The successful ingredients of born-digital companies are defined by their ancestry: lineage, DNA and kinship. The story that emerges from mapping your so-called business family tree is fascinating and will likely surprise you.
This article is part of our Born-Digital study, where AlixPartners set out to research born-digital companies' unique blend of strengths and challenges and identify the most pressing needs and areas of focus needed to sustain their success. See all the articles in our series here.
"You're starting it from scratch with a business that's growing and doubling every year."
—Managing partner, private equity firm
For those who’ve ever uncovered the mysteries of their family trees, it’s no wonder that public interest in ancestry and health research is more popular than ever. In fact, more people purchased consumer DNA ancestry tests from 23andMe and Ancestry.com in 2018 than all previous years combined—with 26 million individuals having taken at-home ancestry tests by 2019.1 In human ancestry, lineage refers to the generations that branch from a family tree, and kinships refers to the relationships and connections that make people who they are. The notion of ancestry can help us understand not only ourselves but also businesses—especially born-digital ones.
It’s been nearly 25 years since the dawn of the born-digital era, which birthed a super breed of companies that grow at blistering paces. Before the mid-1990s, it generally took more than 20 years for a company to see its annual revenue top $1 billion. Today companies can reach that number in just a fraction of that time.
Take Groupon, launched in 2008. It took only two years for the company to reach $1 billion in annual revenue, which seemed fast at the time. Equally impressive, companies called unicorns—which are start-ups boasting valuations of over $1 billion—are sprouting up every day and are no longer seen as the rarities the name implies. Bird, a micromobility company, is an apt example. Now operating in 120 cities, the personal mobility start-up achieved a $1 billion valuation in a mere 14 months after its inception.
How do companies like Groupon and Bird grow so fast? And what challenges present themselves with such rapid scaling? We can piece together answers to those questions by looking at:
- The ancestries of born-digital companies—including the lineages of their leadership teams.
- The components of the companies’ DNA—particularly the very speed at which they grow
and assemble leadership teams.
- The kinships in the business ecosystems those enterprises take part in.
As we’ll see, those three elements of a born-digital company’s ancestry confer vital advantages if a business manages them right—but dangerous weaknesses if mismanaged.
Can tech start-ups be profitable?
report income of $500m+
according to born-digital companies surveyed
are highly profitable
on a sustained basis, as ranked by themselves
are profitable at any level
as reported by themselves in our study
LINEAGE OF THE LEADERSHIP TEAM: DIVERSITY OF EXPERIENCE IS QUEEN
In a born-digital enterprise, the company itself or its product or service offering might be new, but most of the members of the leadership team have acquired considerable experience throughout their lives. We call that their business lineage, and it arises from the industrial, functional, educational, professional, personal, and start-up expertise they’ve gained from their various previous endeavors. In an evaluation of improvement opportunities for an existing born-digital company leadership team or in consideration of the lineup for a new start-up, it’s a huge advantage to cover all branches of the business family tree.
In tracing a business family tree, it’s not just the lineage of the founder or CEO that matters. It’s the combined lineages of all of the members of the top leadership team. Why? When senior executives bring diverse, complementary lineages to the table, a born-digital enterprise stands a better chance of succeeding. That’s because members have the knowledge and skills required to better relate to customers and to anticipate—and surmount—the wide range of new challenges the company will face as it grows. That same diversity fosters more-creative problem solving by the team. Conversely, closely similar lineages within the top team can spawn weaknesses in the form of dangerous gaps in knowledge and expertise, hereby leaving the company vulnerable when new threats arise.
DNA of the company
Leadership and culture are closely related, and a born-digital company's leadership team’s collective past lineage is a major factor in forming the cultural DNA that passes on to a new endeavor. Just as an examination of our own human DNA can reveal clues about our distinctive characteristics and predispositions, examination of a born-digital company’s DNA can give meaningful insights into the organization’s strengths and weaknesses with regard to culture and health. Fast growth is a fundamental component of those enterprises’ DNAs. But that manifestation of speed presents both opportunity and challenge. For instance, many born-digital businesses need large infusions of capital to fuel their growth. And company leaders have to determine how best to generate that required capital—all while the company’s revenue is expanding ahead of profits and the business is scaling at breakneck speed.
To tackle those tough decisions, born-digital companies rely on another manifestation of speed: the rate at which they bring people on board and acclimate the people to the new enterprise. As analyses of born-digital family trees show, members of a leadership team have worked together on start-up efforts before, but they also come from a similar business culture DNA. When the time comes to assemble a top team for a new born-digital enterprise, founders typically hire people they know and have worked with in the past.
It’s faster; everyone involved is already familiar with one another’s working style; and they all speak the same languages of growth, innovation, and risk taking. That type of cultural DNA often takes shape while individuals are working at previous start-ups, and it gets solidified with each successful exit. By contrast, if founders bring unfamiliar people on board, then getting them up to speed in the new business takes more time and more effort. Plus, the people come with uncertainties, including whether they’ll strengthen or detract from the culture.
So, it’s no surprise that many born-digital leaders want to quickly set up a top tribe that already speaks an experience-built lingua franca. Such a tribe can bring an already-built-in culture and therefore operate and make decisions efficiently, which is a vital advantage in a business in which time is foremost. But as noted, our research findings indicate that taking that approach can itself also be a liability by creating gaps in knowledge, expertise, and capabilities that can leave a company vulnerable when unfamiliar challenges arise.
KINSHIPS IN THE BUSINESS ECOSYSTEM: CONNECTIONS CAN SUPERCHARGE GROWTH
We’ve seen that born-digital companies rely more heavily on the kinships in their business ecosystems than born-traditional organizations do. Those kinships are in the forms of key relationships with individuals and entities outside the company’s formal workforce—such as investors, advisors, and many types of business partners. The right kinships can help supercharge growth for a born-digital business. For instance, advisors such as tech-world luminaries or celebrities can bring instant credibility and marketing attention to a young company by their serving on the company’s board or endorsing its product or service. Jennifer Lopez and Alex Rodriguez recently threw their support behind a savings app called Acorns that invests the spare change from people’s daily purchases. Also, investors can open doors to financiers and top executive talent who are knowledgeable about business best practices and who are critical for scaling operations while achieving sustained growth. And partners such as third-party service providers with specialized skills can perform business processes and activities that aren’t in a born-digital company’s wheelhouse such as payroll and other back-office functions.
Together those kinships give a born-digital company unprecedented access to customers, suppliers, and global markets—and free up company leaders to focus on developing and increasing the enterprise’s core business. As a result, the company becomes able to scale far more quickly and effectively than by going it alone. As with lineage and DNA, born-digital companies should seek out and build diverse business-kinship relationships. Not having a robust enough kinship group of advisors, investors, and partners or not looking outside the company’s usual network forfeits the amplified benefit. In the same way that a lack of gender diversity continues to plague born-digital companies, broader kinship networks of stakeholders outside those companies can help mitigate the risks of group think and myopic views.