lean analytics for intrapreneurs by allistair croll
Post on 21-Oct-2014
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When you’re a startupyour goal is to find a sustainable,
repeatable business model.
When you’re a big company your goal is to perpetuate one.
Intrapreneur:Someone working to produce
disruptive change in an organization that has already found a sustainable,
repeatable business model.
(Before we get into Lean Analytics, 2 key lessons.)
Lesson one:Companies die because they fail to
move to new business models.
Clay Christensen, The Innovator’s Dilemma
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Technologies outstrip what the market needs, driven by feedback from the “best” current customer.
Clay Christensen, The Innovator’s Dilemma
$1000
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High end
customerLow end
customer
The new market has different criteria for success, which are uninteresting to incumbents.
Clay Christensen, The Innovator’s Dilemma
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Storagecapacity
Portability
Sometimes this has unintended consequences
Clay Christensen, The Innovator’s Dilemma
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Smaller disc size means less vibration impact, leading to greater density, increasing storage capacity
Three kinds of innovation
Sustain/core(optimizing for more of the same)
Innovate/adjacent(introduce nearby product,
market, or method)
Disrupt/transformative(Fundamentally changing
the business model)
Improve alongcurrent metrics...
...or alterthe rate of improvement
Switch to a newvalue model
Change the businessmodel entirely
Everyone’s idea is the best right?
People love this part!
(but that’s not always a good thing)
This is where things fall apart.
No data, no learning.
In a startup, the purpose of analytics is to iterate to product/market fit
before the money runs out.
A good metric is:
Understandable
If you’re busy explaining the data, you won’t be busy acting on it.
Comparative
Comparison is context.
A ratio or rate
The only way to measure change and roll up the tension between two metrics (MPH)
Behaviorchanging
If you’re busy explaining the data, you won’t be busy acting on it.
Thesimplestrule
badmetric.
If a metric won’t change how you behave, it’s a
h"p://www.flickr.com/photos/circasassy/7858155676/
Metrics help you know yourself.
Acquisition
Hybrid
Loyalty
70%of retailers
20%of retailers
10%of retailers
You are just like
Customers that buy >1x in 90d
Once
2-2.5per year
>2.5per year
Your customers will buy from you
Then you are in this mode
1-15%
15-30%
>30%
Low acquisition cost, high checkout
Increasing return rates, market share
Loyalty, selection, inventory size
Focus on
(Thanks to Kevin Hillstrom for this.)
Qualitative
Unstructured, anecdotal, revealing, hard to aggregate, often too positive & reassuring.
Warm and fuzzy.
Quantitative
Numbers and stats. Hard facts, less insight, easier to analyze; often sour and disappointing.
Cold and hard.
Exploratory
Speculative. Tries to find unexpected or interesting insights. Source of unfair advantages.
Cool.
Reporting
Predictable. Keeps you abreast of the normal, day-to-day operations. Can be managed by exception.
Necessary.
Rumsfeld on Analytics
(Or rather, Avinash Kaushik channeling Rumsfeld)
Things we
know
don’tknow
we know Are facts which may be wrong and should be checked against data.
we don’tknow
Are questions we can answer by reporting, which we should baseline & automate.
we knowAre intuition which we should quantify and teach to improve effectiveness, efficiency.
we don’tknow
Are exploration which is where unfair advantage and interesting epiphanies live.
MayAprMarFeb
Slicing and dicing data
Jan
0
5,000
Activ
e use
rs
Cohort:Comparison of similar groups along a timeline.(this is the April cohort)
A/B test:Changing one thing (i.e. color) and measuring the result (i.e. revenue.)
MultivariateanalysisChanging several things at once to see which correlates with a result.
☀☁☀☁
Segment:Cross-sectional
comparison of all people divided by
some attribute (age, gender, etc.)
☀
☁
January February March April May
Rev/customer $5.00 $4.50 $4.33 $4.25 $4.50Is this company growing or stagnating?
Cohort 1 2 3 4 5
January
February
March
April
May
$5 $3 $2 $1 $0.5
$6 $4 $2 $1
$7 $6 $5
$8 $7
$9
How about this one?
Cohort 1 2 3 4 5
January
February
March
April
May
Averages
$5 $3 $2 $1 $0.5
$6 $4 $2 $1
$7 $6 $5
$8 $7
$9
$7 $5 $3 $1 $0.5
Look at the same data in cohorts
Lagging
Historical. Shows you how you’re doing; reports the news. Example: sales.
Explaining the past.
Leading
Forward-looking. Number today that predicts tomorrow; reports the news. Example: pipeline.
Predicting the future.
A Facebook user reaching 7 friends within 10 days of signing up (Chamath Palihapitiya)
If someone comes back to Zynga a day after signing up for a game, they’ll probably become an engaged, paying user (Nabeel Hyatt)
A Dropbox user who puts at least one file in one folder on one device (ChenLi Wang)
Twitter user following a certain number of people, and a certain percentage of those people following the user back (Josh Elman)
A LinkedIn user getting to X connections in Y days (Elliot Schmukler)
Some examples
(From the 2012 Growth Hacking conference. http://growthhackersconference.com/)
Correlated
Two variables that are related (but may be dependent on something else.)
Ice cream & drowning.
Causal
An independent variable that directly impacts a dependent one.
Summertime & drowning.
A leading, causal metricis a superpower.
h"p://www.flickr.com/photos/bloke_with_camera/401812833/sizes/o/in/photostream/
Growth hacking, demystified.
Find correlation
Test causality
Optimize the causal factor
Pick a metric to change
Is social action a leading indicator of donation?
http
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-soc
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obile
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Is mobile use?ht
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Eric’s three engines of growth
Virality
Make people invite friends.
How many they tell, how fast they
tell them.
Price
Spend money to get customers.
Customers are worth more than
they cost.
Stickiness
Keep people coming back.
Approach
Get customers faster than you
lose them.
Math that matters
Dave’s Pirate MetricsAARRR
AcquisitionHow do your users become aware of you?
SEO, SEM, widgets, email, PR, campaigns, blogs ...
ActivationDo drive-by visitors subscribe, use, etc?
Features, design, tone, compensation, affirmation ...
RetentionDoes a one-time user become engaged?
Notifications, alerts, reminders, emails, updates...
RevenueDo you make money from user activity?
Transactions, clicks, subscriptions, DLC, analytics...
ReferralDo users promote your product?
Email, widgets, campaigns, likes, RTs, affiliates...
Stage
EMPATHY I’ve found a real, poorly-met need that a reachable market faces.
STICKINESS I’ve figured out how to solve the problem in a way they will keep using and pay for.
VIRALITY I’ve found ways to get them to tell their friends, either intrinsically or through incentives.
REVENUE The users and features fuel growth organically and artificially.
SCALE I’ve found a sustainable, scalable business with the right margins in a healthy ecosystem.
GateTh
e fiv
e st
ages
Empathy stage:Localmind hacks Twitter
Needed to find out if a core assumption—strangers answering questions—was valid.Ran Twitter experiment instead of writing codeAsked senders of geolocated Tweets from Times Square random questions; counted response rateConclusion: high enough to proceed
Stickiness stage:qidiq streamlines invites
Survey owner adds recipient to groupSurvey owner asks question
Recipient reads survey questionRecipient responds to questionRecipient sees survey results
(Later, if needed…)Recipient visits site; no password!Recipient does password recovery
One-time link sent to emailRecipient creates password
Recipient can edit profile, etc.
Survey owner adds recipient to group
Survey owner asks question
Recipient gets invite
Recipient reads survey question
Recipient responds to question
Recipient installs mobile app
Recipient creates account, profile
Recipient sees survey results
Recipient can edit profile, etc.
10-2
5% R
ESPO
NSE R
ATE
70-9
0% R
ESPO
NSE R
ATE
(Which means eye charts like these.)
Customer Acquisition Cost
paid direct search wom inherent virality
VISITOR
Freemium/trial offer
Enrollment
User
Disengaged User
Cancel
Freemium churn
Engaged User
Free user disengagement
Reactivate
Cancel
Trial abandonment rate
Invite Others
Paying Customer
Reactivationrate
Paid conversion
FORMER USERS
User Lifetime Value
Reactivate
FORMER CUSTOMERS
Customer Lifetime Value
Viral coefficientViral rate
Resolution
Support data
Account Cancelled Billing Info Exp.
Paid Churn Rate
Tiering
Capacity Limit
Upselling rate Upselling
Disengaged DissatisfiedTrial Over
Model + Stage = One Metric That Matters.
One MetricThat Matters.
The business you’re in
E-Com SaaS Mobile 2-Sided Media UCGEmpathy
Stickiness
Virality
Revenue
ScaleThe
stag
e yo
u’re
at
www.theeastsiderla.com
Moz cuts down on metricsSaaS-based SEO toolkit in the scale stage. Focused on net adds.
Was a marketing campaign successful? Were customer complaints lowered? Was a product upgrade valuable?
Net adds up:
Can we acquire more valuable customers? What product features can increase engagement? Can we improve customer support?
Net adds flat:
Are the new customers not the right segment? Did a marketing campaign fail? Did a product upgrade fail somehow? Is customer support falling apart?
Net adds down:
Metrics are like squeeze toys.
http://www.flickr.com/photos/connortarter/4791605202/
Empathy
Stickiness
Virality
Revenue
Scale
E-commerce SaaS MediaMobile
appUser-gencontent
2-sidedmarket
Interviews; qualitative results; quantitative scoring; surveys
Loyalty, conversion
CAC, shares, reactivation
Transaction, CLV
Affiliates, white-label
Engagement, churn
Inherent virality, CAC
Upselling, CAC, CLV
API, magic #, mktplace
Content, spam
Invites, sharing
Ads, donations
Analytics, user data
Inventory, listings
SEM, sharing
Transactions, commission
Other verticals
(Money from transactions)
Downloads, churn, virality
WoM, app ratings, CAC
CLV, ARPDAU
Spinoffs, publishers
(Money from active users)
Traffic, visits, returns
Content virality, SEM
CPE, affiliate %, eyeballs
Syndication, licenses
(Money from ad clicks)
Baseline:5-7% growth a week
“A good growth rate during YC is 5-7% a week,” he says. “If you can hit 10% a week you're doing exceptionally well. If you can only manage 1%, it's a sign you haven't yet figured out what you're doing.” At revenue stage, measure growth in revenue. Before that, measure growth in active users.
Paul Graham, Y Combinator
• Are there enough people who really care enough to sustain a 5% growth rate?
• Don’t strive for a 5% growth at the expense of really understanding your customers and building a meaningful solution
• Once you’re a pre-revenue startup at or near product/market fit, you should have 5% growth of active users each week
• Once you’re generating revenues, they should grow at 5% a week
Baseline:10% visitor engagement/day
Fred Wilson’s social ratios
30% of users/month use web or mobile app
10% of users/day use web or mobile app
1% of users/day use it concurrently
Baseline:2-5% monthly churn• The best SaaS get 1.5% - 3% a month. They have multiple Ph.D’s
on the job.• Get below a 5% monthly churn rate before you know you’ve got a
business that’s ready to grow (Mark MacLeod) and around 2% before you really step on the gas (David Skok)
• Last-ditch appeals and reactivation can have a big impact. Facebook’s “don’t leave” reduces attrition by 7%.
Baseline:CLV calculation
25%monthly churn
100/25=4The average
customer lasts 4 months
5%monthly churn
100/5=20The average
customer lasts 20 months
2%monthly churn
100/2=50The average
customer lasts 50 months
Baseline:CAC under 1/3 of CLV• CLV is wrong. CAC Is probably wrong, too.• Time kills all plans: It’ll take a long time to find
out whether your churn and revenue projections are right
• Cashflow: You’re basically “loaning” the customer money between acquisition and CLV.
• It keeps you honest: Limiting yourself to a CAC of only a third of your CLV will forces you to verify costs sooner.
20 mo. CL$30/month per
customer$600 CLV
$200 CACNow segment those users!
1/3 spend
Draw a new linePivot orgive up
Try again
Success!
Did we move the needle?
Measure the results
Make changes in production
Design a test
Hypothesis
With data:find a
commonality
Without data: make a good
guess
Find a potential improvement
Draw a linePick a KPI
Gut instinct (hypothesis)Professional photography helps AirBnB’s business
Candidate solution (MVP)20 field photographers posing as employees
Measure the resultsCompare photographed listings to a control group
Make a decision Launch photography as a new feature for all hosts
Draw a new linePivot orgive up
Try again
Success!
Did we move the needle?
Measure the results
Make changes in production
Design a test
Hypothesis
With data:find a
commonality
Without data: make a good
guess
Find a potential improvement
Draw a linePick a KPI
“Gee, those houses that do well look really
nice.”
Maybe it’s the camera.
“Computer: What do all the
highly rented houses have in
common?”
Camera model.
With data:find a commonality
Without data: make a good guess
Landing page design A/B testing
Cohort analysis General analytics
URL shortening
Funnel analytics
Influencer Marketing
Publisher analytics
SaaS analytics
Gaming analytics
User interaction Customer satisfaction KPI dashboardsUser segmentation
User analytics Spying on users
AgendaAn introduction to Lean Analytics (30m)The Lean Analytics framework (30m)Break (15m)
The challenges of being big (15m)A dose of pragmatism (15m)Some non-tech examples (10m)When it’s you against the world (20m)Break (15m)
When you have support (30m)Metrics for innovation portfolios (15m)Tools of the trade (15m)
Business model vs. company stage
Company size/ageEarly stage Big/incumbent
B2B
Targ
etm
arke
t
B2C
Less
WoM
Mor
e fo
rmal
dec
isio
ns
Slower cycle timeMore legacy constraints
It is way too easy to mix these up.
Intrap
reneu
rs
Scale comes from process, IP, org chart, capitalization.
All of these assume the future will be like the past, only more so.
If a startup is an organization designed to search for a sustainable, repeatable business model, then an established company is an organization designed
to perpetuate one.
http://www.flickr.com/photos/ebolasmallpox/3733059220/
Software is eating the world.
An economic order quantityof one.
Crafted Mass-produced Automated Digital
Quantity
Cost
Lead time
Self-service
Customization
Few Many Some One
High Low Medium Free
Small Large Medium None
Medium None Some Lots
High None Some Lots
• Cloud computing• Social media• 3D printing• Per-customer
analysis• Mobile tracking• Etc...
This is why software is eating the
world.
Sustainable competitive advantage allows for inertia and power to build up along the lines of
an existing business model, which will soon die.
Instead, seek transient competitive advantage.
Rita Gunther McGrath, The End of Competitive Advantage
The problem was framing:
Blockbuster thought it was in the video store management business. Netflix realized it was in the entertainment delivery business.
• $1B invested in Nook• $475M operating loss
in April 2013• CEO gone
First mover advantage happens long before the market emerges.
(http://csinvesting.org/2012/01/06/fortune-500-extinction/)
F500 Life Expectancy
Growth by entering a new business 95
% failCorporate
Strategy Board
99% failClay
Christensen
75 years
15 years
1950 2010...
Companies that use data-driven analytics instead of intuition have 5%-6% higher productivity and profits than competitors.
Brynjolfsson, Erik, Lorin Hitt, and Heekyung Kim. "Strength in Numbers: How Does Data-Driven Decisionmaking Affect Firm Performance?." Available at SSRN 1819486 (2011).
2011 MIT study of 179 large publicly traded firms
Many models for enterprise innovation
Core Adjacent TransformativeDo the same thing better.
Nearby product, market, or method.
Start something entirely new.
Regionaloptimizations.
Innovation, go-to-market strategies.
Reinvent the business model.
• Get there faster• Smaller batches• Solution, then testing• Increased accountability
• Customer development• Test similar cases• Parallel deployment• Analytics & cycle time
• Fail fast• Skunkworks/R&D• Focus on the search• Ignore the current
model & margins
Another way to look at it
Core Adjacent TransformativeKnow the problem
(customers tell you it)Know the solution
(customers/regulations/norms dictate it.)
Know the problem (market analysis)
Don’t know the solution (non-obvious innovation
confers competitive advantage.)
Don’t know the problem (just an emerging need/
change)Don’t know the solution.
Waterfall:Execution matters
Agile/scrum:Iteration matters
Lean Startup:Discovery matters
The Three Horizons
Core Adjacent Transformative
Those core businesses most readily identified with the company name and those that provide the greatest profits and cash flow.
Maximize remaining value.
Emerging opportunities, including rising entrepreneurial ventures likely to generate substantial
profits in the future but that could require considerable investment.
Ideas for profitable growth down the road—for instance, small ventures
such as research projects, pilot programs, or minority stakes in new
businesses.
Horizon 1 improves the current business operations
in the next 12 months.
Horizon 2 extends the business into new products, markets, or methods in the
next 3 years.
Horizon 3 changes the industry you’re in and your value network in the next 6
years.
http://www.mckinsey.com/insights/strategy/enduring_ideas_the_three_horizons_of_growth
Product(new “what”)
Market(new “who”)
Method(new “how”)
Purestartup
Distributioninnovation
Marketdiversification
Channelexpansion
Another view
Inventive
Adjacent
Disruptive
Core
Currentstate
Business optimization (five mores)
Product,market,method
innovation
Business model
innovation
You can convince executives of this
because some of it is familiar.
This terrifies them because it eats the current business.
A three-maxima model of enterprise innovation
Improvement Adjacency RemodelingDo the same,only better.
Explore what’snearby quickly
Try out newbusiness models
Lean approaches apply, but the metrics vary widely.
Sustain/core
Innovate/adjacent
Disrupt/transformative
Sustaining innovation is about more of the same.(says Sergio Zyman)
More things
To more people
For more money
More often
More efficiently Supply chain optimizationPer-transaction cost reduction
Loyal customer base that returnsDemand prediction, notification
Maximum shopping cartPrice skimming/tiering
Highly viral offeringLow incremental order costs
Inventory increaseGifting, wish lists
Software, experimentation, and iterative cycles of learning help you
get to the local maximum better and faster. That’s a good thing.
But it’s not the only thing.
Selling the same product to an adjacent market in the same way.
Of P&G’s 38 brands, only 19 were sold in Asia as of 2011Market expansion is seldom selling the same thing to new people. In Asia, P&G needed to
Align pricing with novelty (prestige, mass-tige, over-the-counter)Change consumer expectations (moving from dilutes to concentrates)Adjust positioning and ingredients such as white fungus, ginseng, and the parasitic cordyceps
Selling the same product to the same market in a new way.
The biggest innovation in logistics of the 20th century.
http://www.flickr.com/photos/photohome_uk/1494590209
(At this point, observant Intrapreneurs should be asking, should P&G be in
the house cleaning business?
And that would be transformative.)
Transformative innovation is about taking a leap, changing more than one dimension simultaneously in search of
a new business model.
If sustaining, incremental innovation produces linear growth, then
disruptive, transformative innovation produces exponential growth.
http://www.flickr.com/photos/puuikibeach/4789015423 http://www.flickr.com/photos/elcapitanbsc/3936927326
Cost of experiments: down. Cost of attention: way up.
Before opening, the owner first learns about the diners in her area, their desires, what foods aren’t available, and trends in eating.
Empathy: find the need
Key metrics: Popular items; frequent questions; before/after dining patterns.
Reference: Emerging need.
She develops a menu and tests it out with consumers, making frequent adjustments until tables are full and patrons return regularly. She’s giving things away, asking diners what they think. Variance and uncertain inventory make costs high.
Stickiness: confirm the need is met.
Key metrics: Customer loyalty; recommendations; referrals; endorsements; inventory turnover.
Reference: Business idea.
She starts loyalty programs to bring frequent diners back, or to encourage people to share with their friends. She engages on Yelp and Foursquare.
Virality: will it spread?
Key metrics: Customer loyalty; recommendations; referrals; endorsements.
Reference: Business positioning
With virality kicked off, she works on margins—fewer free meals, tighter controls on costs, more standardization. She focuses on the price of acquiring new customers.
Revenue: prove the business viability
Key metrics: Acquisition cost, revenue per cover, capacity, turnover.
Reference: Business model.
Knowing she can run a profitable business, she funnels revenues into marketing and promotion. She reaches out to food reviewers, travel magazines, and radio stations. She launches a second restaurant, or a franchise.
Scale: prove it’s a market
Key metrics: Franchise health; repeatability; problems escalated; variance; franchise revenues.
Reference: Business plan.
A leading indicator
http://www.flickr.com/photos/avlxyz/4889656453http://www.flickr.com/photos/mysticcountry/3567440970
50 reservationsat 5PM
250 coversthat night
(Varies by restaurant. McDonalds ≠ Fat Duck.)
http://www.flickr.com/photos/southbeachcars/6892880699
Restaurant MVP
Is purple ink better?http://tippingresearch.com/uploads/managing_tips.pdf
Stalking customers is pretty easy.
http://tippingresearch.com/uploads/managing_tips.pdfhttp://targetmycustomers.appspot.com
The skills you need make you a pariah.Successful innovators share certain attributes.
Bad listener: Willfully ignore feedback from your best customers.
Cannibal: If successful, destroying existing revenue streams.
Job killer: Automation & lower margins are your favorite tools.
Security risk: Advocate of transparency, open data, communities.
Narcissist: Worry constantly about how you’ll get attention.
Slum lord: Sell to those with less money, deviants, and weirdos.
Know what kind of innovation you’re after.
New
CurrentCurrent New
Market
Product
Penetrate:Increase revenues,
market share, product quality, brand differentiation.
Marketing.
Market development:Sell existing products
to new markets, segments, uses. Export & license.
Product development:
Invent new products for your market. R&D,
enhancements. Acquisition.
Startup:New products for new markets. New rules,
business units, organizational
structure. Innovation.
Based on H. Igor Ansoff’s matrix
Increase
d risk o
f politic
al fallo
ut (and grea
t succe
ss!)
Frame it like a studyProduct creation is almost accidental.Unlike a VC or startup, when the initiative fails the organization still learns.
http://www.flickr.com/photos/creative_tools/8544475139
When in doubt, collect dataFrom tackling the FTA rate to visualizing the criminal justice supply chain.
Use data to create a taste for data
Sitting on Billions of rows of transactional dataDavid Boyle ran 1M online surveysOnce the value was obvious to management, got license to dig.
Understand hidden constraints
That pencil story is a myth. Graphite is conductive and explosive. The Minimum Viable Product is Viable for a reason.
http://www.flickr.com/photos/bootbearwdc/1243690099/
Think subversively.
Run it as a consulting business first.
(Just don’t get addicted to it. Your goal is to learn and overcome integration challenges and find the 20% of features that 80% of the market
will pay for.)
Convince your boss she asked for this
Draw a new linePivot orgive up
Try again
Success!
Did we move the needle?
Measure the results
Make changes in production
Design a test
Hypothesis
With data:find a
commonality
Without data: make a good guess
Find a potential
improvement
Draw a linein the sand
Pick a KPI
Slaughter a sacred cow:Prove a long-held assumption is wrong and you’ve got people’s
attention.
Know what you’ll do with it ahead of time.
Tesla
http://www.hdwallpapersinn.com/wp-content/uploads/2012/12/600-tesla.jpg
Twitter’s 140-character limit isn’t arbitrary. It’s
constrained by the size of SMS (160 characters)
and username (20 characters.)
http://i.i.cbsi.com/cnwk.1d/i/tim/2011/11/18/sms_screen_twitter_activity_stream_270x405.png
Figure out how to translate it back to a simple model that fits the company’s
existing value model.
If your company dies, this is why.
Intrapreneurs often have to use proxiesStage Startup metrics Intrapreneur metrics
EmpathyCustomers interviewed (needs &
solutions), assumptions quantified, TAM, monetization possibility
Non-customers interviewed; assumptions quantified, constraints identified, TAM, disruption potential
Stickiness Churn, engagement Support tickets, integration time, call center data, delays
Virality Viral coefficient, viral cycle time Net Promoter Score, referrals, case study willingness
Revenue Attention, engagementBillable activity; signed LOIs; pilot
programs; after-development profitability
Scale Automation Contribution, training costs, licensing
When you have support.
(What companies like P&G, Cognizant, GE, and Motorola do with a formal innovation program.)
Do you really have permission?
What resources do you have?
Staff, budget, unfettered access to customers?
What scope of change can you make?
Pricing, product, channel, branding?
Innovation portfolios at big companiesCore Adjacent Transformative
70% 20% 10%
Inve
stm
ent
70%20%10%Retu
rn
Organizations’ structures emerge as a way to optimize the current business model.
Most innovations will come not from product or market, but from method—business model innovation.
Innovation groups must exercise organizational amnesia at the outset.
1.
2.
3.
Maybe not so crazy.
http://www.flickr.com/photos/mizrak/4592706544
Step two: Define your gates and filters.
These may lead to myopia.They are also your unfair advantages.
Find non-obvious adjacencies
LIGHT BULB
ELECTRICAL GENERATOR
TRAIN ENGINE WIND TURBINE
MRI MACHINE
POWER GRIDSOFTWARE TO
CUT DOWN TREES BETTER
PLANE ENGINENEEDS
AN
WHICH FEEDS A
HAS A TURBINE
LIKE A
TURNED AROUND
BECOMES A
SPINS & VIBRATES LIKE AN
REQUIRES
AND LOOKS LIKE A
Build an ecosystemCanada’s largest directory publishing and local marketing services company
1.5M listings from 420K SMB & national customersRevenues >$1.2B2,500 employees
Created third-party listing APITook 8-10 mo (2009-10) to get approval
API payoff happened 2y laterYahoo replaced Canadian digital properties search with the YellowAPIImproved SEO, ComscoreFunctional prototype in hours, testing in days, and launching in weeks.Faster time to partnerships
Budgets tripled in 2013
Soft: Signups, SDK, downloads
App usage, deals signed
API calls generated
API-generated revenue
KPI evolution
Five common models for transformative innovation
Isolation
Acquisition
Integration
Incubation
Collaboration
Buy promising startups
Crowdsource, work with universities, suppliers, etc.
Create a separate group with different conditions
Internal startup ecosystem; LoB are “investors”
The LoB does innovation internally
Focus on the model, not the plan
Cost of Goods
Demand
Cost per cup
People per day on sidewalkPercent that buy a glass
RevenuePrice per cup
Profit per cupDaily profit
Daily customers
Amt20010%20
$5
$1
$80$4
Growth4%5%
-2%
Wk 120415%
.98
Wk 221620%
.96
Wk 322525%
.94
$156
30.6
$216
41.5
$281
52.8
125 175 2284.02 4.04 4.06
31 43 56
$5 $5 $5
Designing an experiment
Problem, solution, and result hypothesis
Test strategy (PoC, survey, interviews, kickstarter, prototype, A/B, etc.)
Cohort & segment to be tested
Metric or assumption being tested
Timebox or total for test
Action you’ll take if you pass or fail
POC
Qualcomm’s innovation model: What was missing
Idea generation and selection
Bootcamp
Idea advancement
Ideas
Existing models
Newmodels
Openinnovation
Techfeasibility
Bizsustain-ability
End user/partnerdesirability
Actions
Optionvalue
Strategicvalue
Exitvalue
Hypothesis Experiment Implement
Company crowd storm Small team designs &conducts experiments
Company extracts value
Boot camp
decision Implement decision
POC
decision
Unclear what happened to foundersNeeded a middle PoC decisionSustainability, not feasibility
http://blogs.berkeley.edu/2013/01/28/designing-a-corporate-entrepreneurship-program-a-qualcomm-case-study-part-1-of-2/
The Lean Analytics lifecycle of an Intrapreneur
Empathy Find problems; don’t test demand. Skip the business case, do analytics
Entitled, aggrieved customers
Stickiness Know your real minimum based on expectations, regulations
Hidden “must haves”, feature creep
Virality Build inherent virality in from the start; attention is the new currency
Luddites who don’t understand sharing
Revenue Consider the ecosystem, channels, and established agreements
Channel conflict, resistance, contracts
Scale Hand the baton to others gracefully Hating what happens to your baby
Beforehand Get buy-in Political fallout
Core metrics
Metrics that matter• Return on investment• Total cost of ownership• Improvement in KPI• Total served market
Business plan.Assume it will improve.Product, market, and method will remain the same
Examples: Redesigning packaging; pricing adjustment
Adjacent metrics
Metrics that matter• Virality & word of mouth• Early adopter stickiness• Regulation• Total addressable market
Business model.Assume it will fail.Your ultimate use case won’t be what you think it is today.
Example: Mr. Clean Magic Eraser
Transformative metrics
Metrics that matter• People I’ve talked to• Prototype creation speed• Assumptions validated• Problems uncovered• Technical feasibility• Hidden constraints
Business idea.Assume it will fail.You hope it will have the consequences you want but aren’t sure how.
Example: Headcam recordings of all officers
Key points to clarify in an innovation program
Hypothesis Experimentation Implementation• Articulate problems• Frame known advantages• Define the right filters• Many idea sources• Confirm funding (money,
people, customer access)• Agree on analytical
framework• Balance market, product,
& method adjacencies
• Prioritize riskiest assumptions
• Time-box assessment stages
• Test technology, demand, and business feasibility
• MVP, prototype, pilot, or science as appropriate for type of innovation
• Temporary incubator• Find a home or building
one• Keep innovators involved• Merge metrics with
existing business KPIs• Synchronize innovation
cycles with enterprise cycles (budget, etc.)
Portfolio metrics; Gates and KPIs for each stage; mix of core, adjacent, and disruptive innovation.
Goal
s, co
nstra
ints
, con
text
Sourcing FilteringBiases
StrengthsFocus
MandateAdjacent
De-riskingBest solution
DisruptiveReframing
CoreOptimization
IntegrationAdoption by
existing line of business.
IndependenceCreation of a new line of business.
Evaluation of the innovation program itself
Socializing
Test/validate
w/current customers
Growas a
distinct business
Cross-pollinateto current managers
Top-down
Bottom-up
R&D M&A
Hypothesis Sourcing Boot camp POC Implementation
Outside-in
Note that this will almost
certainly change... this was the
MVP deck and there are a
bunch of alterations I need to
make to it.
Traction graphs
Your business model
The stage you’re at
Your one metric
... change often if you’re doing it right.
So how do you track that over time?
Traction graphs
Jan Feb Mar Apr May Jun
Signupsper day
Conversionrate
Churnrate
Viralcoefficient
This axis changes for each metric
Use vanity to get to meaningful metrics
Your goal is to produce outcomes
If the outcomes require action, and vanity motivates actors, use it
But show how the vanity metric is a leading indicator of the real one
x
Web traffic
Revenue
Activation
CartSize
Conversion rate
The three threesThreeassumptions
What big bets are you making?•“People will answer questions”•“Organizers are frustrated with how to run conferences”•“We'll make money from parents”•“Amazon is reliable enough for our users.”
Three actionsto take
What are you doing to make these assumptions happen (or identify they’re wrong and change course?)•Product enhancements•Marketing strategies
Three experimentsto run
•Feature tests•Continuous deployment•A/B testing•Customer survey
The three threes
Threeassumptions
Three actionsto take
Three experimentsto run
Monthly
Weekly
Daily
Board, investors, founders
Executive team
Employees
Strategy
Tactics
Execution
The three threesThreeassumptions
Three actionsto take
Three experimentsto run
Get more people
Increase answer %
Test betterquestions
Change the UI
Test timings
Questions from peers
Many people will answer questions
The problem-solution canvasCURRENT STATUS
• List key metrics you’re tracking, where they’re at, and compare with last few weeks• How are things trending?
LAST WEEK’S LESSONS LEARNED AND ACCOMPLISHMENTS)
• What did you learn last week?• What was accomplished?• On track: YES / NO?
The Goal is to Learn
The problem-solution canvasHYPOTHESIZED SOLUTIONS
• List possible solutions that you’ll start working on next week. Rank them.• Why do you believe each solution will help you solve or complete solve the problem?
METRICS / PROOF + GOALSProblem #1 (put name here)
• Metrics you’ll use to measure whether or not the solutions are doing what you hoped (solving the problem)• List proof (qualitative) you’ll use as well• Define goals for the metric
HYPOTHESIZED SOLUTIONS
• List possible solutions that you’ll start working on next week. Rank them.• Why do you believe each solution will help you solve or complete solve the problem?
METRICS / PROOF + GOALS
• Metrics you’ll use to measure whether or not the solutions are doing what you hoped (solving the problem)• List proof (qualitative) you’ll use as well• Define goals for the metric
Problem #2 (put name here)
“A subjective degree of belief should rationally change to account for
evidence.”(AKA Bayes’ Theorem.)
Key pointsIntrapreneurship is about adjacent or transformative innovation
Sustaining innovation focuses on the Five Mores, within the current product, market, method, and business model.Adjacent innovation may come from a new product, market, or method, but the same business modelDisruptive innovation has different customers, KPIs, and models
The difference between a rogue agent and a special operative is permissionPortfolios need framing, sourcing, filters, metrics, and socializingBalancing isolation and integration, R&D and M&A is contentious
“The most important figures that one needs for management are unknown or unknowable, but successful management must nevertheless take account of them.”
Lloyd S. Nelson
Pic by Twodolla on Flickr. http://www.flickr.com/photos/twodolla/3168857844