Stanford breakfast briefing 111214
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Stanford breakfast briefing 111214
- 1. Dealing With Disruption: How to Think Like a Start-Up Leader in a Large Organization Steve Blank steveblank.com @sgblank
- 2. Startups Are Not Smaller Versions of Large Companies
- 3. Startups Are Not Smaller Versions of Large Companies Large Companies Execute Known Business Models
- 4. Startups Are Not Smaller Versions of Large Companies Startups Search for Unknown Business Models
- 5. What’s A Startup? Search Build Execute A Startup is a temporary organization used to search for a repeatable and scalable business model Startup Large Company Transition
- 6. Startups Search and Pivot The Search for the Business Model Scalable Startup Large Company Transition
- 7. Startups Search and Pivot The Search for the Business Model Scalable Startup Large Company Transition Search for a Business Model - customer needs/product features i.e. Product/Market fit - Found by founders, not employees - Repeatable sales model
- 8. Startups Search, Companies Execute The Search for the Business Model The Execution of the Business Model Scalable Startup Large Company Transition
- 9. Startups Search, Companies Execute The Search for the Business Model The Execution of the Business Model Scalable Startup Large Company Transition Execution - Profitable - Repeatable - Scale - Job spec’s - Process
- 10. Learning Metrics Vs Accounting/KPI’s Scalable Startup The Execution of the Business Model Large Company Transition
- 11. Learning Metrics Vs Accounting/KPI’s Scalable Startup The Execution of the Business Model Large Company Transition Accounting/KPI’s - Balance Sheet - Cash Flow Statement - Income Statement - Return on Net Assets - Return on Capital
- 12. Learning Metrics Vs Accounting/KPI’s The Search for the Business Model Scalable Startup Large Company Transition Startup Metrics - Customer Acquisition Cost - Viral coefficient - Customer Lifetime Value - Average Selling Price/Order Size - Monthly burn rate - etc.
- 13. Customer Validation Versus Sales Scalable Startup The Execution of the Business Model Large Company Transition Sales - Sales Organization - Scalable - Price List/Data Sheets - Revenue Plan
- 14. Customer Validation Versus Sales The Search for the Business Model Scalable Startup Large Company Transition Customer Validation - Early Adopters - Pricing/Feature unstable - Not yet repeatable -“One-off’s” - Done by founders
- 15. Customer Development Versus Scalable Startup Product Management The Execution of the Business Model Large Company Transition Product Management - Delivers MRD’s - Feature Spec’s - Competitive Analysis - Prod Mgmt driven
- 16. Customer Development Versus Product Management The Search for the Business Model Scalable Startup Large Company Transition Customer Development - Hypothesis Testing - Minimum Feature Set - Pivots - Founder-driven
- 17. Scalable Startup Engineering Versus Agile Development The Execution of the Business Model Large Company Transition Engineering - Requirements Docs. - Waterfall Development - QA - Tech Pubs
- 18. Engineering Versus Agile Development The Search for the Business Model The Execution of the Business Model Scalable Startup Large Company Transition Agile Development - Continuous Deployment - Continuous Learning - Self Organizing Teams - Minimum Feature Set - Pivots Engineering - Requirements Docs. - Waterfall Development - QA - Tech Pubs
- 19. Startups Model, Companies Plan Scalable Startup The Execution of the Business Model Large Company Transition Business Plan - Plan describes “knowns” - Known features for line extensions - Known customers/markets - Known business model
- 20. Startups Model, Companies Plan The Search for the Business Model Scalable Startup Large Company Transition Business Model - Unknown customer needs - Unknown feature set - Unknown business model - Model found by iteration The Execution of the Business Model
- 21. Startups Protect Mavericks, Companies Fire Mavericks Scalable Startup The Execution of the Business Model Large Company Transition - Pains in the butt - Always looking at something different - Doesn’t get with the program
- 22. Startups Protect Mavericks, Companies Fire Mavericks The Search for the Business Model Scalable Startup Large Company Transition - CEO of your company - Finds your next market
- 23. Strategy and Structure Apologies to Alfred Chandler
- 24. 1870’s: Organize by Functions • Problem Companies going from local to regional to national. Specialized skills needed • Strategy Separate ownership from professional management • Structure Organize into functions: Sales, Mfg, Finance, Marketing • Tools Organization Chart • Leaders U.S. Steel, Standard Oil, Pennsylvania Railroad
- 25. CEO Organize by Functions Sales Marketing Engineering Finance … … … … … … … … … … … … Mfg … … …
- 26. 1920’s: Organize by Divisions • Problem Companies have dissimilar products and/or national geography - functional organization not efficient • Strategy Group similar products together by regions or channels • Structure Organize companies into self-contained divisions. Add corporate staff for shared functions • Tools Distributed Accounting, Bus School, Consulting Firms • Leaders DuPont, General Motors, Sears, Standard Oil
- 27. CEO Organize by Divisions Bus Div A Bus Div B Bus Div C Bus Div C … … … … … … … … … Replicate functions inside separate divisions
- 28. CEO Organize by Divisions Add Corporate Staff Adv R&D CIO CMO M&A CFO Legal Bus Div A Bus Div B Bus Div C Bus Div C
- 29. 1960’s: Organize by Matrix • Problem Companies have complex, short term projects • Strategy Temporary organization driven by project • Structure Project mgmt across functions as needed by project • Tools Gantt Charts, Project Management •Leaders NASA, Lockheed, Northrup, Boeing,…
- 30. CEO Organize by Project (Matrix) Projects Engineering Q/A Finance Project Mgr Eng 1 Eng 2 Eng 3 … … … … … … Mfg … … Project Mgr … Project Mgr Functional Mgmt Functional Mgmt Functional Mgmt Functional Mgmt
- 31. 21st Century Corporate Issues • Continuous and unrelenting disruption – China – Globalization – Transparent pricing – Plummeting cost of entry – Internet, mobile…
- 32. 21st Century Corporate Structure Issues • Current forms of corporate organizations are designed for execution • Attempts to “add” innovation break these structures – KPI’s, Processes, financials, HR, Bus Units, etc
- 33. Continuous disruption requires continuous innovation
- 34. Types of Corporate Innovation
- 35. Types of Corporate Innovation Types of Corporate Innovation Disruptive Innovation Continuous Innovation Process Innovation
- 36. Process Innovation • Improve part of an existing business model – Cost, revenue, service, etc • Can be done by an individual part time • Domain of the general manager
- 37. Business Model (Continuous) Innovation • Requires existing business unit resources • Uses internal business unit incubator and Investment Readiness Level • Domain of the general manager Example: Pepsi buying Frito Lay/Quaker Oats, Exxon buying XTO ($41B)
- 38. Disruptive Innovation • Requires new & existing business unit resources • Uses corporate incubator or Skunk Works • Domain of the CEO and board Example: Amazon and AWS, Apple and iPod, iPhone
- 39. Corporate Innovation Portfolio • To run these innovation projects: – corporation’s innovation is a portfolio of projects – occurs inside Bus Units and Functional Org – As well as outside
- 40. Innovation Portfolio Innovation Portfolio Disruptive Innovation Continuous Innovation Process Innovation • Build • Buy • Partner • Open Types of Corporate Innovation
- 41. Buying Innovation What Can You Acquire? Disruptive Innovation Continuous Innovation Process Innovation • Revenue • Product Line + Users • Product Line • Teams • Intellectual Property Why Acquire? Innovation Portfolio • Build • Buy • Partner
- 42. Building Innovation Where Do You Build It? Disruptive Innovation Continuous Innovation Process Innovation • Skunk Works • Advanced R&D • Functional Org • Divisional Engineering • Intellectual Property Type of Innovation Innovation Portfolio • Build • Buy • Partner
- 43. Issues Structure and Tools for Execution are not Structure and Tools for Innovation
- 44. Current Corporate Metrics Focus on Execution • Finance focus – Return on Net Assets, Return on Capital and Internal Rate of Return – minimum rate of return on a project or investment • Execution focus – Customer acquisition cost, sales per rep, etc Christensen HBR 6/13
- 45. CEO M&A/Strat Finance Legal CTO/R&D CMO egy HR • Hiring policies • Promotion Policies • Termination Policies • Bonus/Incentives • … • Return on Net Assets • IRR • Hurdle Rates • Net/Gross Margin • operating income • … • Contracts • Compliance • Governance… Bus Div A Bus Div B Bus Div C Bus Div C •market share •quote to close ratio •sales per rep •customer acquisition/activation cost •average selling price • customer lifetime value • churn/retention • sales per square foot • inventory turns • … • Strategic/Operational fit • Accretion/Dilution • Total Shareholder Return • Economic Margin • Market Value Added •… • Tech Strategy • Future Direction • Chief Architect •… • …
- 46. Corporate Innovation Quandary • Tools to manage execution are destructive for innovation • Innovation metrics are different • How do we manage to do both without killing the core business?
- 47. Even Elephants Can Dance Implementing Innovation in Large Companies
- 48. Start With Lots of Small Wins • Develop an experimentation and prototyping culture • Use Lean Startup methodology – Early Market Testing – Fast Iterations – Fast Go/No Go Decisions
- 49. Operate with Speed and Urgency
- 50. Corporate Innovation By Design • Start Small • Aim High • Iterate Fast • Fail fast, learning • Innovation as incremental but permanent change All require cultural change CEO/Exec Staff buy-in
- 51. The Lean Startup A much better way to build innovation
- 52. 1. Frame Hypotheses • Frame Hypotheses
- 53. 1. Frame Hypotheses • Frame Hypotheses Business Model Canvas Customers Get/Keep/ Product / Grow Service Revenue Partners Activities Resources Costs Channel
- 54. 2. Test Hypotheses • Frame Hypotheses • Test Hypotheses Business Model Canvas
- 55. 2. Test Hypotheses • Frame Hypotheses • Test Hypotheses Business Model Customer Development
- 56. Turning Hypotheses Into Facts
- 57. There Are No Facts Inside The Building, So Get the Heck Outside
- 58. 3. Build Incrementally & Iteratively • Frame Hypotheses • Test Hypotheses • Build the product incrementally & Iteratively Business Model Customer Development Agile Engineering
- 60. Encourage Multi-Disciplinary Teams • Pure tech teams lack customer perspective – Tend to push the product rather than understand the problem • Pure business teams lack tech reality/judgment
- 61. Core Team of Innovation Managers • Office of Chief Innovation Officer • They manage the Innovation Cycle – Logistics – Administration – Assessment – Training
- 62. CEO Chief M&A/Strat Finance Legal CMO Innovation Officer egy HR Add Corp Innovation Staff Bus Div A Bus Div B Bus Div C Bus Div C
- 63. Chief Innovation Officer • Training – Integral to the projects – Lean LaunchPad/I-Corps Curriculum • Mentors – Integral to the projects – Corporate and divisions • Open Innovation – Integral to the projects
- 64. Core Business + Disruptive Projects • Run Process & Business Model innovation in Business Units/Functional Organization • Run Disruptive projects in corporate • Bottoms up + Top Down innovation
- 65. CEO Chief M&A/Strat Finance Legal CMO Innovation Officer egy HR Add Divisional Lean Innovation Projects Bus Div A Bus Div B Bus Div C Bus Div C • … Lean Project 1 Lean Project 2 Lean Project n Lean Project 1 Lean Project 2 Lean Project n Lean Project 1 Lean Project 2 Lean Project n Lean Project 1 Lean Project 2 Lean Project n
- 66. CEO Chief M&A/Strat Finance Legal CMO Innovation Officer egy HR Add Corporate Lean Innovation Projects Bus Div A Bus Div B Bus Div C Bus Div C • … - Disruption Lean Project 1 Lean Project 2 Lean Project n Lean Project 1 Lean Project 2 Lean Project n Lean Project 1 Lean Project 2 Lean Project n Lean Project 1 Lean Project 2 Lean Project n Lean Project 1 Lean Project 2 Lean Project n
- 67. CEO M&A/Strat Finance Legal CTO/R&D CMO egy HR • Hiring policies • Promotion Policies • Termination Policies • Bonus/Incentives • … • Return on Net Assets • IRR • Hurdle Rates • Net/Gross Margin • operating income • … • Contracts • Compliance • Governance… Add Innovation Policies and Processes to each function Bus Div A Bus Div B Bus Div C Bus Div C •market share •quote to close ratio •sales per rep •customer acquisition/activation cost •average selling price • customer lifetime value • churn/retention • sales per square foot • inventory turns • … • Strategic/Operational fit • Accretion/Dilution • Total Shareholder Return • Economic Margin • Market Value Added •… • Tech Strategy • Future Direction • Chief Architect •… • …
- 68. Innovation As Incremental but Permanent Change • Each innovation win needs to permanently change the corporation – New KPI’s – New policies – New procedures – New comp plans • Every time an innovation project wins an exception to an existing process, institutionalize the exception
- 69. Can Start Multiple Ways • Top down – CEO mandate • Chief Innovation Officer Initiatives • Divisioanal projects
- 70. Common Corporate Innovation Language and Metric • Innovation needs a common corporate language • All the support functions: HR, IT, Finance, Legal need to develop innovation processes and procedures
- 71. NASA
- 72. NASA/DOD Technology Readiness Level (TRL) • Formal Way to assess project maturity • Quantify Relative Risks • Data Driven • Adopted by NASA, DOD, FAA, ESA…
- 73. NASA/DOD Technology Readiness: Levels 1 & 2 Basic Technology Research • Basic principles observed • Technology concept formulated Concept
- 74. NASA/DOD Technology Readiness Levels 3 & 4 Research to prove Feasibility • Experimental proof of concept • Breadboard validation in lab Research Concept
- 75. NASA/DOD Technology Readiness Levels 5 & 6 Demo Prototype • Breadboard validation outside the building • System demo in real-world Demo Research Concept
- 76. NASA/DOD Technology Readiness Levels 7, 8, 9 Deployment • System Development • System deployed in real-world Demo Research Concept
- 77. What Can We Do With All This Data? The Investment Readiness Level
- 79. Investment Readiness Level We can do the same for new ventures
- 80. Investment Readiness Level We can do the same for new ventures Emphasis is on data
- 81. Investment Readiness Level • A Formal Way to Quantify Relative Risks • Data Driven • Analog to NASA/DOD Technology Readiness Level (TRL)
- 82. Investment Readiness: Levels 1 & 2 Hypotheses • Value Proposition summarized • Canvas hypotheses articulated Hypotheses
- 83. Investment Readiness: Levels 3 & 4 Problem / Solution Fit • Problem Solution fit • Low fidelity MVP Problem/Solution Hypotheses
- 84. Investment Readiness: Levels 5 & 6 Validate • Product/Market fit • Right side of canvas Product/Market fit Problem/Solution Hypotheses
- 85. Investment Readiness: Levels 7 & 8 Validate • Left side of canvas Product/Market fit Problem/Solution Hypotheses
- 86. Investment Readiness: Levels 9 Metrics That Matter Left side of the canvas Product/Market fit Problem/Solution Hypotheses
- 87. Technology Readiness Level Investment Readiness Level Metrics that Matter Validate Left side of Canvas Validate Right side of Canvas Product/Market Fit Problem/Solution Hypotheses
- 88. Summary • 20th century corporate structures focused on execution • Continuous disruption requires continuous innovation • We need a new model for innovation
- 89. Thanks
- 90. Backup
- 91. Medical Device: Cheap DNA Testing Source: alexander osterwalder
- 92. Medical Device: Cheap DNA Testing 110K 5% MARKET SHARE HOW COULD YOU IMPROVE THIS BUSINESS MODEL? 5.5M 2.8M 1.2M 1M $1,000/ DEVICE FIXED COST 50% COMMISSION $225/DEVICE Source: alexander osterwalder
- 93. Medical Device: Cheap DNA Testing 110K 5% MARKET SHARE 5.5M 2.8M 1.2M 1M $1,000/ DEVICE FIXED COST 50% COMMISSION $225/DEVICE Source: alexander osterwalder
- 94. Medical Device: Cheap DNA Testing 110K 5.5M 2.8M 1.2M 1M 5% MARKET SHARE 24.8M $75/ STRIP $7/ STRIP 2.3M Source: alexander osterwalder
- 96. Buy IP Buy Product Line Buy Teams Buy Product Line + Users/Payers Buy Revenue Acquisition Intention New Venture Phase: Search versus Execution Types of Innovation Acquisitons
- 97. Acquisitions: Searching or Executing? Buy IP Buy Product Line Buy Teams Buy Product Line + Users Buy Revenue Acquisition Intention New Venture Phase: Search versus Execution Searching Executing
- 98. Acquisition Integration Strategy Buy IP Buy Product Line Buy Teams Buy Product Line + Users Buy Revenue Acquisition Intention Acquirer Strategy Integrate Independent Integrate
- 99. Data on Hypotheses, Pivots, MVPs, Metrics Evidence and Trajectory
- 101. Cohort Leaderboard
- 102. Customer Interviews
- 103. Hypotheses to Test
- 108. Track All Hypotheses Testing
- 110. Scorecard: 9 way Kanban Board with data
- 111. Advanced Data Mining
Editor's Notes
- Apple: 700K apps for iPhone & iPad / 25B downloads Google: 600K / 10B downloadeds of the retail videos accessed by a mobile device, 70% are accessed by an Apple device Apple App store generates $5.4M/day for top-200 apps Google generates just $679K for top-200 apps
- Apple: 700K apps for iPhone & iPad / 25B downloads Google: 600K / 10B downloadeds of the retail videos accessed by a mobile device, 70% are accessed by an Apple device Apple App store generates $5.4M/day for top-200 apps Google generates just $679K for top-200 apps
- Apple: 700K apps for iPhone & iPad / 25B downloads Google: 600K / 10B downloadeds of the retail videos accessed by a mobile device, 70% are accessed by an Apple device Apple App store generates $5.4M/day for top-200 apps Google generates just $679K for top-200 apps
- Apple: 700K apps for iPhone & iPad / 25B downloads Google: 600K / 10B downloadeds of the retail videos accessed by a mobile device, 70% are accessed by an Apple device Apple App store generates $5.4M/day for top-200 apps Google generates just $679K for top-200 apps