Lean Analytics for Intrapreneurs by Allistair Croll

Lean Analyticsfor IntrapreneursLean Startup Conference 2013

@acroll

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.

Lean Analytics:Use data to build a better business faster.

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

Clay Christensen, The Innovator’s Dilemma

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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

Lesson two:The difference between a rogue agent and a special operative is permission.

It’s not your job to prove you’re clever.It’s your job to change outcomes.

A quick introductionto Lean Analytics

Don’t sell what you can make. Make what you can sell.

Kevin Costner is a lousy entrepreneur.

The core of Lean is iteration.

Unfortunately,we’re all liars.

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.

Analytics can help.

Analytics is the measurement of movement towards your business

goals.

In a startup, the purpose of analytics is to iterate to product/market fit

before the money runs out.

In a big company,analytics replaces opinion with fact.

It helps you innovate on product, market, and method.

Some fundamentals.

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.)

☀

☁

Which of these two companiesis doing better?

  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

The ability to do things in small batches is behind much of the lean movement.

Short cycle time triggers the immune system of big company budgeting.

(this is called foreshadowing.)

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/)

Which means it’s time to talk about correlation.

1

10

100

1000

10000

Ice cream consumption DrowningsJan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

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?

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The Lean Analytics framework.

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

Six business model archetypes(Yours is probably a blend of these.)

E-commerce SaaS (freemium?) Mobile app (gaming) Two sided marketplace Media User generated content

(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

Really? Just one?

Yes, one.

In a startup, focus is hard to achieve.

Having only one metricaddresses this problem.

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)

Better: bit.ly/BigLeanTable

A company loses a quarter of its customers every year.

Is this good or bad?

Not knowing what normal ismakes you do stupid things.

Listening to what normal ismakes you ignore disruptive things.

(more foreshadowing.)

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

Putting this to work:The Lean Analytics Cycle

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

Do AirBnB hosts get more business if their property is professionally photographed?

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

5,000 shoots per month by February 2012

Hang on a second.

Gut instinct (hypothesis)Professional photography helps AirBnB’s business

SRSLY?

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)

It’s different when you’re big.

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

If big firms can’t innovate, it’s this guy’s fault.

When product and market are known, companies compete on how they do

things.

To get the incremental cost to zero, companies competed on scale.

(Literally, an economy of scale)

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.

Technology has radically changed the incremental cost of businesses.

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

Scale is now a liability. Compete on cycle time.

Optimizing the probable means discounting the possible.

This isn’t about a lack of resources.

http://www.flickr.com/photos/maladjusted/5207565912

Blockbuster had a lot going for it.

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

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

The problem was framing:

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

YOU ARE HERE

YOU ARE HERE

LOCALMAXIMUMOPTIMIZATION

OF CURRENT METRICS

YOU ARE HERE

GLOBALMAXIMUMINNOVATION

WITH NEWRULES

YOU ARE HERE

SHORT-TERM INVESTORSHATE GOING DOWNHILL

• $1B invested in Nook• $475M operating loss

in April 2013• CEO gone

First mover advantage happens long before the market emerges.

Constraints slow things down

vs.

Everything to lose:Why big companies need innovation.

(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...

In other words, if your job is change you have your work cut out for you.

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

A dose of pragmatism

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

Lean applies. Startup may not.

Lean methodologies.

Leanstartup

Core Adjacent Transformative

Product(new “what”)

Market(new “who”)

Method(new “how”)3 kinds of

innovation

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.

Adjacent innovation is about changing one part of the model in a way that

alters the value network.

Adjacent productto the same market in the same way

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

Selling the same product to the same market in a new way.

(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.

Transformative isolation:Skunkworks

Some non-tech examples.

I lied. Everyone is a tech company.

http://www.flickr.com/photos/puuikibeach/4789015423 http://www.flickr.com/photos/elcapitanbsc/3936927326

Cost of experiments: down. Cost of attention: way up.

Let’s pick on restaurants for a while.

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 line in the sand

Labor costs

Gross revenue

30%

24%

20%

Too costly?

Just right

Understaffed?

=

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 tip amount a leading indicator of long-term revenue?

Why does every table get the same menu?

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

When it’s you vs. the world.

(A bagful of tricks from agitators in companies of all sizes.)

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.

Don’t just collect data, chase it.

Understand hidden constraints

That pencil story is a myth. Graphite is conductive and explosive. The Minimum Viable Product is Viable for a reason.

Know what has tobe built in-house

SAP integrationEmployment law

http://www.flickr.com/photos/bootbearwdc/1243690099/

Think subversively.

Everything’s an excuse to experiment

Seriously. Everything.

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.

Take baby steps.

Netflix

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?

Step one: Develop a portfolio approach.

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.

Step one: Frame your problems.

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.

Step three: Secure funding, resources, and executive backing.

Step four: Generate new ideas.

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

Step five: Test by doing (experimentation beats projection.)

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

A business plan is just what happens when you drag the business model to

the right.

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

Step six: Know what happens afterwards

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/

Step seven: Rinse, repeat.

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

Metrics for innovation portfolios.

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.

Some tools and tricks

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

Traction graphs

Jan Feb Mar Apr May Jun

Signupsper day

Conversionrate

Churnrate

Viralcoefficient

0%

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)

Use proxy data. Just be careful.

“A subjective degree of belief should rationally change to account for

evidence.”(AKA Bayes’ Theorem.)

Conclusions

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

ARCHIMEDES HAD TAKEN

BATHS BEFORE.

Once, a leader convinced othersin the absence of data.

Now, a leader knowswhat questions to ask.

Alistair [email protected]@acroll

Ben [email protected]@byosko