We are back with our Exploratorium!
Instead of running a new experiment, this week we wanted to take some time to summarize our latest experiments and answer to one of the questions one of you explorers asked to Luca Prasso during our conference call: “how does Google decide which experiment to keep and which one to kill off?”
Right now we have a Portfolio of potential businesses, some of them started generating some money, some of them refers to growing industries and some others are just technical proof of concepts. How do we decide what to do next with all these projects?
First of all, let’s put the basics on the table. A successful company should have two kinds of portfolios: the ‘Explore’ portfolio, that’s all about the search for new ideas, value propositions, and business models to ensure the future of the company, and the ‘Exploit’ portfolio, that’s all about keeping your existing business models on a growth trajectory.
In our Exploratorium, we work just on the ‘Explore’ side of the map, of course
A new idea starts from bottom left (A) , where you have the super risky and unknown returns ideas and that’s where you start experimenting with the market to lower the innovation risks and collecting informations on how profitable could be that idea.
Ideally, you want to push the projects the higher and the righter possible (B) before starting the ‘Exploit’ processes. Starting by creating a marketing campaign, creating a sales force, training employees about the standard production process of a project before assessing all the innovation and market risks could be a disaster.
Of course, is not mandatory that your projects and experiments become a billion dollar company or a unicorn, your target could be to just build a self sustainable marketing tool or little business that generates synergies with your main one. That’s a strategic decision you should have in mind before beginning this process.
At the same time, these tools help you organize your actual internal projects: I’m sure that if you work in a company discretely big you already have dozens of internal projects you are not managing as entrepreneurial projects but that could grow a lot instead, with a bit of rationalization.
Let’s give two examples
Gore, the company that we all know as the producer of GORE-TEX, relied heavily on adding new divisions. They started out with insulated wire and cables, then added electronics in 1970, medical devices in 1975, and wearable fabrics in 1976.
Competitors and cheaper alternatives triggered Gore to be more ambitious with their innovation strategy. In 2015, Gore launched an initiative to grow it’s innovation funnel to explore, test, and adapt new ideas, building a process based ecosystem that allowed continuous generation and testing of potential new growth engines(EXPLORE), while also looking to constantly improve the existing businesses (EXPLOIT).
Bosch has been a driving force in technological innovation. Its R&D led to successes such as the diesel injection pump and the ABS.
In 2014 Bosch’s CEO Denner sent out a communication to spur business model innovation. They created a Business Modell Innovation Department to complement their innovation process with business model development capabilities. They selected an initial cohort of 20 to 25 teams from all over the world that worked together for 2 to 10 months. Teams received an initial funding of 120k€ and got 2 months to test wether their business model ideas can scale. Depending on the results, teams could obtain an additional 300k€ or more during phase 2. With this additional funding teams can test minimum viable products (MVPs) with customers and demonstrate the ability of the business model idea to scale profitability.
Since 2017 Bosch has invested in more than 200 teams: 70% retired their projects in phase 1 and 75% of the remaining stopped after second. With this process, 15 teams have successfully transferred their projects to scale with follow-on funding.
Assessing the Innovation Risks
There are 4 ‘types’ of risks to assess:
Desirability risk: the risk that the market you are targeting is too small, that too few customers want the value proposition, or that the company can’t reach, acquire and retain targeted customers
Viability risk: the risk that a business can’t generate successful revenue streams, pay enough, or that the costs are too high to make a sustainable profit.
Feasibility Risk: the risk that a business can’t manage, scale or get access to key resources (technology, IP, brand, ...) key activities or key partners
Adaptability Risk: the risk that a business won't be able to adapt to the competitive environment, technology, regulatory, social or market trends, or that macro environment is not favorable
How do you quantify those risks?
There is an essential component of entrepreneurial feelings, but the manager job is to answer to the right questions (and giving them a strategic weight) analitically.
For each question the manager answers in 2 ways: what he/she believes (what are his/her insights) and what are the experiment evidences.
Let’s have an example. One of the question is: during the experiment did we find the right technology?
the manager could think ‘Yes my insights tell me that we will be able to get to the right technology’ even if the evidence of the experiment is poor, because for example in those 2 weeks the team was not able to produce anything really working
or, the manager insight could be ‘we won’t be technologically able to build the next Google’ (for example) even if the evidence of the 2 weeks experiment told him that in fact the team was able to look for a string inside a database.
So The expected outputs from each of the questions are two.
The first one is the amount of risk (starting from 100%) we were able to subtract by performing the experiments and the second one is understanding what’s the next step. For each of these questions in fact the manager will determine if to persevere testing, if to pivot that aspect, if to re-test that question or if to kill the project.
If you are wondering what are the best questions to start answering in the ‘Explore’ phase here they are
Our critical customer segments have the jobs, pains, and gains relevant for selling our value proposition
Our value proposition resonates with our critical customer segments
We have developed the right relationships to retain customers and repeatedly earn from them.
We have the right technologies and resources to create and deliver our product to market
We have the right capabilities to handle the most critical activities to create and deliver our product to market
We have found the right key partners who are willing to work with us to create and deliver our product to market
We know how much our customers are willing to pay us and how they will pay.
We know our costs for creating and delivering the value proposition.
Our idea/project is well positioned to succeed against established competitors and new emerging players.
Our idea/project takes known and emerging market shifts into account.
Our idea/project is well positioned to benefit from key technology, regulatory, cultural, and societal trends.
As you see in the image, now you can measure what, without these tools, it has always been something related to feelings or intuitions. Now you have the tools to analyse your portfolio of projects trying to understand which one deserves more attention and which one is just a beautiful project (maybe super useful as marketing or positioning tool for your company) but without many chances to exploit the future of your company.
If you want the google sheets or excel version of these tools so you can start filling it for yourself just ask us.
Happy to be back exploring the future with you!