds and existing branding, is to keep going as you are. You can still bring in some debt if you need more capital, but otherwise you will benefit from the fact that you have existing revenues and friendly customers to test new ideas on.
What are the consequences of not doing anything?
Inertia can be a problem when looking to bring new ideas to life. We’re all busy enough running our existing businesses and dealing with BAU challenges. You might not have the bandwidth to do something transformative. We like to ask people this question to help them balance upsides and downsides.
There’s a companion blog to this one that list out the Top 10 Reasons to Digitise your Business that might help here too. Either way, it’s important that you think about the opportunity cost of not doing anything. Chances are it will involve the risk of obsolescence, being left behind by digital native competitors, lower valuation, no intellectual property and no recurring/subscription revenues.
It’s essential that you know what you’re trying to achieve by building a digital platform for your business and why. But it’s just as important that you understand the consequences of not doing so. Between those two thoughts, you’ll have the strategic rationale, commercial logic and operational benefits defined more clearly.
What pain points in the business do you want to fix?
We always like to focus on the positives and the wellbeing nature of building something new. However, it’s just as important to be cognisant of the pain relief dynamics too. Even if you are taking a clean sheet of paper approach to revamping your business, you should take the time to list out the things that cause you time, money and effort now.
A big part of building a digital business should always be the customer experience and other upsides that we cover off in our Why blog. But anything new that you build shouldn’t recreate existing problems in a digital world. If you automate a mess, all you get is a mess faster. Think about what processes could be reengineered, what complexity you can remove and how you can operate more efficiently than present. After all, if the digital transformation also takes out cost and hassle, that will improve the bottom line and employee morale too.
Join Matt Jonns, our CEO and Paul Conway, Founder and CEO of Yuno, one of our portfolio companies, to discuss the whys, whats and hows of moving your business online. Watch the Webinar here.