Companies are not good at building new businesses from innovation.
Only 1 out of 10 attempts make it to scale and become a sizeable business. According to Frank Mattes, co-author of Lean Scaleup, there are two fundamental issues causing this.
The first issue is that under one roof, you have two systems that are designed for two totally different purposes, and these systems are not compatible with each other. One system is that of the day-to-day business, which is geared towards executing a proven business model, operating in red oceans. The other system is the innovation system exploring the new, looking for the blue oceansIn order to solve the business building problem, companies have to make them compatible. They need a gearbox, and the Lean Scaleup provides this gearbox.
If you look at how companies are driving innovation, in particular business building innovation, they tend to operate on the three classical dimensions from design thinking. They look for customers who have a problem, the problem that they want to be solved, the desirability dimension. They look at, can we make a profitable business from it- does it make sense from an economical point, the viability? And finally can we master the technological challenges?
But here's the interesting point, which makes for the second issue. All current innovation frameworks are more or less centred around these three dimensions. They miss out on one critical dimension. We called it the contextuality; the corporate context.
So the Lean Scaleup addresses these two fundamental problems. It tells you how to install a gearbox between the exploitative operating model of the red shirts, the day to day operations, the running business, a well oiled fine tuned machine geared towards efficiency, productivity, zero mistakes and very much process driven, and the blue shirts, the explorative operating model, where people are taking on a long term view or looking for new business models, operating in a world that is full of unknowns.
The incompatibility of these two systems will manifest in areas of tension, on hard factors like metrics and soft factors like culture. To scale up, a validated innovation concept needs to move from blue to red. In between the blue and red is a white space. Scaling up in many companies is a white space, it does not have any organizational home. And it does not have a defined operating model that, for instance, prescribes how to collaborate between the innovation unit or venture, and the corporate business units. This is the fundamental cliff, where 85 to 90% of the corporate startups die.
In order to solve that problem, you need a gearbox that translates the angel investor logic of that blue space, in the innovation centres and the digital labs, into an operational logic that a sizable business requires.
Any company needs to build three capabilities in order to solve the business building problem. Number one is the methodology: how do you validate in a corporate context? How do you assess for instance, which capabilities need to be adjusted to support this new business model? If you make a shift from a capital-intensive business where you sell big machines, to a digital business, where you provide machines as a service with a subset subscription model, can the core actually digest this with its existing infrastructure, that kind of new business model? How do you transition to scale? How do you manage hyper growth in scaling up? These are all part of the methodology.
Secondly, you need to have leadership on board to create a supportive environment. For example, you need to weave the scaling-up KPIs into the target systems of the red organization. Otherwise, since they are running on in the efficiency paradigm, there will be no incentive for core organization to support that scale up.
Thirdly, you also need to address the issue of culture and collaboration. You need to have a collaboration model that regulates how the core and the venture should work together, including recommended language to avoid miscommunications and false expectations.
Recently, Frank Mattes shared the key elements of Lean Scaleup during a Innov8rs Community Live Session, simultaneously launching the book and movement, together Ofer HaCohen (Head of AT&T Innovation Center), Carina Snijder (VP, Head of Research Program Management and Business Development at Philips), Jon Rains (Investment Director at Mott MacDonald), Joerg Killer (Manager Strategy & Corporate Development at Schreiner Group) and Christina Ziegler (Co-founder at Lean Scaleup).
You can check the full session recording below. To buy the book, go here, and for more information about Lean Scaleup, check out the website or contact Frank here.
