The Innovator’s Dilemma taught us that resources are always allocated to projects with the clearest ROI. But, despite lofty statements about innovation, most companies invest their resources in the core business.
As an innovator, the key to success is going where those resources are already invested. Launching new products with the potential to scale through existing channels could solve this famous dilemma once and for all.
To systematically build ventures from idea all the way up to scaling in multiple markets, corporations should have six pillars in place, which together form what Misha de Sterke calls the 10x Growth Machine operating system. This system allows companies not only to compete on scale which is insufficient, but also on speed. The challenge corporates need to solve is how they can launch ventures with speed and be first to scale by using their assets and resources.
A snippet from Misha de Sterke’s session during the Innov8rs Connect Unconference, June-September 2020. To watch the full session recording, join Innov8rs Community with a Content or Premium Pass.
The Six Pillars
The six pillars that define the operating system are:
- Aligned senior management vision on where to play and what the boundaries of innovation are? Also having in mind which power does innovation have in our company? Is it part of every leadership meeting?
- Clear understanding of who, how and when investment decisions are made. Why? Most problems are around the resource allocation in big companies, since people and money are driven by short term accounting metrics that leads to investments with the highest ROI and the short term.
- End to end innovation process from idea all the way to deployment in the market. Most of the time it is unclear till what point of maturity the innovation should grow to be of interest to the business. If you let the innovation go too soon, it will die because of underfunding. If you let it go too late, the business would not accept it because it is difficult to integrate. Or a simpler explanation is the (in)famous ‘not invented here syndrom’.
- Growth accounting, to measure and evaluate the progress an innovation is making we need to implement a new set of metrics. Instead of focusing purely on ‘ROI’ we need to measure leading indicators of customer behavior that gives us a better idea if we reach our business goals. Then if we are successful, do we have capital allocated to actually scale or do we need to wait for the annual budget cycle? In case of the latter we can better stop.
- Innovation management: how do we manage our innovation efforts? Do we set up a central organization? Or decentralize in the business? Depending on what we want to achieve with innovation the organizational setup is crucial. How do we arrange legal and regulatory and financial support for our new ventures?
- Talent: To make innovation happen, you need entrepreneurial talent and you need an incentive system to attract and keep entrepreneurial talent.
Lets deep dive a bit more in a couple of elements mentioned above.
Dedicated Growth Governance
How can companies systematically innovate and scale beyond the core business? The answer is to create a dedicated growth governance system.
Beneath the executive board should be a venture board, whose sole responsibility is beyond-the-core ventures.
It should be made up of a limited number of executives, ideally 1 C-level (CEO/CFO), one from R&D, one from the category involved, and one or two external challengers.
What Does The Venture Board Do?
The venture board sets goals and strategy, secures financial and talent resources, and supplies metered funding based on milestones. They also manage the portfolio of initiatives by determining which bets are going well, which ones should end, and when to reallocate people and assets to a more promising initiative. The venture board should meet every 6 to 8 weeks for 2 hours and be available for immediate decisions requested by ventures. The venture board has end-to-end accountability from scouting to scaling of new ventures. They find thematic ideas linked to strategic guidelines, validate certain initiatives, and, if successful, they can be built and spun off or embedded within a business unit.
How Is Progress Measured?
There are several milestones where the venture team makes progress. In the first five weeks, the goal is to validate idea potential. The team needs to find a problem worth solving, one that is big enough for the venture board to invest in. KPI’s include:
- Identification of clear pain points of target customers
- A proven match between the idea and that pain point
- Discovering the rough size of the opportunity
From there, the team can start building a Minimum Viable Product. This phase can take 12–15 weeks, plus time to produce a sample product. The goal is to acquire the first customers and KPI’s include:
- Creating an MVP with a clear proposition (target, USP, price, channel)
- Acquiring first customers through eCommerce and test stores
- Identifying the total available market
- Drafting pro forma profit and loss
If the product is getting good traction, it’s time to launch it in a pilot market. This business model fit phase takes 18–24 weeks, plus time for refining the product/tech. Recurring revenue is the goal, with KPI’s of:
- Customer acquisition (through e-channels and retail)
- Recurring revenues
- Cost of acquisition
- Cost of goods sold
- Customer retention
The final stage is to scale in multiple markets. There is no timeline for this phase. The goal is to create a profitable business with a sustainable and repeatable business model.
The venture board needs to support and develop an organization around the front line. Which means give people closest to the customer more responsibility so employees can solve customer problems faster and build the next business. The venture board needs to empower the innovation team to make decisions quickly.
Venture building is not a pure marketing exercise, and decisions can’t wait to be made with 100% of the information. Decisions need to be made every day, with more strategic decisions made every 6 to 8 weeks.
Patience Is Key
If we want to launch a product successfully, the possibility of revenue needs to be understood very quickly. But it takes patience to build a business. So we want to forecast how fast we can grow while managing expectations with senior managers. Leaders need to demonstrate how to make problems smaller by solving the specific, instead of debating the ideological.
They must also support the teams by listening, coaching, giving, and celebrating milestones and achievements. They should explore what the teams are learning without judgment, and shift the focus away from micromanaging. Instead, leaders should facilitate peer-to-peer learning and collaboration across silos and business units.