As innovation thought leader Steve Blank notes, a startup is a temporary organization searching for a scalable business model. Accelerating the search for a strategy is a very different challange than executing that strategy.
There are five ways to accelerate the search for a viable new-growth model:
- Form small, focused teams. Small teams almost always move faster than large teams. One of Jeff Bezos's rules of thumb inside Amazon.com is that teams should be able to be fed by no more than two pizzas. The mistake many large companies make is that they think a new venture is like a mini-version of the core business, one that needs to be staffed with representatives from corporate functions like legal, quality assurance, and so on. Bloated teams are ill-equipped to rapidly search for a compelling model; small, nimble teams maximize flexibility and the speed of learning. Ideally the entire team should be fully dedicated and located together so they can make real-time decisions, but at the very least the project leader should be full time to minimize time-sucking distractions.
- Push to learn in market. The epigraph in Blank's latest book (with Bob Dorf), The Startup Owner's Manual, says it all: "Get out of the building!" Large companies are used to relying on desk research and consultants to size markets and sharpen strategy, but the search for tomorrow's business has to be conducted in or close to the market. Remember, markets that don't yet exist are notoriously difficult to measure and analyze, so the team should spend as much time as possible with prospective customers, partners, and suppliers. Even richer lessons come when a team goes beyond talking, to actually attempting to produce, sell, and support its offering, even if it is that offering has some limitations.
- Measure learning, not results. It's hard to set precise operational milestones when you don't know what the business model is going to be. And in search mode financial forecasts are unreliable. When IBM is working on uncertain new growth efforts, by contrast, it measures things like the number of customers a team interacts with, or the speed with which a team creates prototype (see the recent Harvard Business Review article "Six Ways to Sink a Growth Initiative" for more). Executives should pepper teams with questions like, "What did you learn? What do you still not know?" The innovator should be able to spin a conceivable story about how the idea could have material impact, but leaders should focus on the plausibility of the assumptions behind the story, not the output of a spreadsheet based on specious assumptions.
- Tie funding to risk reduction, not the calendar. Most venture capitalists don't hand out funds on a quarterly or yearly basis, as most corporations do when they fund ongoing operations. Rather, they provide sufficient capital for the entrepreneurs to address critical uncertainties like whether they can overcome key technical challenges, hire the right team, or convince customers to pay for a given solution. If the founders remove that uncertainty, they get another round of funding. If they do not, well, the VC moves on to the next company in its portfolio. Companies need to remember that not every idea is destined to turn into a compelling business. Better to pull the plug early than to unnecessarily waste time and resources.
- Read the HBR blog for the 5th advice.