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.
HOW TO STRUCTURE IT?
- the Studio reports to a small internal board, which includes the CEO, which provides general oversight and reviews team kill/continue decisions, but does not micro-manage. The Studio leader reports to the CEO to be protected from power plays and bureaucratic rules.
- the team is made up of multi-disciplinary capabilities: mostly generalists across strategy, design, and engineering who would focus on one idea at a time, plus a few specialists who would work across multiple teams (specialists would be visual design, content strategy, growth hacking/analytics, bizdev, research). The Studio should also have a dedicated finance person, and the Studio leader might also need an analyst who can help create reports for heightened transparency to rest of org
- ideally have 2 new-idea teams running so that if an idea starts to take off and scale, part or all of the initial team goes with it, and it is “spun out” of the New Business Studio. The Studio would then replenish with new hires.
- ideas can come from anywhere, but the Studio needs to preserve the right to choose what it works on (otherwise you will never get the talent you need)
- the Studio would engage in “opportunity finding” work, which would be a mix of strategic market analysis and design thinking approaches
- Opportunity Finding: the team shouldn’t spend more than 4 weeks opportunity finding before shifting into the next phase
- “New Idea” Stages
- Stage 1, “new idea”, up to 2 weeks: initial probing of idea (competitive research, qualitative research)
- Stage 2, “investment decision”, up to 8 weeks: lean experiments to test customer, need, willingness to pay, and solution ideas
- Stage 3, “MVP”, up to 6 months but this needs some flexibility: launch MVP (within 2-3 months) in controlled manner, limiting scope and target customer base
- Stage 4, “Production”, endless: begin to scale up business, hunt for product-market fit, and solve business model and customer acquisition channels. In the transition from Stage 3 to Stage 4, incorporate the business as a wholly owned C-Corp, which gives you more options over giving equity, having a dedicated P&L, raising funds, spinning out, etc.
- Each stage is very intense and failures are hard to swallow, so you need to include gaps into the flow in order not to burn out the team
WHAT COULD MAKE THE STUDIO SUCCESSFUL?
- need a Studio leader who can balance making business executives feel like partners, and yet preserve the group’s speed and independence. You need to sandbox the Studio, yet the Studio will likely need support or domain expertise from existing business units. Thus it needs to figure out how to motivate participation from executives in the rest of the business.
- need good judgement, innovative ideas, and rigorous approach to killing/iterating ideas
- the leader needs freedom to hire and fire
- the Studio should be given the ability to directly contact existing customers, or piggyback on existing social media channels, as long as it treats these channels with respect
- the company must fulfill its promise to deliver follow-on capital for promising ideas
- the Studio can ideally flex budget based on what team needs; i.e. no foolish “spend it or lose it” budgeting, and no requirements for detailed annual financial planning
- the Studio must align itself with the CEO’s vision and the company’s sense of self-identity — these are useful constraints.
WHAT COULD CAUSE THE STUDIO TO FAIL?
Within the team:
- Leadership: if the Studio leader is weak, or the idea team leaders are weak. You need people who are both decisive and action-oriented, yet team players who can inspire and support others.
- Arrogance / Jealousy: if the team is positioned (or positions itself) as rock stars there to save the day, they will be instantly doomed. Success will take years, and it will emerge out of many failures. (Remember that VC funds are 10 year instruments, and expect most investments to fail. One, maybe two, ideas usually make the fund)
- Talent: if you can’t convince great talent to join, it will never get anywhere. And these people will likely not be the types that wanted to be employees of the main business.
- Choices: if the team makes bad calls on when to chase/fund ideas
- Compensation: poor structure of compensation/incentive plans
External to team:
- Hit Rate: if CEO expects or demands a >50% success rate, whether overtly or subconsciously
- Patience: if CEO has no patience or expects ideas to turn into sizable businesses within 6-12 months through the (common but misguided) notion that the company can “accelerate” ideas magically
- Organization: if the business units resist working with team
- Pressure: if there is pressure to manufacture success and force marketing before a business is ready; related: if there is pressure to “pretty up” bad ideas and fake success
- CEO Change: too often, these groups are created by one CEO, and shut down by the next
- Meddling: if executives of current business units feel like they can dictate priorities or rules to the team
- Staffing: if team is not given ability to make staffing decisions
- Bureaucracy: if other groups try to control team’s actions, whether privacy, legal, IT, PR, etc
- Control: if the Studio loses influence over what to do with its ideas (shut down, grow, spin-out, sell, etc)
HIRING AND TALENT
- you are looking for experienced, talented people who are interested in many ideas;
- your team should be makers/doers who can collaborate well, get stuff done, think strategically, and who relish learning curves
- you need people with at least 3-4 years of real experience under their belt; school doesn’t matter, what they have built and done does;
- you need to interview with both traditional interviewing techniques as well as pairing exercises where you do work together
Why would talent join?
- you can find entrepreneurial people who are inspired by the chance to innovate with great assets, with executive moral and financial support, and with the right level of independence/accountability
- good comp plan, including some sort of bonus structure for success (if structured wrong, this could easily backfire)
Why would talent not join?
- comp plan is wrong
- fear that good ideas won’t get the funding they need
- fear that the capital won’t be patient, i.e. execs will demand instant or predictable results, or will try to force success too early
- fear that bigco politics / bureaucracy will consume all time and energy, or cause blockers
- fear that the team won’t actually get to work according to lean/agile process principles
- fear that the CEO won’t have the patience, with short-term Wall St. pressure, to invest in the Studio for more than 12 months
Tools and Environment
- the right people don’t need fancy perks — they care more about being able to ship great ideas — but you need to offer the basics: a good work environment (open, good light, non-depressing space); good equipment (Apple laptops & displays, excellent internet connectivity)
- see older post: [Hiring an Intrapreneur Team]
- Studio leader (probably reports to CEO)
- technical lead (“VP” level, but still has hands-on chops)
- first team: 1 product designer, 1 developer
- specialists: 1 content strategist, 1 visual designer
- then grow the second team
- “growth hacker” / BD resource