Partner & Managing Director, Chicago
The COVID-19 pandemic has shown that a crisis can catalyze huge changes in the business landscape, along with customer behaviors, needs, and priorities. The unique characteristics of each crisis influence not only the challenges presented to companies but also which ones will survive and maybe even thrive—and which ones won't. For instance, owing to shelter-at-home and lockdown rules, demand for home delivery of consumer goods exploded during the pandemic, while demand for other offerings dried up.
For born-digital businesses—those making especially savvy use of digital technologies and Internet-era information—this shift in demand patterns constituted a double-edged sword. Take direct-to-consumer (DTC) companies founded in the digital age. Some of these enterprises were already serving needs that intensified during the pandemic, further fanning desire for their offerings. Examples include B2C online grocer Instacart and B2B e-commerce platform Shopify. By dint of their DTC business model, some were already winning because they didn't have to shut down brick-and-mortar stores filled with inventory that would languish during lockdowns. Other DTC enterprises that had enjoyed fast growth before the crisis struck saw demand for their products erode. Away Luggage is a case in point.
For born-digital companies already selling products or services ripe for meeting new needs arising during the crisis, the challenge became, "How do we scale up fast enough to meet the explosion in demand?" Some managed, for example, by hiring enough new workers to accommodate the increased demand. But many struggled, forced to notify customers of delayed shipments, or to ask customers to limit order volumes. Those that couldn't scale quickly enough risked losing customers to nimbler enterprises that offered alternatives and were eager to seize market share.
Findings from a recent AlixPartners study suggest that all too many born-digital companies make a common mistake that can come back to haunt them when disruptions rewrite the rules of their business. Their error? They're so laser-focused on growing revenues at breakneck speed that they neglect to set up the operations and infrastructure required to scale fast enough to keep serving customers effectively and efficiently if demand patterns go nonlinear. (To learn more, see The Missing Ingredient in Born-Digital Businesses: Experience with Operating at Scale.)
How can these born-digital businesses get set up for rapid scaling as needed? As early as possible in their development (ideally), they must think through and make smart decisions about several dimensions of scalability: operating model, talent management, and data infrastructure. If they fail to sort through these decisions early on, they'll have to scramble to do so as soon as a crisis erupts.
Scaling by modifying your operating model
A company's operating model comprises elements such as its assets and capabilities, partnerships, organizational structures, business processes, and technology enablers. Born-digital enterprises can infuse flexibility and scalability into their operating model in several ways by changing how they manage these elements.
For instance, a company can assess its internal capabilities and forge partnerships with entities across its value chain that have capabilities it lacks—in such areas as distribution, delivery, and technology. Some DTC companies have done this during the pandemic by deciding to use local delivery partners (e.g., Instacart, Door Dash) to ship products to more people dispersed across different areas—thereby modifying their model from central shipping to local fulfillment.
Scaling by managing talent differently
Companies can manage talent in new ways to scale as quickly as they need to. For example, some born-digital DTC enterprises have hired people with required skills who were furloughed in other industries badly crippled by the pandemic or have simply asked and incentivized current staff to work longer hours.
Others have been able to source needed talent from a wider array of locations thanks to technology enabling remote work. Still, other DTC companies have managed to upskill their corporate staff to achieve the specialized operational expertise required for scaling. This merits close attention, as our study also shows that too many born-digital companies don't bring enough operations experts on board in their early days. Why? These individuals often come from born-traditional backgrounds, which may strike born-digital founders as far less sexy than backgrounds focused on creativity and innovation.
Scaling by extracting greater business insights from data
Born-digital companies can supercharge their scalability prowess by deploying the right data infrastructure. Smart use of such infrastructure can open a window onto what's happening in the business and enable decision-makers to arrive at solutions to challenges facing the company as it moves through the crisis. Data infrastructure that enables better reporting, dashboarding, and exception-based management is especially valuable for sharpening business leaders' focus on the metrics that matter most to the organization. Armed with such infrastructure, leaders look at the right things at the right times, versus looking at everything all the time.
For companies that gain new customers because of changes wrought by a crisis, a particularly important question that data-based insights can help them answer is, "How do we keep these new customers in the future, when things go back to some level of normality?" Data analytics tools and approaches can help such companies determine how best to configure their business and operating models to take advantage of new demand for their offerings arising from the current disruption, how to retain both new and longtime customers, and how to bring lapsed customers back into the fold.
Of course, no one can predict with full certainty what the next large-scale disruption to business and general society will be. But by making smart decisions about scalability, born-digital companies can lay the groundwork for scaling as needed—not just during times of normal growth but also if and when a disruption triggers exponential increases in demand for their offerings. Such analysis can also help companies pivot or rethink their value proposition if demand shrinks. For instance, a DTC mattress company that's struggling might find ways to expand and support its product line by offering products that support high-quality sleep and wellness in a broader sense.
Yes, setting up for scalability takes time and effort. But given that the business landscape can be upended at any time, no born-digital company can afford to shy away from this work.