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Startup Secrets: Wrap Up & Geoffrey Moore - An Insider’s Guide Startup Secrets: Wrap Up & Geoffrey Moore - An Insider’s Guide Presentation Transcript

  • Startup Secrets Wrap Up & Geoffrey Moore An insider’s guide to unfair competitive advantage Michael J. Skok North Bridge Venture Partners Twitter: @mjskok www.mjskok.comMichael Skok
  • Agenda • Welcome • Highlights  Emphasis on formation, go to market • Awards • Acknowledgements & thank yous • Geoffrey MooreMichael Skok 2
  • Startup Secrets - Agenda• Feb 1: Value Proposition• Feb 22: Company Formation• Mar 7: Business Model• Mar 29: Go-To-Market Strategy• Apr 18: Pitch Session• May 17: Geoffrey MooreMichael Skok 3
  • Agenda Problem Value Solution Gain Pain Prop Ideas Define Evaluate BuildMichael Skok Michael Skok 4
  • Qualify the problem – Is it “blac” & white? Blatant Blatant Blatant Critical Latent Aspirational Critical Latent Aspirational CriticalMichael Skok 5
  • Problem Problems worth solving are usually 4U … • Unworkable • Unavoidable • Urgent • UnderservedMichael Skok 6
  • Solution• Discontinuous innovation• Defensible technology• Disruptive business modelMichael Skok 7
  • Gain/Pain ratio• Revenue • Inertia • Find (See)• Cost savings • Switching costs? • Try• Time • Default = do nothing • Buy• People • Alternatives? • Implement• Competitive advantage • Good enough = • Deploy• Reputation good enough! • Own – eg TCO• Etc.. • RISK on a startup Pain Inertia, RISK Gain >10Michael Skok 8
  • Example - Apperian  Increase revenue by 40% at counters  Roll out 17,000iPads  Deliver worldwide no IT touch required  Saved $2.5M+ in direct IT costsMichael Skok
  • Learnings…Michael Skok 10
  • Startup Secrets - Agenda• Feb 1: Value Proposition• Feb 22: Company Formation• Mar 7: Business Model• Mar 29: Go-To-Market Strategy• Apr 18: Pitch Session• May 17: Geoffrey MooreMichael Skok 11
  • Company Formation: Agenda• Vision• Culture• People  Hiring• Team• WORKSHOP: Hiring and forming a teamMichael Skok Michael Skok 12
  • Building an enduring company: Vision (Market) Execution Listen (GOSPA) Learn Lead People, Team Iterate Pivot Value Proposition EnduringStartup Cultural ConsistencyMichael Skok Company Michael Skok 13
  • Learn from the best?• FORTUNE Tech top 5 100 Best Company  Google List consistently outperform major  SAS Institute stock indices by  NetApp  Zappos 300%  DreamWorksMichael Skok Michael Skok 14
  • Hiring: Startup Secret The 3As and the 3+s Aptitude Ability Attitude + Authentic + Awareness (self)Michael Skok +… PLUS (People Like US = Fit) Michael Skok 15
  • Select ALL your stakeholders See Video on Next Slide >>Michael Skok 16
  • My first interview question? What are youpassionate about?Michael Skok Michael Skok 17
  • Acquia “One of the hottest companies on the planet” - VentureBeatMichael Skok Michael Skok 18
  • Acquia – learning culture See Video on Next Slide >> “One of the hottest companies on the planet” - VentureBeatMichael Skok Michael Skok 19
  • Startup Secrets - Agenda• Feb 1: Value Proposition• Feb 22: Company Formation• Mar 7: Business Model• Mar 29: Go-To-Market Strategy• Apr 18: Mock Pitch Session• May 17: Geoffrey MooreMichael Skok 20
  • Agenda1. Finding a Disruptive Business Model2. Focusing on CORE differentiation3. Multipliers and Levers to optimize it4. Measuring your customer lifecycle value & cost• WORKSHOPOther side of the coin – GTM – next session - Eg Segmentation, Channels etcMichael Skok 21
  • Perfect Startup Storm Breakthrough Business Model New Market Disruptive Opportunity / Technology SegmentMichael Skok 22
  • Capturing your value?• Where is your CORE value? • Software/other technology • Data • Content CORE • Service, support • User network• How will you monetize it  To your competitive advantage ?  Where are others most vulnerable?Michael Skok 23
  • Examples: From my early experience:• Symantec ~20 years ago (!)  Symantec Antivirus for Mac (SAM) • Best seller – Licensed Product  Norton Antivirus for PC (NAV) • How to change the game? • Best seller – Subscription ServiceMichael Skok 24
  • Startup Secret: Multipliers and Levers Multiply and Leverage your COREMultipliers: Levers:• Increase revenue • Reduce time• Increase reach • Reduce costs• Increase coverage Multipliers • Reduce resources Levers COREMichael Skok 25
  • Strategic Partnership• EG: “Whole Product” Strategic PartnershipMultipliers: Levers:• Increase revenue • Reduce time to through fuller market services Multipliers solution • Reduced dev costs Levers Application• Increase CORE reachthrough their Database Storage sales force, channel etc.• Credibility Integrate your CORE intoMichael Skok their technology stack 26
  • Russian Doll PackagingGives you and your customers:• Digestible starting point• Upsell Options• Channel Flexibility… and more One of my favorite personal adages: “Addiction before Adoption”Michael Skok 27
  • Strategic Friction Free, SLIPPERY ProductsTactical Simple Low to no initial cost Installs easily Proves value quickly Plays well with others ( WHOLE product ) Easy to use ROI is obvious Y customers can’t live without it Michael Skok 28
  • Strategic Demandware case studyTactical • WHOLE product – fulfills Value Prop  LINK program • Creates whole product • Extends whole product to broader solution • Reduces cost of integration • Reduces time to deploy Michael Skok 29
  • LINK Technology Partners Outcome: Ease of Innovating Through New Technologies LINK Technology Partners • Extensive library of pre- built integrations between leading third-party ® technologies and LINK Technology Partners Demandware Commerce Benefits to Retailers / Brands • Accelerated Revenue Growth • Rapid Access to Applications • Reduced Implementation Costs • Early Visibility into Emerging TechnologiesMichael Skok 30
  • LINK Technology Partners Outcome: Ease of Innovating Through New Technologies LINK Technology Partners • Extensive library of pre- built integrations between leading third-party ® technologies and LINK Technology Partners Demandware Commerce Benefits to Retailers / Brands • Accelerated Revenue Growth • Rapid Access to Applications • Reduced Implementation Costs • Early Visibility into Emerging See Video on Next Slide >> TechnologiesMichael Skok 31
  • Unfair competitive advantage… • Disruptive innovation Yet.. • NON disruptive adoptionMichael Skok Michael Skok 32
  • Example - Akiban • 10x -> 100x performance improvement • NO change to applications • NO risk deployment (replicated data) • Customers Gain/Pain ratio = 10 to 100  Case study: • Doubling revenue with Akiban • Unworkable alternatives – rewrite and lose revenue, with unsure outcomeMichael Skok Michael Skok 33
  • The Refined Model• Cost of Acquiring &Re-Engaging Customer (CARC)• Lifecycle Value of Customer (LCV) Multipliers Up- Re- Levers sell CORE TrialMichael Skok 34
  • Startup Secrets - Agenda• Feb 1: Value Proposition• Feb 22: Company Formation• Mar 7: Business Model• Mar 29: Go-To-Market Strategy• Apr 18: Pitch Session• May 17: Geoffrey MooreMichael Skok 35
  • A Startup GTM - Agenda Marketing & Strategies Sales Cycle / Tactics Channel Audience Awareness Brand Direct vs. Targeting, Channel Segmentation Positioning Interest OUTbound / INboound Messaging Channel PersonasUnderstanding Development, Social Management, Actors/Scenes Media Etc. Engagement PR Trial Strategic Services Partners Purchase References • Results Oriented, Metrics, Execution Driven • Continuous Iteration & Improvement Michael Skok 36
  • Identity Name system Brand Essence Every Touch Product PointMichael Skok
  • Identity Name system Brand See Video on Next Slide >> Essence Every Touch Product PointMichael Skok
  • Positioning 2x2Strategic Whatever sets you up… for a unique white spaceTactical Define real BARRIERS to Entry into each segment High {whitespace} a c The choice of axes is critical b Bubble sizing for relative size of competitors d Low Low High Michael Skok 39
  • Targeting, Segmentation:Strategic Example, seeking Critical NeedTactical Mobile Professionals vs. Office Worker Field Workers vs. White Collar Services vs. Sales Medical vs. Office Equipment Equipment Hospitals vs. Medical Clinics Critical Care vs. Diagnostics Michael Skok 40
  • Startup SecretStrategic - don’t be afraid to FOCUS!Tactical • Narrow as possible to start!  Think Beachhead (Geoffrey Moore) • Which would you rather…  Expand on success?  Contract on failure? • Demandware case study… Michael Skok 41
  • Eating the Orange Segment At a TimeSegmentation Guidelines • “Get Small, Get Big or Get Out” • Small enough to be actionable, big enough to be meaningful• Can you on Next Slide >>See Videodeliver with distinction (and margin)? • If you succeed, will other customers care?42 Copyright 2008 Demandware, Inc. - Confidential
  • Startup Secret: CustomerStrategic “Actors” Change Through “Scenes”Tactical Awareness Customer “Actors” Actors Interest • Visionary Segment • Technocrat Understanding “SCENES” • Operator Target Engagement • Influencer • Economic buyer Trial Underserved, • Decision maker Uniquely valued Purchase Michael Skok 43
  • “Driving” StartupStrategic Marketing & SalesTactical You Customer Control Controls Neutral Accelerator / Brake /Clutch Awareness GEARS to build Momentum Interest Understanding Engagement Trial Purchase Overdrive Michael Skok 44
  • Startup Secret:Strategic Closed Loop, WebTactical Awareness $,Time, Resources Conversion rate % Interest Understanding Closed Loop Engagement via Web Trial ULTIMATELY: $,Time, Resources Purchase Conversion rate % Michael Skok 46
  • Ex: Unidesk Early Marketing Phase: Requirements Phase: Pre-Launch Phase: Launch Tool: Web Survey Tool: Blog, Twitter, Google Analytics Tool: Blogger PR (new media) Goal: Build right product Goal: Awareness Goal: Interest Key: Founder appeal Key: Compelling content/personality Key: Unique, differentiated position Measure Everything: Weekly KPI Spreadsheet D e a r Re a d e r, I re c e n t ly s t a rt e d a n e w s o ft w a re c o mp a n y fo c u s e d o n v irt u a l d e s kt o p ma n a g e me n t . It s c a lle d U n id e s k, a n d it s b a c ke d b y M a t rix a n d N o rt hBrid g e , t w o o f t h e b ig g e s t n a me s in h ig h -t e c h v e n t u re c a p it a l. O u r g o a l is t o h e lp IT d ra ma t ic a lly imp ro v e t h e w a y d e s kt o p s , la p t o p s , a n d o t h e r P C c lie n t s a re ma n a g e d . P l u s , you wi l l : Im o ffe rin g y o u a fre e $20 g ift c a rd re d e e ma b le a t a n y re t a il s t o re t h a t a c c e p t s M a s t e rCa rd if y o u ll re s p o n d t o a s u rv e y a n d s h a re y o u r d e s kt o p Re c e iv e a fre e $20 g ift c a rd ma n a g e me n t e xp e rie n c e s . Im n o t lo o kin g t o s e ll y o u a n y t h in g . Id ju s t like re d e e ma b le a t a n y re t a il s t o rey o u t o t a ke a fe w min u t e s a n d a n s w e r s o me q u e s t io n s s o my t e a m c a n b e t t e r t h a t a c c e p t s M a s t e rCa rd ™ u n d e rs t a n d y o u r d e s kt o p a d min is t ra t io n c h a lle n g e s a n d d e liv e r t e c h n o lo g y t h a t b e s t me e t s y o u r n e e d s . Be e n t e re d in a d ra w in g t o T o c o mp le t e t h e b rie f s u rv e y , v is it Virt u a l D e s kt o p S u rv e y . re c e iv e a fre e A p p le iP o d ™ T o u c h M e d ia P la y e r w it h W iF i T h a n k y o u fo r h e lp in g t o in flu e n c e t h e n e xt g e n e ra t io n o f d e s kt o p ma n a g e me n t s o ft w a re . Ge t t h e c h a n c e t o jo in o t h e r IT p ro fe s s io n a ls a s p a rt o f a n in flu e n t ia l c u s t o me r a d v is o ry b o a rd Ch ris M id g le y CT O a n d F o u n d e r, U n id e s k Co rp C o p y ri g h t © 2 0 0 8 U n i d es k C o rp o rat i o n • 1 9 0 0 W es t P ark D ri v e • S u i t e 2 8 0 • W es t b o ro u g h • M A • 5 0 8 . 9 8 3 . 1 4 1 1 If y o u d o n o t w i s h t o recei v e fu t u re m ai l i n g s fro m U n i d es k . P l eas e em ai l U n s u b s cri b e t o u n s u b s cri b e@ u n i d es k . co m Phase: Build pipeline Phase: Customer acquisition Phase: Production customers Tool: Video, YouTube Tool: Webinars Tool: Forums Goal: Understanding Goal: Engagement, Trial Goal: Purchase, Repeat Purchase Key: Evangelist, crisp script Key: Passionate customers Key: Passionate, active customers Michael Skok 47
  • Ex: Unidesk Early Marketing Phase: Requirements Phase: Pre-Launch Phase: Launch Tool: Web Survey Tool: Blog, Twitter, Google Analytics Tool: Blogger PR (new media) Goal: Build right product Goal: Awareness Goal: Interest Key: Founder appeal Key: Compelling content/personality Key: Unique, differentiated position Measure Everything: Weekly KPI Spreadsheet D e a r Re a d e r, I re c e n t ly s t a rt e d a n e w s o ft w a re c o mp a n y fo c u s e d o n v irt u a l d e s kt o p ma n a g e me n t . It s c a lle d U n id e s k, a n d it s b a c ke d b y M a t rix a n d N o rt hBrid g e , t w o o f t h e b ig g e s t n a me s in h ig h -t e c h v e n t u re c a p it a l. O u r g o a l is t o h e lp IT d ra ma t ic a lly imp ro v e t h e w a y d e s kt o p s , la p t o p s , a n d o t h e r P C c lie n t s a re ma n a g e d . P l u s , you wi l l : Im o ffe rin g y o u a fre e $20 g ift c a rd re d e e ma b le a t a n y re t a il s t o re t h a t a c c e p t s M a s t e rCa rd if y o u ll re s p o n d t o a s u rv e y a n d s h a re y o u r d e s kt o p Re c e iv e a fre e $20 g ift c a rd ma n a g e me n t e xp e rie n c e s . Im n o t lo o kin g t o s e ll y o u a n y t h in g . Id ju s t like re d e e ma b le a t a n y re t a il s t o rey o u t o t a ke a fe w min u t e s a n d a n s w e r s o me q u e s t io n s s o my t e a m c a n b e t t e r t h a t a c c e p t s M a s t e rCa rd ™ u n d e rs t a n d y o u r d e s kt o p a d min is t ra t io n c h a lle n g e s a n d d e liv e r t e c h n o lo g y t h a t b e s t me e t s y o u r n e e d s . Be e n t e re d in a d ra w in g t o T o c o mp le t e t h e b rie f s u rv e y , v is it Virt u a l D e s kt o p S u rv e y . re c e iv e a fre e A p p le iP o d ™ T o u c h M e d ia P la y e r w it h W iF i T h a n k y o u fo r h e lp in g t o in flu e n c e t h e n e xt g e n e ra t io n o f d e s kt o p ma n a g e me n t s o ft w a re . Ge t t h e c h a n c e t o jo in o t h e r IT p ro fe s s io n a ls a s p a rt o f a n in flu e n t ia l c u s t o me r a d v is o ry b o a rd Ch ris M id g le y CT O a n d F o u n d e r, U n id e s k Co rp C o p y ri g h t © 2 0 0 8 U n i d es k C o rp o rat i o n • 1 9 0 0 W es t P ark D ri v e • S u i t e 2 8 0 • W es t b o ro u g h • M A • 5 0 8 . 9 8 3 . 1 4 1 1 If y o u d o n o t w i s h t o recei v e fu t u re m ai l i n g s fro m U n i d es k . P l eas e em ai l U n s u b s cri b e t o u n s u b s cri b e@ u n i d es k . co m Phase: Build pipeline Phase: Customer acquisition Phase: Production customers Tool: Video, YouTube Tool: Webinars Tool: Forums Goal: Understanding Goal: Engagement, Trial Goal: Purchase, Repeat Purchase Key: Evangelist, crisp script Key: Passionate customers Key: Passionate, active customers See Video on Next Slide >> Michael Skok 48
  • Remember, ROME wasn’t built in a DayNor will your GTM strategy and tactics be Listen  R esults Learn  O riented GTM Lead Business Iterate  M arketing Model Pivot  E xecution Product Proposition  D riven through iteration • Results Oriented, Metrics, Execution Driven • Continuous Iteration & ImprovementMichael Skok 49
  • Ex: Unidesk See Video on Next Slide >>Michael Skok 50
  • Startup Secrets - Agenda• Feb 1: Value Proposition• Feb 22: Company Formation• Mar 7: Business Model• Mar 29: Go-To-Market Strategy• Apr 18: Pitch Session• May 17: Geoffrey MooreMichael Skok 51
  • Thank you….Michael Skok 52
  • Case Studies• Acquia• Apperian• Akiban• Demandware• Unidesk• Active Endpoints• MC10Michael Skok 53
  • Mentors and coaches• Adam Berrey • Steve Skidmore• Brent Kleiman• David McFarlane• Jim Moran• Carmichael Roberts• Carlos Montero LuqueMichael Skok 54
  • Judges• Don Bulens  CEO Unidesk• Tom Ebling  CEO Demandware• Brent Kleiman  Entrepreneur• Jeff McCarthy  GP, North Bridge• David McFarlane  Co-founder, CEO AkibanMichael Skok 56
  • Congratulations to… • Sarah Cullem • Regina Joice • Eric Kelsic • Ahmed Samir Mady • Katharine Wolf & Cecilia ChenMichael Skok 57
  • Build around - YOU...• What problems do you understand uniquely well?• What solution can you deliver uniquely well?• What kind of disruptive business model can you bring?Michael Skok 58
  • Thank you….Michael Skok 59
  • Thank you….Michael Skok 60
  • Thank you….Michael Skok 61
  • Thank you….Michael Skok 62
  • Thank you….Michael Skok 63
  • Thank YOU… Follow up online Email • All who mjskok@northbridge.com participated Web mjskok.com Twitter @mjskok • Harvard iLab  Jodi Goldstein SlideShare /mjskok  Neil Doyle LinkedIn  Gordon Jones linkedin.com/in/mjskok Google+ bit.ly/mjskok-google YouTube bit.ly/mjskok-youtubeMichael Skok 64
  • Startup Secrets - Agenda• Feb 1: Value Proposition• Feb 22: Company Formation• Mar 7: Business Model• Mar 29: Go-To-Market Strategy• Apr 18: Pitch Session• May 17: Geoffrey MooreMichael Skok 65
  • Startup Secrets Wrap Up & Geoffrey Moore An insider’s guide to unfair competitive advantage Michael J. Skok North Bridge Venture Partners Twitter: @mjskok www.mjskok.comMichael Skok
  • Escape VelocityFree Your Company‟s Future from the Pull of the Past Harvard iLab May 17, 2012
  • Introduction The Hierarchy of Powers70
  • The Hierarchy of Powers A Framework for Analyzing Business Strategy Category Power Growth born from category expansion “Big Bang” growth creates a new earnings engine Company Power Growth born from competitive advantage Partners go out of their way to send you business Market Power Growth born from customer commitment Customers go out of their way to give you business Offer Power Growth born from unmatchable offers Competitors cannot or will not copy your efforts Execution Power Growth born from reaching tipping points Your initiatives become the next status quo 71
  • Execution Power Transitioning to Scale Growth Born from Reaching Tipping Points72
  • The Arc of Execution Where in the Execution Life Cycle Are You? Deploy Invent Optimize73
  • Time to Tipping Point The Most Important Life Cycle Metric Deploy  Tipping Point Transition to Viable Scale Invent Optimize74
  • Why Tipping Points? • Adoption is social • People do what they see other people doing • This leads to two mirror-image phenomena • The Chasm: (I won‟t because you aren‟t) • The Tornado: (I must because you are) • Pre-tipping-point, no progress is sustainable • As soon as you withdraw the stimulus, the population returns to its prior state • Post-tipping point, there is no going back • Social dynamics institutionalize the change75
  • Tipping Point for B2B Markets The Technology Adoption Life Cycle MAIN STREET TORNADO EARLY MARKET BOWLING CHASM ALLEY76
  • Life-Cycle Metrics that Matter Tracking Performance Relative to the Chasm • Early Market • One or more flagship customers making big-bet commitments • In the Chasm • Cannot support yet another big-bet commitment • Pragmatists still holding back from entering the market • Taking the Beachhead • Nailed a high-pain use case • Getting strong word-of-mouth support within target segment • In the Bowling Alley • Additional use cases coming on board, viral in adjacent segments • Inside the Tornado • Horizontal “killer app” -- hyper-growth in the category • On Main Street • Hyper-growth subsides – pecking order established77
  • Tipping Point for B2C Markets on the Web The Four Gears VIRALITY ACQUISITION Starter Motor MONETIZATION ENGAGEMENT78
  • Four-Gears Metrics that Matter Tracking Performance Relative to the Tornado • Acquisition • Rate of gaining new users • Engagement • Average length, depth, and frequency of user engagement • Monetization • Percentage of total users that participate in business model • Virality(Positive Enlistment) • New customers coming from existing customers over time • Churn (Negative De-Enlistment) • Losing existing users • Lifetime Customer Value (ARPU/Churn) • Projected monetization returns by class of customer79
  • Offer Power Return on Innovation Growth Born from Unmatchable Offers80
  • Offer Power Getting a Return from Innovation Differentiation Neutralization Productivity81
  • Offer Power for Escape Velocity Three Mandates to Execute in Parallel Differentiation Separate from your competitive set Neutralization Keep up with evolving norms Productivity Convert waste into value82
  • Differentiate Differentiation Separate From Your Competitive Set * * Leverage your unmatchable Competitor 1 capability YOU * Competitor 2 to create an * Competitor 3 unmatchable offer Competitive Set83
  • Neutralize Neutralization Catch Up to Your Competition * Competitor 1 Neutralize a * Competitor 2 * competitor‟s differentiation * * Competitor 3 by reaching “good enough” quicklyYOU Competitive Set84
  • The Difference Between the Two Differentiation Neutralization • Return on Differentiation • Beyond compare • Return on Neutralization • Good enough • Everything spent between the two • Waste!85
  • Innovating for Optimization ProductivityFocus on Productivity YOU * Competitor 1 Optimize behind the scenes * Competitor 2 * * Competitor 3 to lower costs and free up scarce resources Competitive Set Price Deflation
  • Three Innovation Playbooks Differentiation Neutralization Productivity Core Metric Separation Time to market Reclaimed resourcesStandard to Meet Unmatchable Good enough Best in class Test Question How far? How fast? How deep? These playbooks have conflicting goals Do not combine them 87
  • No Return on InnovationHow Established Enterprises Waste Their R&D Differentiation Neutralization Failed Attempts Optimization Waste Sources of Waste: • Differentiation projects that don’t go far enough • Neutralization projects that go too far and/or are too slow • Optimization projects that don’t free up mission-critical resources
  • Category Power Portfolio Management Growth Born From Entering New Categories89
  • Category Maturity Life Cycle The A-B-C-D‟s of Portfolio Management Indefinitely elastic Utilize Acquire middle Power Divest Power Declining PowerRevenue Growth A B C D Emerging Growth Mature Declining Fault Market Market Market Market Line! Catch (pre-Tornado) Next E Wave End of Life Technology Adoption Time Life Cycle 90
  • How Are Your Categories Performing? A Portfolio Analysis Framework High Growth Low Growth Material Revenues PERFORMANCE B B C C A D A D Not Material POWER B C D A91
  • Typical Portfolio Pattern for a Public Company High Growth Low Growth Material 2 3 1 4 Not Material What is the first question the board asks? Why don’t we have more businesses in Quadrant 2?92
  • Three Investment Horizons Where Category Power Initiatives Gets Stuck Do well here too Break-Out Categories On-board next generation for Horizon 3 future growth ROI in 36 to 72 mos Current Categories Future Category Meet Horizon 2 Options Performance ROI in 12 to 36 mos Commitments Develop options for future Sticking point growth Horizon 1 ROI in 0 to 12 mos Do well here93
  • Portfolio Dynamics Horizons Meets Life Cycles • Performance management focuses on winning material High Growth Low Growth revenues (Horizon 1) • H1 managers to hoard spare Horizon 1 resources to ensure they can Material meet their commitments Revenues • That crimps H2 efforts because they compete with H1 for the Horizon „0‟ Horizon 2 B C same resource pool A D • It also makes H1 managers reluctant to exit H0 businesses Not Material (because every little bit of revenue helps) • Horizon 3 is unaffected by any of these portfolio dynamics Horizon 394
  • The Horizon 2 Challenge Crossing the Chasm Inside the Belly of a Whale • All the other horizons are OK • H1 gets first dibs at resources • H3 gets funded outboard of the process • H0 sneaks in under the covers • H2 is out in the cold • H2 competes directly with H1 for resources • H1, under pressure to meet current obligations, does not release resources willingly • H2 cannot compete with H1, particularly when metrics and compensation focus on material returns in the current year This is not a failure to invest in R&D innovation This is primarily a go-to-market problem95
  • Innovation Incubation Model It‟s Not a Funnel. It‟s an Hourglass! Horizon 3 Horizon 2 Horizon 196
  • The Race to Material Revenues Rules of Thumb for Publicly Held Enterprises • 5% - 10% of Total Revenue = Revenue Materiality • This is the exit threshold from H2 to H1 • 0.5% - 1% of Total Revenue = On the Expense Radar • This is the entry threshold from H3 to H2 • Horizon 2 Journey • Grow one order of magnitude in 12 quarters • Be more than half way after 8 quarters • Else fold back into the base business and move on Horizon 2 is not a stable state Must race to get through, or die97
  • Meeting the Horizon 2 Challenge New Prescriptions in Five Key Areas 1. Number of H2 Initiatives • One at a time, regardless of size of your enterprise • No limit on number of H1 or H3 initiatives 2. Planning & Budgeting • Calendar for the 2nd quarter • Do not blend with annual planning and budgeting process 3. Organizational Structure • Independent BUs with direct control over all functions • Transition to functional organization at Horizon 1 4. Metrics • Tipping point metrics • Crossing the Chasm (B2B) or Four Gears (B2C) 5. Talent & Compensation • Major variable comp tied to Tipping Point success • Affects every executive equally98
  • Conclusion Putting the Previous in Context99
  • Escape Velocity is Hard to Create Understanding the Dynamics of the Status Quo • The innovator‟s dilemma • Established enterprises focus on their best customers, who want more of what they have, not something new. • The asymmetry of risk for successful companies • Breakout growth involves taking risk. The bigger you are, the less you have to win from taking risk, the more you have to lose • The pragmatics of annual planning in established enterprises • Next year‟s plan is normally based on last year‟s—which means legacy businesses get first dibs at the critical resources • The dynamics of contemporary financial markets • Short-term investors drive short-term compensation metrics— breakout growth always involves a J-curve100
  • Companies Who Could Not Escape Burroughs – Sperry Univac – Honeywell – Control Data MSA – McCormick & Dodge – Cullinet– Cincom – ADR– DEC– Data General – Wang -– Prime– Tandem – Daisy – Calma These were not badSilicon Graphics – Sun – – Valid – Apollo – companies Informix – Ingres – Nortel– Bay Networks – Lucent These were our best companies! – 3Com – Banyan – WordPerfect– Lotus – Ashton Tate – Borland– Novell – Atari – Osborne – Commodore – Casio – Palm – Sega – Netscape – MySpace – Kodak – Polaroid – Quest– America West – Nynex – Bell South101
  • Achieving Breakout Growth What Does It Take to Gain Escape Velocity? • Focus on Power before Performance • Power fuels performance • Performance converts power into returns • Focus on Leadership before Management • Leadership develops power • Management delivers performance • Focus on Tipping Points before ROI • Tipping points are binary state changes in power • Until state change is achieved, no other metrics matter102
  • gmoore@geoffreyamoore.com103