Startup Series: Lean Analytics, Innovation, and Tilting at Windmills


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Fifty years ago, a typical company on the S&P 500 stayed there for three-quarters of a century. Today, they last only fifteen years. Technological disruption has run roughshod through the boardrooms of the world.

At the same time, small startups with nothing to lose have become more methodical about iteration, experimentation, and innovation. Fueled by deep investment backing and unfettered by legacy distractions like regulation, customers, and infrastructure, they're turning into Billion-dollar ventures.

From lackluster jobs growth to tech speculation to the disruption of nearly every industry, the death of big companies is the elephant in the room. But can we teach the elephant to dance? Join author, entrepreneur, and Strata conference chair Alistair Croll for a look at how some large organizations are applying data-driven methods, a deliberate portfolio of innovation, and Lean approaches that help them survive—and even thrive—in a changing competitive landscape.

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Startup Series: Lean Analytics, Innovation, and Tilting at Windmills

  1. 1. Lean Analytics, Innovation, and Tilting at Windmills Hive data meetup August, 2014 @acroll Thursday, August 14, 14
  2. 2. Thursday, August 14, 14
  3. 3. ( F500 Life Expectancy Growth by entering a new business 95 % fail Corporate Strategy Board 99 % fail Clay Christensen 75 years 15 years 1950 2010... Thursday, August 14, 14
  4. 4. This isn’t about a lack of resources. Thursday, August 14, 14
  5. 5. Thursday, August 14, 14
  6. 6. Blockbuster had a lot going for it. Thursday, August 14, 14
  7. 7. Plenty of inventory, of course. But that matters less than... Thursday, August 14, 14
  8. 8. intelligence, customers, existing payment approval, and customer history. Thursday, August 14, 14
  9. 9. The problem was framing: Blockbuster thought it was in the video store management business. Netflix realized it was in the entertainment delivery business. Thursday, August 14, 14
  10. 10. Organizations die because they fail to move to new business models. Thursday, August 14, 14
  11. 11. Clay Christensen, The Innovator’s Dilemma CostperMB $1000 $100 $10 $1 Time 14” M ainfram e 8” M inicom puter 5.25” Desktop 3.5” N otebook Thursday, August 14, 14
  12. 12. Technologies outstrip what the market needs, driven by feedback from the “best” current customer. Clay Christensen, The Innovator’s Dilemma $1000 $100 $10 $1 Time 8” 5.25” High end customer Low end customer Thursday, August 14, 14
  13. 13. The new market has different criteria for success, which are uninteresting to incumbents. Clay Christensen, The Innovator’s Dilemma $1000 $100 $10 $1 Time Storage capacity Portability Thursday, August 14, 14
  14. 14. Sometimes this has unintended consequences Clay Christensen, The Innovator’s Dilemma $1000 $100 $10 $1 Time Smaller disc size means less vibration impact, leading to greater density, increasing storage capacity Thursday, August 14, 14
  15. 15. Amazon Web Services and the server value network hanalgorithmics--efficiency-by-design-with-sap-hana--part-1 Thursday, August 14, 14
  16. 16. Amazon Web Services and the server value network Bare metal equipment • Density • Heat • GHz • MIPS Cloud computing • Instances • Objects • Spinup time • Scaleout Capex, financing, TCO, ROI Opex, demand, time to result CIO, enterprise IT CTO, coder, app owner, line of business, startup Value criteria Money Buyer Thursday, August 14, 14
  17. 17. Server vendors missed the disruption and the change in the value network. Clay Christensen, The Innovator’s Dilemma $1000 $100 $10 $1 Time Elastic resources mean we can scale up to huge, and shrink costs when not in use. Physical servers: MIPS, heat, density, cost per cycle. Sold to CIOs Cloud computing: Opex cost, time to spin up, scaleout, objects stored Sold to developers & marketers Thursday, August 14, 14
  18. 18. YOU ARE HERE Thursday, August 14, 14
  22. 22. Why now? First: High rate of change of digital technologies & channels. Thursday, August 14, 14
  23. 23. Software is eating the world. Thursday, August 14, 14
  24. 24. Arbitron and radio data Thursday, August 14, 14
  25. 25. Times a song in “heavy rotation” is played daily 0 15 30 2007 2012 Thursday, August 14, 14
  26. 26. Why now? Second: It’s no longer about whether you can build it—it’s about whether anyone will care. Thursday, August 14, 14
  27. 27. The Attention Economy “What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention, and a need to allocate that attention efficiently among the overabundance of information sources that might consume it.” (Computers, Communications and the Public Interest, pages 40-41, Martin Greenberger, ed., The Johns Hopkins Press, 1971.)Herbert Simon Thursday, August 14, 14
  28. 28. Lit motors tests the risky part Thursday, August 14, 14
  29. 29. Everything to lose: Why big companies need innovation. Thursday, August 14, 14
  30. 30. Business optimization (five mores) Product, market, method innovation Business model innovation You can convince executives of this because some of it is familiar. This terrifies them because it eats the current business. A three-maxima model of enterprise innovation Thursday, August 14, 14
  31. 31. Three kinds of innovation Sustain/core (optimizing for more of the same) Innovate/adjacent (introduce nearby product, market, or method) Disrupt/transformative (Fundamentally changing the business model) Improve along current metrics... ...or alter the rate of improvement Switch to a new value model Change the business model entirely Thursday, August 14, 14
  32. 32. Improvement Adjacency Remodeling Do the same, only better. Explore what’s nearby quickly Try out new business models Lean approaches apply, but the metrics vary widely. Sustain/ core Innovate/ adjacent Disrupt/ transformative Thursday, August 14, 14
  33. 33. Sustaining Adjacent Disruptive Next year’s car Electric car, same dealer On-demand, app-based car service Thursday, August 14, 14
  34. 34. Sustaining innovation is about more of the same. (says Sergio Zyman) More things To more people For more money More often More efficiently Supply chain optimization Per-transaction cost reduction Loyal customer base that returns Demand prediction, notification Maximum shopping cart Price skimming/tiering Highly viral offering Low incremental order costs Inventory increase Gifting, wish lists Thursday, August 14, 14
  35. 35. Adjacent innovation is about changing one part of the model in a way that alters the value network. Thursday, August 14, 14
  36. 36. Experiment with product, market, and method. Thursday, August 14, 14
  37. 37. Product (new “what”) Market (new “who”) Method (new “how”) 3 kinds of innovation Thursday, August 14, 14
  38. 38. Adjacent product to the same market in the same way Thursday, August 14, 14
  39. 39. Selling the same product to an adjacent market in the same way. Of P&G’s 38 brands, only 19 were sold in Asia as of 2011 Market expansion is seldom selling the same thing to new people. In Asia, P&G needed to Align pricing with novelty (prestige, mass-tige, over-the-counter) Change consumer expectations (moving from dilutes to concentrates) Adjust positioning and ingredients such as white fungus, ginseng, and the parasitic cordyceps Thursday, August 14, 14
  40. 40. Selling the same product to the same market in a new way. Thursday, August 14, 14
  41. 41. (At this point, observant Intrapreneurs should be asking, should P&G be in the house cleaning business? And that would be transformative.) Thursday, August 14, 14
  42. 42. Transformative innovation is about taking a leap, changing more than one dimension simultaneously in search of a new business model. Thursday, August 14, 14
  43. 43. Transformative isolation: Skunkworks Thursday, August 14, 14
  44. 44. If sustaining, incremental innovation produces linear growth, then disruptive, transformative innovation produces exponential growth. Thursday, August 14, 14
  45. 45. Transformative incubation: Metlife Infinity Thursday, August 14, 14
  46. 46. Significant market 850K full-time law enforcement officers in the US; 700K state/local; 525K patrol officers 130M incident reports/y. 70M new incidents; 200K involve use of force Only 31% of local police agencies keep computer files on use-of-force incidents Strong product benefits Exonerates the officer 96% of the time. 47% percent increase in charges and summons (2007) Patrol officers spend 15-25% of their time writing incident reports, recorded evidence reduces this by 22%, meaning 50m more on patrol Challenges New business model Pricing unclear SaaS offering Compliance and governance Unions, regulation, chain of evidence Changing the current model (radio is everything) Transformative incubation: Taser Thursday, August 14, 14
  47. 47. Engine as a service Thursday, August 14, 14
  48. 48. Engine as a service Thursday, August 14, 14
  49. 49. “Efficiency is tied to analytics. We’ll still look for new materials, or for the physics of devices, but the analytics ... is what’s really untapped.” Thursday, August 14, 14
  50. 50. Intrapreneurs drive innovation in organizations that have already found product-market fit. Thursday, August 14, 14
  51. 51. Intrapreneur: Someone working to produce disruptive change in an organization that has already found a sustainable, repeatable business model. Thursday, August 14, 14
  52. 52. Also: a pariah. Successful innovators share certain attributes. Bad listener: Wilfully ignore feedback from your best customers. Cannibal: If successful, destroying existing revenue streams. Job killer: Automation & lower margins are your favorite tools. Security risk: Advocate of transparency, open data, communities. Narcissist: Worry constantly about how you’ll get attention. Slum lord: Sell to those with less money, deviants, and weirdos. Thursday, August 14, 14
  53. 53. Some things smart Intrapreneurs do differently Thursday, August 14, 14
  54. 54. Think Lean, and analytically. Thursday, August 14, 14
  55. 55. The plural of anecdote is not data. (Roger Brinner) Thursday, August 14, 14
  56. 56. Don’t sell what you can make. Make what you can sell. Kevin Costner is a lousy entrepreneur. Thursday, August 14, 14
  57. 57. The core of Lean is iteration. Thursday, August 14, 14
  58. 58. Everyone’s idea is the best right? People love this part! (but that’s not always a good thing) This is where things fall apart. No data, no learning. Thursday, August 14, 14
  59. 59. Companies that use data-driven analytics instead of intuition have 5%-6% higher productivity and profits than competitors. Brynjolfsson, Erik, Lorin Hitt, and Heekyung Kim. "Strength in Numbers: How Does Data-Driven Decisionmaking Affect Firm Performance?." Available at SSRN 1819486 (2011). 2011 MIT study of 179 large publicly traded firms Thursday, August 14, 14
  60. 60. Empathy Stickiness Virality Revenue Scale E- commerce SaaS Media Mobile app User-gen content 2-sided market Interviews; qualitative results; quantitative scoring; surveys Loyalty, conversion CAC, shares, reactivation Transaction, CLV Affiliates, white-label Engagement, churn Inherent virality, CAC Upselling, CAC, CLV API, magic #, mktplace Content, spam Invites, sharing Ads, donations Analytics, user data Inventory, listings SEM, sharing Transactions, commission Other verticals (Money from transactions) Downloads, churn, virality WoM, app ratings, CAC CLV, ARPDAU Spinoffs, publishers (Money from active users) Traffic, visits, returns Content virality, SEM CPE, affiliate %, eyeballs Syndication, licenses (Money from ad clicks) Thursday, August 14, 14
  61. 61. Better: Thursday, August 14, 14
  62. 62. Frame it like a study Product creation is almost accidental. Unlike a VC or startup, when the initiative fails the organization still learns. Thursday, August 14, 14
  63. 63. When in doubt, collect data From tackling the FTA rate to visualizing the criminal justice supply chain. Thursday, August 14, 14
  64. 64. Use data to create a taste for data Sitting on Billions of rows of transactional data David Boyle ran 1M online surveys Once the value was obvious to management, got license to dig. Thursday, August 14, 14
  65. 65. Don’t just collect data, chase it. Thursday, August 14, 14
  66. 66. Know what has to be built in-house SAP integration Employment law Thursday, August 14, 14
  67. 67. Think subversively. Thursday, August 14, 14
  68. 68. Focus on the desired behavior, not just the information. 200808/changing-minds-and-changing-towels 26% increase in towel re-use with an appeal to social norms; 33% increase when tied to the specific room. Energy Conservation “Nudges” and Environmentalist Ideology: Evidence from a Randomized Residential Electricity Field Experiment - Costa & Kahn 2011 The effectiveness of energy conservation “nudges” depends on an individual’s political ideology ... Conservatives who learn that their consumption is less than their neighbors’ “boomerang” whereas liberals reduce their consumption. Thursday, August 14, 14
  69. 69. Take baby steps. Thursday, August 14, 14
  70. 70. Netflix Thursday, August 14, 14
  71. 71. Tesla Thursday, August 14, 14
  72. 72. Twitter’s 140-character limit isn’t arbitrary. It’s constrained by the size sms_screen_twitter_activity_stream_270x405.png Thursday, August 14, 14
  73. 73. Innovation portfolios at big companies Core Adjacent Transformative 70% 20% 10% Investment 70%20%10% Return Thursday, August 14, 14
  74. 74. “The most important figures that one needs for management are unknown or unknowable, but successful management must nevertheless take account of them.” Lloyd S. Nelson Thursday, August 14, 14
  75. 75. Pic by Twodolla on Flickr. Thursday, August 14, 14
  76. 76. ARCHIMEDES HAD TAKEN BATHS BEFORE. Thursday, August 14, 14
  77. 77. Once, a leader convinced others in the absence of data. Thursday, August 14, 14
  78. 78. Now, a leader knows what questions to ask. Thursday, August 14, 14
  79. 79. Thanks! Thursday, August 14, 14