These are raw notes for an opinion piece on how to structure an “innovation” group. Comments very welcome.

You’re a senior executive. You know “software is eating the world” and you have to embrace technology and disruption more aggressively. How do you approach it?

If you are gunning for sustaining innovation (i.e. optimizations and extensions to your current business), then you should not create an innovation group but rather build experimentation capabilities into your current operational units.

However, if you want to push the envelope further and work on ideas that are truly new business lines for your company, I recommend sandboxing a “New Business Studio” that can take a staged, portfolio approach.

NEW BUSINESS STUDIO

  • What: create an “internal studio” approach, which seed-funds many ideas, kills many if not most, and has the financial resources to stage-gate funds the ones that succeed.
  • Mission: create new revenue streams that benefit from the existing foundation, but are not necessarily tied to it
  • Values and Methods:
    • value speed of learning and iteration
    • value both evidence and judgement
    • hire only A players who fit the mandate
    • be capital efficient (scale only when it is justified)
    • don’t insist that every idea look big or get big right away
    • kill mediocre ideas and double-down on promising ones
    • don’t pursue something unless we have the right team for it
    • use modern tools and techniques
    • sandbox from organizational rules and bureaucracy
    • be transparent within the team and with the broader organization
    • respect the organization as partners
    • be humble, because there will be a lot of failure
  • Requires: patience for a 5 year horizon for things to get to scale (note: VC fund lives are typically 10 years, and if you examine the true lifespan of most successful startups, they always take longer than popular perception / media stories portray)
  • Budget: the core team will probably cost up to $3M a year once it is fully up and running, not counting follow-on funding to scale ideas
  • Portfolio Funding: you have to choose whether you do follow-on funding with a dedicated pool of money, not unlike a VC fund, or whether you fund on an ad-hoc, as-proven basis. The former might be necessary to safeguard the funds.

[click to continue…]

Innovation: to sandbox or not to sandbox?

by Giff on October 3, 2014

Adrian Howard has a great talk on enterprise innovation up from the last Lean UX conference. In it, he is very down on sandboxed innovation groups. I actually both agree and disagree with him.

I think sustaining innovation must be done within existing operational groups, and agree with many of the things Adrian recommends: training on customer development and related ways of thinking, balanced teams that add more “makers” and people who actually talk to real customers, carving out more time for experiments, and being more forgiving of experiments that don’t work.

However, I don’t think that will actually solve for disruptive innovation, or help a company being disrupted figure out how to reinvent itself.

For disruptive innovation, I think a sandbox is absolutely critical, albeit with communication with and respect for the rest of the organization. Existing operational groups are too far in the weeds of what the business currently is. They need to keep the revenue coming in the door. They need different kinds of planning. And critically, they also will not be able to bear the inevitable failure rates that comes with more radical innovation.

I’m talking about emotion.  Most people are not, and should not be, entrepreneurs. It takes a certain kind of crazy and and a deep amount of resilience.

Adrian is absolutely right that a sandboxed innovation team should not be viewed as a savior or “sexy”. Hell no. They are going to fail most of the time. Their ideas will seem dumb (until they are not).  It will take years to figure out which ideas are actually worthwhile. Culturally, it is far better off starting out with massive humility, rather than the opposite.

Predicting Failure from Failure?

by Giff on September 18, 2014

Shane Snow’s new book Smartcuts is is a master class in weaving anecdotes together to make a point in an interesting way. He’ll take A, add B, weave in C, to get you to D.

I’ll write more on the highly enjoyable book later, but the tricky part is if one component in the mental journey gets taken out of context.

He has a chapter on failure. His point is a good one: failure is not enough; failing fast is not enough; you need to fail fast, and fail small, and know how to evaluate failure. Agreed.

But there’s a section that emerges from a Harvard study: “failing in business doesn’t make us better or smarter. But succeeding makes us more likely to continue to succeed.”

I think this is a dangerous oversimplification of entrepreneurship.

If you succeed, yes, you have shown that you do have what it takes as an entrepreneur. Your second time will be easier — easier to recruit talent, raise funding, and attract customers. But it’s not that simple. One of the most common patterns in entrepreneurship is the “first-time successful” founder crashing and burning the second time around. This is because of two reasons: 1. they try to duplicate the playbook from their first startup, when they should not; 2. they become arrogant, attribute all of their success to themselves, and never learned how to deal with serious adversity when the lucky breaks don’t come.

I actually think one of the most dangerous entrepreneurs to back, as an investor, is someone whose first success came a bit too easily.

There are certainly plenty of people who start a company who are not quite suited for entrepreneurship, and that will contribute to the stats in the Harvard study. But failure is too simple a filter to predict future performance. They might be very well suited to entrepreneurship, but their timing was off or made the wrong call (even if the data supported it) at a crossroads. And if they start a second company, they might fail again — after all, most do — but you can’t predict that failure from the first failure unless you understand the details of the first failure.

The more years you spend around startups, the more you realize that while you must do everything you can to make your own luck, you still need those lucky breaks.

You see this in particular in Silicon Valley because of the density of entrepreneurship. The ex-founder on your left is a multi-millionare. The ex-founder to your right is not. They are both equally smart. They are both equally capable. They both worked insanely hard. They both started with ideas that seemed exciting and promising at the time. Startup success can be fickle, which doesn’t mean you trust to fate, but nor does it mean you should judge based on simplistic criteria from an academic study.

Which Shane isn’t. But others will.

So yes, we should not put failure on a pedestal. You want to fail smart and fail small. But I am firmly in the camp that people tend to learn more from failures than successes, though you of course want to learn from both.

Announcing Talking to Humans (new book!)

September 16, 2014

At the beginning of the year, Frank Rimalovski, who runs New York University’s Entrepreneurial Institute, came to me with a challenge.  While they used my old blog posts on customer development tips and anti-patterns, and they had some videos from Steve Blank’s Lean Launchpad program, but students were still struggling with how to test their […]

Read the full article →

Favorite quotes from Creativity Inc.

September 5, 2014

I’ve been obsessed with Pixar for a while, and I’ve never marked up a business book like my reading of Ed Catmull’s book Creativity Inc. I looked on the Kindle website today and realized that I marked 63 passages in the book last May. I had previously posted favorite quotes from Pixar alumni. Here are […]

Read the full article →

Startup Marketing Is Dead. Long Live Startup Marketing

August 26, 2014

Marketing has become a dirty word in some startup circles, with the name of the day now being “growth hacking.” And frustrations over traditional marketing’s failures to adapt to a new hyper-connected, hyper-communicative world are valid. But demand generation is as important as ever. Stewart Butterfield, the co-founder of Flickr and founder of Slack, understands […]

Read the full article →

How Not to Design a Mobile App

August 18, 2014

Noah Lichtenstein of Cowboy Ventures recently posted an article to TechCrunch, “What Studying Students Teaches Us About Great Apps“. In their survey of 1,000 high school and college students, they asked about existing mobile usage, and then they asked the question, “if you had a magic wand to create an app that you would use […]

Read the full article →

Be Suspicious of Metrics

June 25, 2014

People love metrics. I love metrics. I love getting arguments out of opinion and into data. However, I’m also deeply suspicious of metrics, especially since I focus on new products and thus live in a world of constant change and evolution. Some points of discussion: New Employees I have new employees join and ask “what […]

Read the full article →

Does Occulus Mean That VR Is Finally Here?

March 29, 2014

Occulus Rift and better immersion rigs have allowed the promise of virtual worlds to rear its head again. Raph wrote a great post the other night, and I feel compelled to weigh in as well. Once upon a time, I was a near-expert in the space, obsessing about it from 2004 to 2008. I was […]

Read the full article →

Lean startup is like a sine wave

March 27, 2014

There are a lot of people trying to do “lean startup” or “lean UX” and fretting about whether they are doing pure lean (there are even more who talk about lean but don’t actually do anything close, but that’s a different story). There is no such thing as pure lean. The right balance takes into […]

Read the full article →