New Growth Initiatives
A diversified chemical company had developed a new class of performance molecules with a wide range of applications. In an effort to approach commercialization with low risk, the company set up a small venture and worked with a few select customers that funded most application development. But despite in its attempts to minimize risk, management began to suspect that it was also limiting opportunities to grow shareholder value.
Our analysis showed that doubling the investment in the venture could capture new customers faster and enhance the commercialization probability of success.
The company's customers were in market segments that were not considered core for the corporation. Thus, the corporation had little capital at risk. The corporation chose this low-risk approach because previous new technology commercializations had been less successful than expected. SDG performed an extensive risk analysis of the venture. Analysis showed that while there was relatively low risk in structuring the venture in this way, it was creating an artificial cap on the potential value of the venture. Our analysis showed that by doubling its investment, the corporation could capture new customers faster and enhance the probability of successful commercialization. The value of the venture could be 10 times higher than what had previously been assessed. We recommended stepping up the investment immediately and to consider this venture as a "real option" – one with the potential to grow into a much larger opportunity – before making the decision to sell the venture at some point in the future.
