The triumphs and truths of companies born-digital

Research executive summary

Born-digital companies are fountains of innovation that have taken advantage of an unprecedented explosion of technological and analytic capabilities to redefine industry after industry. As they look ahead to a time of recovery from the COVID-19 pandemic, born-digital companies have to consider which of their unique characteristics could present advantages—and how to swiftly seize those advantages to sustain their success in the new world order that’s to come.

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.

What you don't know can hurt you

According to the Oxford Dictionary of Proverbs, the oldest written version of the saying “what you don’t know can’t hurt you” comes from 1576, “so long as I know it not, it hurteth me not.”

While this venerable quote may be true in certain circumstances, based on our in-depth study of born-digital companies nothing could be further from the truth.

We have observed a pattern of evolution that has been destructive in many cases by causing companies to back up, catch up, and evaporate billions of dollars along the way. In fact, it was that reality that caused us to undertake this study.

The results of the effort yielded this article series, together with two diagnostic tools: one that born-digital companies can use to quickly learn the areas of vulnerability and then prioritize areas of focus so as to avoid costly missteps, and one that traditionally born companies can use to quickly focus on and prioritize areas they need to address.

When we reflect on the details of our study findings, we find three prominent themes. As born-digital enterprises strive to accelerate their recovery in the post-pandemic period, keeping these themes in mind can help them craft sound recovery strategies.

Three themes of born-digital performance

1. What born-digital companies don't know can—and does—hurt them

These amazing enterprises, headed by visionary and driven leaders, are so hyper-focused on innovation, customer acquisition, and growth that they usually make the same mistakes repeatedly. Examples include business models that unreasonably extend profitability runways as well as missteps concerning information usage, customer privacy, corporate governance, executive behavior, and communications—to name just a few. Those mistakes cost time and waste money, to say nothing of eroding shareholder and stakeholder value, reducing customer loyalty, damaging reputations, and destroying jobs. Such consequences could prove even more costly if born-digital businesses remain ignorant of their causes during the post-pandemic recovery period.

But we now have enough information to know what the mistakes are, to find the places and reasons they occur, and to devise ways of avoiding them or at least reducing their impact by proactively rectifying them.

What many observers have found particularly striking about born-digital businesses in the past is the rate at which these companies can go from unknowns to household names overnight. However, that sentiment can turn negative in a heartbeat, corroding corporate reputations and valuations. WeWork, for instance, was valued at $47 billion early in 2019. Only months later, a potential initial public offering at a valuation of around half that amount was withdrawn when the market reassessed the company’s business model. In another recent example, video conferencing giant Zoom had to scramble to restore its reputation after seeing usage soar—and cybersecurity glitches erupt—during the pandemic.

2. The world is catching up with the first wave of innovators

As with most innovations, early followers have the advantage of learning from the innovators. These followers can avoid many costly mistakes and can operate more efficiently than the pioneers can—often by making savvy use of more effective technological platforms. Though their initial burst of value creation may be relatively unspectacular, second-wave born-digital enterprises—and some born-traditional companies—are now creating impressive value with lower risk. Later-stage born-digital companies are also potentially more sustainable than are first-wave companies, many of which are finding that their blazing pace of innovation is rendering their technological underpinnings obsolete already. Tellingly, six of the top ten e-commerce sites in the US were traditional, brick and-mortar retailers as of April 30, 2020.¹

For first-wave born-digital companies struggling with obsolete technology platforms, hitting the ground running in the post-pandemic recovery period may prove particularly challenging.

3. Whether you know it or not, if yours is a born-digital company, you're behind in talent management

Perhaps the study’s most consistent finding is that virtually every born-digital company is behind when it comes to the broad topics of (i) talent management, (ii) diversity in both the traditional sense (gender and race) and non-traditional sense (functional and industry experience) at board and executive levels, (iii) succession planning, (iv) performance management, (v) training and development, and (vi) career management.

While that’s not surprising given their accelerated rates of growth, the mishandling of these areas is nevertheless a major cause of performance issues and risk. As the world continues to catch up to the early innovators and as the impact of the pandemic rewrites the rules of how talent can best be recruited, developed, and retained, the war for talent will be where the competition is ultimately decided. And already at this point, born-digital companies are in serious need of an upgrade.

Leader takeaways

Both born-digital companies and born-traditional companies can benefit by learning from each other. To compete against digital-savvy businesses, traditional companies built on Industrial Age principles and practices will have to make big changes such as fostering a more innovation-oriented mind-set. Such changes won’t come easy, but taking a page from digital exemplars’ playbooks will help. Born-digital companies can avoid the pitfalls touched on previously through proactive planning in the areas of risk, digital ethics, data privacy, operations, and infrastructure. Plus, those that infuse discipline and rigor into their talent management functions—early on—will stand the best chance of sustaining their earlier successes far into the future, even one that proves permanently altered in some respects by the COVID-19 pandemic.

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^1. https://disfold.com/top-e-commerce-sites-us/

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