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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   
  59. 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
  60. Core Team of Innovation Managers • Office of Chief Innovation Officer • They manage the Innovation Cycle – Logistics – Administration – Assessment – Training
  61. 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
  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 in Business Units/Functional Organization • Run Disruptive projects in corporate • Bottoms up + Top Down innovation
  64. 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
  65. 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
  66. 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 •… • …
  67. 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
  68. Can Start Multiple Ways • Top down – CEO mandate • Chief Innovation Officer Initiatives • Divisioanal projects
  69. 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
  70. NASA
  71. NASA/DOD Technology 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 & 2 Basic Technology Research • Basic principles observed • Technology concept formulated Concept
  73. NASA/DOD Technology Readiness Levels 3 & 4 Research to prove Feasibility • Experimental proof of concept • Breadboard validation in lab Research Concept
  74. NASA/DOD Technology Readiness Levels 5 & 6 Demo Prototype • Breadboard validation outside the building • System demo in real-world Demo Research Concept
  75. NASA/DOD Technology Readiness Levels 7, 8, 9 Deployment • System Development • System deployed in real-world Demo Research Concept
  76. What Can We Do With All This Data? The Investment Readiness Level
  77. Investment Readiness Level
  78. Investment Readiness Level We can do the same for new ventures
  79. Investment Readiness Level We can do the same for new ventures Emphasis is on data
  80. Investment Readiness Level • A Formal Way to Quantify Relative Risks • Data Driven • Analog to NASA/DOD Technology Readiness Level (TRL)
  81. Investment Readiness: Levels 1 & 2 Hypotheses • Value Proposition summarized • Canvas hypotheses articulated Hypotheses
  82. Investment Readiness: Levels 3 & 4 Problem / Solution Fit • Problem Solution fit • Low fidelity MVP Problem/Solution Hypotheses
  83. Investment Readiness: Levels 5 & 6 Validate • Product/Market fit • Right side of canvas Product/Market fit Problem/Solution Hypotheses
  84. Investment Readiness: Levels 7 & 8 Validate • Left side of canvas Product/Market fit Problem/Solution Hypotheses
  85. Investment Readiness: Levels 9 Metrics That Matter Left side of the canvas Product/Market fit Problem/Solution Hypotheses
  86. 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
  87. Summary • 20th century corporate structures focused on execution • Continuous disruption requires continuous innovation • We need a new model for innovation
  88. Thanks
  89. Backup
  90. Medical Device: Cheap DNA Testing Source: alexander osterwalder
  91. 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
  92. 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
  93. 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
  94. Acquisition Integration Strategies
  95. 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
  96. 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
  97. Acquisition Integration Strategy Buy IP Buy Product Line Buy Teams Buy Product Line + Users Buy Revenue Acquisition Intention Acquirer Strategy Integrate Independent Integrate
  98. Data on Hypotheses, Pivots, MVPs, Metrics Evidence and Trajectory
  99. Cohort Leaderboard
  100. Customer Interviews
  101. Hypotheses to Test
  102. Invalidated Hypotheses
  103. Weekly Canvas Updates
  104. Track All Hypotheses Testing
  105. Scorecard: 9 way Kanban Board with data
  106. Advanced Data Mining

Notas do Editor

  • 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

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