startup series: lean analytics, innovation, and tilting at windmills
Post on 21-Oct-2014
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Fifty years ago, a typical company on the S&P 500 stayed there for three-quarters of a century. Today, they last only fifteen years. Technological disruption has run roughshod through the boardrooms of the world. At the same time, small startups with nothing to lose have become more methodical about iteration, experimentation, and innovation. Fueled by deep investment backing and unfettered by legacy distractions like regulation, customers, and infrastructure, they're turning into Billion-dollar ventures. From lackluster jobs growth to tech speculation to the disruption of nearly every industry, the death of big companies is the elephant in the room. But can we teach the elephant to dance? Join author, entrepreneur, and Strata conference chair Alistair Croll for a look at how some large organizations are applying data-driven methods, a deliberate portfolio of innovation, and Lean approaches that help them survive—and even thrive—in a changing competitive landscape.TRANSCRIPT
Lean Analytics, Innovation, and
Tilting at WindmillsHive data meetup
August, 2014
@acroll
Thursday, August 14, 14
Thursday, August 14, 14
(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...
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This isn’t about a lack of resources.
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http://www.flickr.com/photos/maladjusted/5207565912 Thursday, August 14, 14
Blockbuster had a lot going for it.
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Plenty of inventory, of course. But that matters less than...
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...market intelligence, customers, existing payment approval, and customer history.
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The problem was framing:
Blockbuster thought it was in the video store management business. Netflix realized it was in the entertainment delivery business.
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Organizations die because they fail to move to new business models.
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Clay Christensen, The Innovator’s Dilemma
Cost
per
MB
$1000
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14”
Mainfra
me
8”
Minicom
puter
5.25”
Deskto
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3.5”
Noteboo
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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
$100
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8” 5.25”
High end
customerLow end
customer
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The new market has different criteria for success, which are uninteresting to incumbents.
Clay Christensen, The Innovator’s Dilemma
$1000
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Storagecapacity
Portability
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Sometimes this has unintended consequences
Clay Christensen, The Innovator’s Dilemma
$1000
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Smaller disc size means less vibration impact, leading to greater density, increasing storage capacity
Thursday, August 14, 14
Amazon Web Services and the server value network
http://www.theregister.co.uk/2013/04/18/amazon_2_trillion_s3/http://www.saphana.com/community/blogs/blog/2013/04/18/hanalgorithmics--efficiency-by-design-with-sap-hana--part-1
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Amazon Web Services and the server value network
Bare metal equipment
• Density• Heat
• GHz• MIPS
Cloud computing
• Instances• Objects
• Spinup time• Scaleout
Capex, financing, TCO, ROI
Opex, demand, time to result
CIO, enterprise IT CTO, coder, app owner, line of business, startup
Valuecriteria
Money
Buyer
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Server vendors missed the disruption and the change in the value network.
Clay Christensen, The Innovator’s Dilemma
$1000
$100
$10
$1
Time
Elastic resources mean we can scale up to huge, and shrink costs when not in use.
Physical servers:MIPS, heat, density, cost per cycle.
Sold to CIOs Cloud computing:Opex cost, time to spin up, scaleout, objects stored
Sold to developers & marketers
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YOU ARE HERE
Thursday, August 14, 14
YOU ARE HERE
LOCALMAXIMUMOPTIMIZATION
OF CURRENT METRICS
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YOU ARE HERE
GLOBALMAXIMUMINNOVATION
WITH NEWRULES
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YOU ARE HERE
SHORT-TERM INVESTORSHATE GOING DOWNHILL
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Why now?
First: High rate of change of digital technologies & channels.
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http://www.flickr.com/photos/ebolasmallpox/3733059220/
Software is eating the world.
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Arbitron and radio data
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Times a song in “heavy rotation” is played daily
0
15
30
2007 2012Thursday, August 14, 14
Why now?
Second: It’s no longer about whether you can build it—it’s about whether
anyone will care.
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The Attention Economy“What information consumes is rather obvious: it consumes the attention of its recipients.
Hence a wealth of information creates a poverty of attention, and a need to allocate that attention efficiently among the overabundance of information sources that might consume it.”
(Computers, Communications and the Public Interest, pages 40-41, Martin Greenberger, ed., The Johns Hopkins Press, 1971.)Herbert Simon
Thursday, August 14, 14
Lit motors tests the risky partThursday, August 14, 14
Everything to lose:Why big companies need innovation.
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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
Thursday, August 14, 14
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
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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
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Sustaining Adjacent DisruptiveNext year’s car Electric car,
same dealerOn-demand, app-based
car service
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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
Thursday, August 14, 14
Adjacent innovation is about changing one part of the model in a way that
alters the value network.
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Experiment with product, market, and method.
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Product(new “what”)
Market(new “who”)
Method(new “how”)3 kinds of
innovation
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Adjacent productto the same market in the same way
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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
Thursday, August 14, 14
Selling the same product to the same market in a new way.
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(At this point, observant Intrapreneurs should be asking, should P&G be in
the house cleaning business?
And that would be transformative.)
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Transformative innovation is about taking a leap, changing more than one dimension simultaneously in search of
a new business model.
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Transformative isolation:Skunkworks
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If sustaining, incremental innovation produces linear growth, then
disruptive, transformative innovation produces exponential growth.
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Transformative incubation: Metlife Infinity
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Significant market850K full-time law enforcement officers in the US; 700K state/local; 525K patrol officers130M incident reports/y. 70M new incidents; 200K involve use of forceOnly 31% of local police agencies keep computer files on use-of-force incidents
Strong product benefitsExonerates the officer 96% of the time.47% percent increase in charges and summons (2007)
Patrol officers spend 15-25% of their time writing incident reports, recorded evidence reduces this by 22%, meaning 50m more on patrol
ChallengesNew business model
Pricing unclearSaaS offering
Compliance and governanceUnions, regulation, chain of evidence
Changing the current model (radio is everything)
Transformative incubation: Taser evidence.com
Thursday, August 14, 14
Engine as a serviceThursday, August 14, 14
http://www.nasa.gov/images/content/365835main_airplane_noise_qtd2_3024x2016.jpgEngine as a service
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“Efficiency is tied to analytics. We’ll still look
for new materials, or for the physics of devices, but the
analytics ... is what’s really untapped.”
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Intrapreneurs drive innovation in organizations that have already
found product-market fit.
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Intrapreneur:Someone working to produce
disruptive change in an organization that has already found a sustainable,
repeatable business model.
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Also: a pariah.Successful innovators share certain attributes.
Bad listener: Wilfully 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.
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Some things smart Intrapreneurs do differently
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Think Lean, and analytically.
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The plural of anecdote is not data.(Roger Brinner)
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Don’t sell what you can make. Make what you can sell.
Kevin Costner is a lousy entrepreneur.
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The core of Lean is iteration.
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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.
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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
Thursday, August 14, 14
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)
Thursday, August 14, 14
Better: bit.ly/BigLeanTable
Thursday, August 14, 14
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
Thursday, August 14, 14
When in doubt, collect dataFrom tackling the FTA rate to visualizing the criminal justice supply chain.
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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.
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Don’t just collect data, chase it.
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Know what has tobe built in-house
SAP integrationEmployment law
Thursday, August 14, 14
http://www.flickr.com/photos/bootbearwdc/1243690099/
Think subversively.
Thursday, August 14, 14
Focus on the desired behavior, not just the information.
http://www.psychologytoday.com/blog/yes/200808/changing-minds-and-changing-towels
26% increase in towel re-use with an appeal to social norms; 33% increase when tied to
the specific room.
Energy Conservation “Nudges” and Environmentalist Ideology: Evidence from a Randomized Residential Electricity
Field Experiment - Costa & Kahn 2011
The effectiveness of energy conservation “nudges” depends on an individual’s political ideology ... Conservatives who learn that their
consumption is less than their neighbors’ “boomerang” whereas liberals reduce their consumption.
Thursday, August 14, 14
Take baby steps.
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Netflix
Thursday, August 14, 14
Tesla
http://www.hdwallpapersinn.com/wp-content/uploads/2012/12/600-tesla.jpgThursday, August 14, 14
Twitter’s 140-character limit isn’t arbitrary. It’s
constrained by the size
http://i.i.cbsi.com/cnwk.1d/i/tim/2011/11/18/sms_screen_twitter_activity_stream_270x405.png
Thursday, August 14, 14
Innovation portfolios at big companiesCore Adjacent Transformative
70% 20% 10%
Inve
stm
ent
70%20%10%Retu
rn
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“The most important figures that one needs for management are unknown or unknowable, but successful management must nevertheless take account of them.”
Lloyd S. NelsonThursday, August 14, 14
Pic by Twodolla on Flickr. http://www.flickr.com/photos/twodolla/3168857844Thursday, August 14, 14
ARCHIMEDES HAD TAKEN
BATHS BEFORE.
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Once, a leader convinced othersin the absence of data.
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Now, a leader knowswhat questions to ask.
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solveforinteresting.com/@acrolltiltthewindmill.com/@tiltmillstrataconf.com/@strataconf
Thanks!
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