This is the sixth and final post aimed at helping you map your external and internal environments.
To recap, we have found that the external environment is understandable and runs on very long, predictable waves of discovery and implementation. By studying these change waves, you can time your investments to be in the Growth Zone and not on the bleeding edge. We have laid a foundation of understanding the internal cycles of growth and renewal that all organizations go through as part of the natural cycle of growth and development. By understanding the cycle, you can avoid sending your team on a premature cycle of innovation and coordinate internal growth with external change to keep your organization relevant and profitable.
Today in our final post, we bring these ideas together with a tool for keeping innovation rich and productive.
Agility is the new normal
The strongest organizations going forward will be sending well prepared probe teams into forward-looking areas of market and application to provide direction and growth for the entire enterprise. These teams will be cross-functional, tightly scoped and highly self-directed. Their high-level role is to discover what we don’t know that we don’t know, using a technique first described by Joseph Luft and Harry Ingham in 1955 called the JoHari window. (For further explanation & application of Johari in principle, listen to Les Mckeown’s audio on strategy. )
Real options, a discipline revived in the mid 90’s, is the conceptual tool of choice to rank the options for growth. The core tenet is that an organization’s value is predicated on its existing cash flows (and businesses) but also the cash flows it can access through incremental investments in new endeavors. The real options tool allows organizations to configure their business models into cash flows and probabilities of their occurrence, based on the most skilled intuition of the analyst.
The knock on this approach has always been that it is extremely hard to accurately model these in analytic financial terms. The uncertainty of the inputs rapidly overwhelms the validity of the outcome.
There is good news, though. The recent work of applying lean principles to this thinking has flipped this issue on its back. We now know that the key to overcoming this is using lean startup techniques to de-risk the hypotheses through carefully designed experiments. Stanford has some good work in this area, recently articulated by Steve Blank at South by Southwest. (There are two twenty minute videos, worth the time to watch in full.)
The key learning: Start ups are not little businesses, they are tools to de risk the business model. Blank argues that standard, large-scale business roles, such as sales representatives or product managers, are doomed to failure in an environment where basic definitions such as the customer profile and value propositions are changing on a daily basis.
Startups are business model discovery machines, not little business operations.
The bottom line is that current best practices for startups and probe teams are focused on measured and purposeful experimentation to discover facts and prove or disprove hypothesis in the proposed model. The end goal of these actions is to determine the emergent business model – which is a very different set of practices than executing proven business plans in a proven market.
When you have a powerful portfolio of projects and programs that have been shaped and tested, you truly have rich and deep value – and a sustainable enterprise equipped to deal with the future.
The Growth Leader’s Action Plan
6 takeaways from this summer series:
1) Improve your observation skills and keep notes
- Keep a rolling list of ideas, and update it often.
- Maintain another page for data and observations – text chunks and links.
- A great way to do this is with a shared Google account using Docs or Drive.
- Consider Evernote for capturing real time updates.
2) List your emerging ideas and strategies
- Form business hypotheses
- Begin high-level value mapping using real options techniques
- Chunk the business models down to expose core assumptions that need validation
3) Design purposeful validation experiments
- Use business model mapping and find the gaps in your best ideas.
- Come up with a list of key things that you don’t yet know for the positive hypothesis you have come up with.
- Design a reasonable experiment to go and de-risk that assumption.
- Start with the biggest leaps first and then proceed down the list.
4) Build tiger teams
- Give them very clear mandates and limits to keep them focused on de-risking.
- This is fieldwork – get outside the walls of your organization and talk to suppliers, customers, editors and end users
- Do NOT fall in the trap of breathing your own bus fumes.
5) Pivot as required
- Take a very sober look at what you have learned.
- Be willing to change approach as necessary.
- Repeat steps 2 & 3 with the pivoted model.
6) Build the beta team
- Only once the hypothesis is 80% cleaned up
- Size the beta team carefully and control its cash burn rate.
- The deliverable of this team is the scalable business in its minimum viable state
In other words: Synthesize, Analyze, Select, Learn and Scale.
I enjoyed writing this series and look forward to hearing your observations. Please drop me an email or tweet me your thoughts.
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