Startup Series: Lean Analytics, Innovation, and Tilting at Windmills

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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 surviveand even thrivein 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...

Thursday, August 14, 14

This isnt about a lack of resources.

Thursday, August 14, 14

http://www.flickr.com/photos/maladjusted/5207565912 Thursday, August 14, 14

Blockbuster had a lot going for it.

Thursday, August 14, 14

Plenty of inventory, of course. But that matters less than...

Thursday, August 14, 14

...market intelligence, customers, existing payment approval, and customer history.

Thursday, August 14, 14

The problem was framing:

Blockbuster thought it was in the video store management business. Netflix realized it was in the entertainment delivery business.

Thursday, August 14, 14

Organizations die because they fail to move to new business models.

Thursday, August 14, 14

Clay Christensen, The Innovators Dilemma

Cost

per

MB

$1000

$100

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$1

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14

Mainfr

ame

8

Minico

mpute

r

5.25

Deskt

op

3.5

Noteb

ook

Thursday, August 14, 14

Technologies outstrip what the market needs, driven by feedback from the best current customer.

Clay Christensen, The Innovators Dilemma

$1000

$100

$10

$1

Time

8 5.25

High end

customer Low end

customer

Thursday, August 14, 14

The new market has different criteria for success, which are uninteresting to incumbents.

Clay Christensen, The Innovators Dilemma

$1000

$100

$10

$1

Time

Storagecapacity

Portability

Thursday, August 14, 14

Sometimes this has unintended consequences

Clay Christensen, The Innovators Dilemma

$1000

$100

$10

$1

Time

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-1Thursday, August 14, 14

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

Thursday, August 14, 14

Server vendors missed the disruption and the change in the value network.

Clay Christensen, The Innovators 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

Thursday, August 14, 14

YOU ARE HERE

Thursday, August 14, 14

YOU ARE HERE

LOCALMAXIMUMOPTIMIZATION

OF CURRENT METRICS

Thursday, August 14, 14

YOU ARE HERE

GLOBALMAXIMUMINNOVATION

WITH NEWRULES

Thursday, August 14, 14

YOU ARE HERE

SHORT-TERM INVESTORSHATE GOING DOWNHILL

Thursday, August 14, 14

Why now?

First: High rate of change of digital technologies & channels.

Thursday, August 14, 14

http://www.flickr.com/photos/ebolasmallpox/3733059220/

Software is eating the world.

Thursday, August 14, 14

Arbitron and radio data

Thursday, August 14, 14

Times a song in heavy rotation is played daily

0

15

30

2007 2012Thursday, August 14, 14

Why now?

Second: Its no longer about whether you can build itits about whether

anyone will care.

Thursday, August 14, 14

The Attention EconomyWhat 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.

Thursday, August 14, 14

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

Thursday, August 14, 14

Improvement Adjacency RemodelingDo the same,only better.

Explore whatsnearby quickly

Try out newbusiness models

Lean approaches apply, but the metrics vary widely.

Sustain/core

Innovate/adjacent

Disrupt/transformative

Thursday, August 14, 14

Sustaining Adjacent DisruptiveNext years car Electric car,

same dealerOn-demand, app-based

car service

Thursday, August 14, 14

Sustaining innovation is about more of the same.(says Sergio Zyman)

More things

To more people

For more money

More often

More eciently 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.

Thursday, August 14, 14

Experiment with product, market, and method.

Thursday, August 14, 14

Product(new what)

Market(new who)

Method(new how)3 kinds of

innovation

Thursday, August 14, 14

Adjacent productto the same market in the same way

Thursday, August 14, 14

Selling the same product to an adjacent market in the same way.

Of P&Gs 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.

Thursday, August 14, 14

(At this point, observant Intrapreneurs should be asking, should P&G be in

the house cleaning business?

And that would be transformative.)

Thursday, August 14, 14

Transformative innovation is about taking a leap, changing more than one dimension simultaneously in search of

a new business model.

Thursday, August 14, 14

Transformative isolation:Skunkworks

Thursday, August 14, 14

If sustaining, incremental innovation produces linear growth, then

disruptive, transformative innovation produces exponential growth.

Thursday, August 14, 14

Transformative incubation: Metlife Infinity

Thursday, August 14, 14

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

Thursday, August 14, 14

Efficiency is tied to analytics. Well still look

for new materials, or for the physics of devices, but the

analytics ... is whats really untapped.

Thursday, August 14, 14

Intrapreneurs drive innovation in organizations that have already

found product-market fit.

Thursday, August 14, 14

Intrapreneur:Someone working to produce

disruptive change in an organization that has already found a sustainable,

repeatable business model.

Thursday, August 14, 14

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 youll get attention.Slum lord: Sell to those with less money, deviants, and weirdos.

Thursday, August 14, 14

Some things smart Intrapreneurs do dierently

Thursday, August 14, 14

Think Lean, and analytically.

Thursday, August 14, 14

The plural of anecdote is not data.(Roger Brinner)

Thursday, August 14, 14

Dont sell what you can make. Make what you can sell.

Kevin Costner is a lousy entrepreneur.

Thursday, August 14, 14

The core of Lean is iteration.

Thursday, August 14, 14

Everyones idea is the best right?

People love this part!

(but thats not always a good thing)

This is where things fall apart.

No data, no learning.

Thursday, August 14, 14

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 Media

Mobileapp

User-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.

Thursday, August 14, 14

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.

Thursday, August 14, 14

Dont just collect data, chase it.

Thursday, August 14, 14

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 individuals 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.

Thursday, August 14, 14

Netflix

Thursday, August 14, 14

Tesla

http://www.hdwallpapersinn.com/wp-content/uploads/2012/12/600-tesla.jpgThursday, August 14, 14

Twitters 140-character limit isnt arbitrary. Its

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%

Inves

tmen

t

70%20%10%Retu

rn

Thursday, August 14, 14

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.

Thursday, August 14, 14

Once, a leader convinced othersin the absence of data.

Thursday, August 14, 14

Now, a leader knowswhat questions to ask.

Thursday, August 14, 14

solveforinteresting.com/@acrolltiltthewindmill.com/@tiltmillstrataconf.com/@strataconf

Thanks!

Thursday, August 14, 14

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