Stanford breakfast briefing 111214
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2. Startups Are NotSmaller Versions ofLarge Companies 3. Startups Are Not Smaller Versions ofLarge CompaniesLarge Companies ExecuteKnown Business Models 4. Startups Are Not Smaller Versions ofLarge CompaniesStartups Search forUnknown Business Models 5. What’s A Startup?Search Build ExecuteA Startup is a temporary organizationused to search for a repeatable andscalable business modelStartupLargeCompanyTransition 6. Startups Search and PivotThe Search for the Business ModelScalableStartupLargeCompanyTransition 7. Startups Search and PivotThe Search for the Business ModelScalableStartupLargeCompanyTransitionSearch for a Business Model- customer needs/product featuresi.e. Product/Market fit- Found by founders, not employees- Repeatable sales model 8. Startups Search, Companies ExecuteThe Search for the Business Model The Execution of the Business ModelScalableStartupLargeCompanyTransition 9. Startups Search, Companies ExecuteThe Search for the Business Model The Execution of the Business ModelScalableStartupLargeCompanyTransitionExecution- Profitable- Repeatable- Scale- Job spec’s- Process 10. Learning Metrics Vs Accounting/KPI’sScalableStartupThe Execution of the Business ModelLargeCompanyTransition 11. Learning Metrics Vs Accounting/KPI’sScalableStartupThe Execution of the Business ModelLargeCompanyTransitionAccounting/KPI’s- Balance Sheet- Cash Flow Statement- Income Statement- Return on Net Assets- Return on Capital 12. Learning Metrics Vs Accounting/KPI’sThe Search for the Business ModelScalableStartupLargeCompanyTransitionStartup Metrics- Customer Acquisition Cost- Viral coefficient- Customer Lifetime Value- Average Selling Price/Order Size- Monthly burn rate- etc. 13. Customer Validation Versus SalesScalableStartupThe Execution of the Business ModelLargeCompanyTransitionSales- Sales Organization- Scalable- Price List/Data Sheets- Revenue Plan 14. Customer Validation Versus SalesThe Search for the Business ModelScalableStartupLargeCompanyTransitionCustomer Validation- Early Adopters- Pricing/Feature unstable- Not yet repeatable-“One-off’s”- Done by founders 15. Customer Development VersusScalableStartupProduct ManagementThe Execution of the Business ModelLargeCompanyTransitionProduct Management- Delivers MRD’s- Feature Spec’s- Competitive Analysis- Prod Mgmt driven 16. Customer Development VersusProduct ManagementThe Search for the Business ModelScalableStartupLargeCompanyTransitionCustomer Development- Hypothesis Testing- Minimum Feature Set- Pivots- Founder-driven 17. ScalableStartupEngineering VersusAgile DevelopmentThe Execution of the Business ModelLargeCompanyTransitionEngineering- Requirements Docs.- Waterfall Development- QA- Tech Pubs 18. Engineering VersusAgile DevelopmentThe Search for the Business Model The Execution of the Business ModelScalableStartupLargeCompanyTransitionAgile Development- Continuous Deployment- Continuous Learning- Self Organizing Teams- Minimum Feature Set- PivotsEngineering- Requirements Docs.- Waterfall Development- QA- Tech Pubs 19. Startups Model, Companies PlanScalableStartupThe Execution of the Business ModelLargeCompanyTransitionBusiness Plan- Plan describes “knowns”- Known features for line extensions- Known customers/markets- Known business model 20. Startups Model, Companies PlanThe Search for the Business ModelScalableStartupLargeCompanyTransitionBusiness Model- Unknown customer needs- Unknown feature set- Unknown business model- Model found by iterationThe Execution of the Business Model 21. Startups Protect Mavericks,Companies Fire MavericksScalableStartupThe Execution of the Business ModelLargeCompanyTransition- Pains in the butt- Always looking at something different- Doesn’t get with the program 22. Startups Protect Mavericks,Companies Fire MavericksThe Search for the Business ModelScalableStartupLargeCompanyTransition- CEO of your company- Finds your next market 23. Strategy and StructureApologies 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. CEOOrganize by FunctionsSales MarketingEngineering Finance………………………………Mfg……… 26. 1920’s: Organize by Divisions• Problem Companies have dissimilar products and/or nationalgeography - 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. CEOOrganize by DivisionsBus Div A Bus Div BBus Div C Bus Div C………………………Replicate functionsinside separatedivisions 28. CEOOrganize by DivisionsAdd Corporate StaffAdv R&D CIO CMO M&A CFO LegalBus Div A Bus Div BBus 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. CEOOrganize by Project(Matrix)Projects EngineeringQ/A FinanceProject Mgr Eng 1Eng 2Eng 3………………Mfg……Project Mgr …Project MgrFunctional 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 aredesigned for execution• Attempts to “add” innovation break these structures– KPI’s, Processes, financials, HR, Bus Units, etc 33. Continuous disruption requirescontinuous innovation 34. Types ofCorporate Innovation 35. Types of Corporate InnovationTypes of Corporate InnovationDisruptiveInnovationContinuousInnovationProcessInnovation 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 InvestmentReadiness Level• Domain of the general managerExample: Pepsi buying Frito Lay/Quaker Oats, Exxon buyingXTO ($41B) 38. Disruptive Innovation• Requires new & existing business unit resources• Uses corporate incubator or Skunk Works• Domain of the CEO and boardExample: 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 PortfolioInnovation PortfolioDisruptiveInnovationContinuousInnovationProcessInnovation• Build• Buy• Partner• OpenTypes of Corporate Innovation 41. Buying InnovationWhat Can You Acquire?DisruptiveInnovationContinuousInnovationProcessInnovation• Revenue• Product Line + Users• Product Line• Teams• Intellectual PropertyWhy Acquire?Innovation Portfolio• Build• Buy• Partner 42. Building InnovationWhere Do You Build It?DisruptiveInnovationContinuousInnovationProcessInnovation• Skunk Works• Advanced R&D• Functional Org• Divisional Engineering• Intellectual PropertyType of InnovationInnovation Portfolio• Build• Buy• Partner 43. IssuesStructure and Tools for Executionare notStructure and Tools for Innovation 44. Current Corporate Metrics Focus onExecution• Finance focus– Return on Net Assets, Return on Capital and InternalRate of Return– minimum rate of return on a project or investment• Execution focus– Customer acquisition cost, sales per rep, etcChristensen HBR 6/13 45. CEOM&A/StratFinance Legal CTO/R&D CMOegyHR• 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•customeracquisition/activationcost•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 forinnovation• Innovation metrics are different• How do we manage to do both without killing thecore business? 47. Even Elephants Can DanceImplementing 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 changeAll require cultural changeCEO/Exec Staff buy-in 51. The Lean StartupA much better way to build innovation 52. 1. Frame Hypotheses• Frame Hypotheses 53. 1. Frame Hypotheses• Frame Hypotheses Business Model CanvasCustomersGet/Keep/Product / GrowServiceRevenuePartnersActivitiesResourcesCostsChannel 54. 2. Test Hypotheses• Frame Hypotheses• Test Hypotheses Business Model Canvas 55. 2. Test Hypotheses• Frame Hypotheses• Test HypothesesBusiness ModelCustomer Development 56. Turning Hypotheses Into Facts 57. There Are No Facts Inside TheBuilding, So Get the Heck Outside 58. 3. Build Incrementally & Iteratively• Frame Hypotheses• Test Hypotheses• Build the productincrementally &IterativelyBusiness ModelCustomer DevelopmentAgile Engineering 59. Encourage Multi-Disciplinary Teams• Pure tech teams lack customer perspective– Tend to push the product rather than understand theproblem• Pure business teams lack tech reality/judgment 60. Core Team of Innovation Managers• Office of Chief Innovation Officer• They manage the Innovation Cycle– Logistics– Administration– Assessment– Training 61. CEOChiefM&A/StratFinance Legal CMOInnovationOfficeregyHRAdd Corp Innovation StaffBus Div A Bus Div B Bus Div C Bus Div C 62. 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 63. Core Business + Disruptive Projects• Run Process & Business Model innovation inBusiness Units/Functional Organization• Run Disruptive projects in corporate• Bottoms up + Top Down innovation 64. CEOChiefM&A/StratFinance Legal CMOInnovationOfficeregyHRAdd Divisional Lean Innovation ProjectsBus Div A Bus Div B Bus Div C Bus Div C• …Lean Project 1Lean Project 2Lean Project nLean Project 1Lean Project 2Lean Project nLean Project 1Lean Project 2Lean Project nLean Project 1Lean Project 2Lean Project n 65. CEOChiefM&A/StratFinance Legal CMOInnovationOfficeregyHRAdd Corporate Lean Innovation ProjectsBus Div A Bus Div B Bus Div C Bus Div C• …- DisruptionLean Project 1Lean Project 2Lean Project nLean Project 1Lean Project 2Lean Project nLean Project 1Lean Project 2Lean Project nLean Project 1Lean Project 2Lean Project nLean Project 1Lean Project 2Lean Project n 66. CEOM&A/StratFinance Legal CTO/R&D CMOegyHR• 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 andProcesses to each functionBus Div A Bus Div B Bus Div C Bus Div C•market share•quote to close ratio•sales per rep•customeracquisition/activationcost•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•…• … 67. Innovation As Incremental butPermanent Change• Each innovation win needs to permanently change thecorporation– New KPI’s– New policies– New procedures– New comp plans• Every time an innovation project wins an exception to anexisting process, institutionalize the exception 68. Can Start Multiple Ways• Top down – CEO mandate• Chief Innovation Officer Initiatives• Divisioanal projects 69. Common Corporate InnovationLanguage and Metric• Innovation needs a common corporate language• All the support functions: HR, IT, Finance, Legalneed to develop innovation processes andprocedures 70. NASA 71. NASA/DODTechnology Readiness Level (TRL)• Formal Way to assess project maturity• Quantify Relative Risks• Data Driven• Adopted by NASA, DOD, FAA, ESA… 72. NASA/DOD Technology Readiness:Levels 1 & 2Basic Technology Research• Basic principles observed• Technology concept formulatedConcept 73. NASA/DOD Technology ReadinessLevels 3 & 4Research to prove Feasibility• Experimental proof of concept• Breadboard validation in labResearchConcept 74. NASA/DOD Technology ReadinessLevels 5 & 6Demo Prototype• Breadboard validation outside the building• System demo in real-worldDemoResearchConcept 75. NASA/DOD Technology ReadinessLevels 7, 8, 9Deployment• System Development• System deployed in real-worldDemoResearchConcept 76. What Can We DoWith All This Data?The Investment Readiness Level 77. Investment Readiness Level 78. Investment Readiness LevelWe can do the samefor new ventures 79. Investment Readiness LevelWe can do the samefor new venturesEmphasis is on data 80. Investment Readiness Level• A Formal Way to Quantify Relative Risks• Data Driven• Analog to NASA/DODTechnology Readiness Level (TRL) 81. Investment Readiness:Levels 1 & 2Hypotheses• Value Proposition summarized• Canvas hypotheses articulatedHypotheses 82. Investment Readiness:Levels 3 & 4Problem / Solution Fit• Problem Solution fit• Low fidelity MVPProblem/SolutionHypotheses 83. Investment Readiness:Levels 5 & 6Validate• Product/Market fit• Right side of canvasProduct/Market fitProblem/SolutionHypotheses 84. Investment Readiness:Levels 7 & 8Validate• Left side of canvasProduct/Market fitProblem/SolutionHypotheses 85. Investment Readiness:Levels 9Metrics That MatterLeft side of the canvasProduct/Market fitProblem/SolutionHypotheses 86. TechnologyReadiness LevelInvestmentReadiness LevelMetrics that MatterValidateLeft side of CanvasValidateRight side of CanvasProduct/Market FitProblem/SolutionHypotheses 87. Summary• 20th century corporate structures focused onexecution• Continuous disruption requires continuousinnovation• We need a new model for innovation 88. Thanks 89. Backup 90. Medical Device: Cheap DNA TestingSource: alexander osterwalder 91. Medical Device: Cheap DNA Testing110K5% MARKET SHAREHOW COULD YOUIMPROVE THISBUSINESS MODEL?5.5M2.8M1.2M1M$1,000/ DEVICEFIXED COST50% COMMISSION$225/DEVICESource: alexander osterwalder 92. Medical Device: Cheap DNA Testing110K5% MARKET SHARE5.5M2.8M1.2M1M$1,000/ DEVICEFIXED COST50% COMMISSION$225/DEVICESource: alexander osterwalder 93. Medical Device: Cheap DNA Testing110K5.5M2.8M1.2M1M5% MARKET SHARE24.8M$75/ STRIP$7/ STRIP2.3MSource: alexander osterwalder 94. Acquisition Integration Strategies 95. Buy IPBuy ProductLineBuy TeamsBuy ProductLine +Users/PayersBuy RevenueAcquisition IntentionNew Venture Phase: Search versus ExecutionTypes of Innovation Acquisitons 96. Acquisitions: Searching or Executing?Buy IPBuy ProductLineBuy TeamsBuy ProductLine + UsersBuy RevenueAcquisition IntentionNew Venture Phase: Search versus ExecutionSearchingExecuting 97. Acquisition Integration StrategyBuy IPBuy ProductLineBuy TeamsBuy ProductLine + UsersBuy RevenueAcquisition IntentionAcquirer StrategyIntegrateIndependentIntegrate 98. Data on Hypotheses, Pivots,MVPs, MetricsEvidence and Trajectory 99. CohortLeaderboard 100. CustomerInterviews 101. Hypothesesto Test 102. InvalidatedHypotheses 103. Weekly CanvasUpdates 104. Track AllHypothesesTesting 105. Scorecard:9 way Kanban Boardwith data 106. Advanced Data Mining
- 1. Dealing With Disruption:How to Think Like a Start-Up Leaderin a Large OrganizationSteve Blanksteveblank.com@sgblank