Lean from Within: Intrapreneurs
As World War II exploded across Europe, the United States realized it needed a way to counteract German advances in aviation—specifically, jet aircraft. The US military asked Lockheed Martin (then the Lockheed Aircraft Corporation) to build a jet fighter. Desperate times called for desperate measures: in a month, the engineering team had a proposal. Less than six months later, working in a closely guarded circus tent, they built the first plane.* This group became known as the Skunk Works, a title that’s synonymous with an independent, autonomous group charged with innovation inside a bigger, slower-moving organization. Such groups are often immune to the restrictions and budget oversight that guides the rest of the company, and have the specific goal of working “out of the box” to mitigate the inertia of large businesses. Companies like Google and Apple adopt this same approach, creating their own advanced research groups such as the Google X Lab.† Making things change quickly is hard, and if you’re going to do it, you need authority commensurate with responsibility. If you’re trying to disrupt from within, you have a lot of work to do. Many of the lessons learned
from the startup world apply, but they need to be tweaked to survive in a corporate setting.
Span of Control and the Railroads If you work in a company of any significant size, you owe your organizational chart to an enterprising general superintendent of the railroad era named Daniel C. McCallum.* In the 1850s, railroads were a booming business. Unfortunately for investors, they didn’t scale well. Small railroads turned a profit; big ones didn’t. McCallum noticed this, and divided his railroad into smaller sections, each run by subordinates who reported back a standard set of information he defined. McCallum’s line—as well as other lines that copied this approach—thrived. McCallum’s model, inspired by his time as a soldier and the regimented hierarchies he had learned in the military, was then applied to other industries. McCallum was the first management scientist, introducing controls, structure, and regulations in order to reduce risk and increase predictability at scale. Unfortunately, intrapreneurs aren’t trying to solve for safety and predictability. Their job is to take risks, and to uncover the non-obvious and the unpredictable. If you’re trying to provoke change and disrupt the status quo, then the organizations McCallum introduced are your kryptonite. You need to shield yourself, just as the engineers within the Skunk Works did decades ago. But you also need to coexist with the organization, because unlike an independent startup, the fruits of your labors must integrate with your host company. • What you make may cannibalize the existing business, or threaten employees’ jobs. People will behave irrationally. Marc Andreesen famously said, “software eats everything,” and one of its favorite foods is jobs.† When a software company introduces a SaaS version of its application, salespeople who make a living selling enterprise licenses get angry. • Inertia is real. If you’re asking people to change how they work, you’ll need to give them reason to do so. Consider an Apple store: there’s no central cash register, and you’re emailed a receipt. It takes a fraction of the time to purchase something, and makes better use of floor space—
but convincing an existing retailer to change to this model will require retraining and modifying store layout. • If you do your job well, you’ll disrupt the ecosystem. A traditional music label has relationships with distributors and stores. That made it hard for it to move into online music distribution, leaving the opportunity open for online retailers as soon as disruptive technologies like MP3s and fast broadband emerged. • Your innovation will live or die in the hands of others. While it’s easy to be myopic about your work—and disdainful of what the rest of the company is doing—you’re all in the same boat. “When problems crop up it is easy to see things from your own point of view,” says Richard Templar, tongue firmly in cheek, in The Rules of Work (Pearson Education), “[but] once you make the leap to corporate speak it gets easier to stop doing this and start seeing problems from the company’s point of view.”* In their book Confronting Reality (Crown Business), Larry Bossidy and Ram Charan list the six habits of highly unrealistic leaders: filtered information, selective hearing, wishful thinking, fear, emotional overinvestment, and unrealistic expectations from capital markets.† Intrapreneurs need the opposite attributes to thrive—and many of those attributes are driven by data and iteration. You need access to the real information, and you need to go where the data takes you, avoiding confirmation bias. You need to set aside your own assumptions and preconceived notions, and you need to combine high standards with low expectations.
Pattern | Skunk Works for Intrapreneurs The Skunk Works needed results and permission to move quickly. It set down 14 guidelines (known as Kelly’s 14 Rules & Practices, named after engineering team lead Clarence “Kelly” Johnson) that can be adapted to anyone who’s trying to change a company from within.‡ With apologies to Johnson, we’d like to share our 14 rules for Lean Intrapreneurs
If you’re setting out to break rules, you need the responsibility for making changes happen—and the authority that can come only from high-level buy-in. Get an executive sponsor, and make sure everyone else knows that you’ve got one. 2. Insist on access both to resources within the host company and to real customers. You’ll probably need the permission of the support and sales teams to do this. They won’t like the changes and uncertainties you may introduce by talking to customers—but insist on it anyway. 3. Build a small, agile team of high performers who aren’t risk-averse, and who lean toward action. If you can’t put together such a team it’s a sign you don’t really have the executive buy-in you thought you did. 4. Use tools that can handle rapid change. Rent instead of buying. Favor on-demand technologies like cloud computing, and opex over capex.* 5. Don’t get bogged down in meetings, keep the reporting you do simple and consistent, but be disciplined about recording progress in a way that can be analyzed later on. 6. Keep the data current, and don’t try to hide things from the organization. Consider the total cost of the innovation you’re working on, not just the short-term costs. 7. Don’t be afraid to choose new suppliers if they’re better, but also leverage the scale and existing contracts of the host organization when it makes sense. 8. Streamline the testing process, and make sure the components of your new product are themselves reliable. Don’t reinvent the wheel. Build on building blocks that already exist, particularly in early versions. 9. Eat your own dog food, and get face-time with end users, rather than delegating testing and market research to others. 10. Agree on goals and success criteria before starting the project. This is essential for buy-in from executives, but also reduces confusion and avoids both feature creep and shifting goals.
- Make sure you have access to funds and working capital without a lot of paperwork and the need to “resell” people midway through the project. 12. Get day-to-day interaction with customers, or at the very least, a close proxy to the customer such as someone in support or postsales, to avoid miscommunication and confusion. 13. Limit access to the team by outsiders as much as possible. Don’t poison the team with naysayers, and don’t leak half-finished ideas to the company before they’re properly tested. 14. Reward performance based on results, and get ready to break the normal compensation models. After all, you’re trying to keep entrepreneurs within a company, and if they’re talented, they could leave to do their own thing.
Changing—or Innovating to Resist Change? It takes a dire threat or a top-down leader to force a company to change. If you have both, even a huge company can move quickly. In the late 90s, as the web browser grew in importance, analysts were predicting the downfall of Microsoft, but they underestimated Bill Gates’s ability to turn his company quickly. Within a few months, the company had created Internet Explorer and insinuated it throughout its Windows operating system: you’d type a URL, and it would convert it to a hyperlink. You’d save something, and it would have an HTML version. Even the much-maligned paperclip knew about the Web. While Microsoft did have to contend with antitrust accusations, its quick response staved off irrelevance and kneecapped ascendant Netscape. Jim Clark, Netscape’s CEO, called Gates’s response ruthless, but noted that his ruthlessness came from the company’s dominance in the desktop space. “In order to be ruthless you have to have some kind of power, and in most cases I’ve been going up against Microsoft, so I never had that power.”* Since that time, the company has had to do the same with its Office suite. In 2005, Gates and Ray Ozzie announced the shift from a licensed software package to a hosted, SaaS-based offering.† This time, the threat was from Google’s nascent office offering, which would be subsidized by Google’s money-making ad machine. While Google’s product was just a gleam in its
founders’ eyes, services like Write.ly made it plain that desktop productivity suites were under siege.* Critics of Microsoft’s reactions complain that the company isn’t changing; rather, it’s managing to stay the same and exert its dominance, avoiding or delaying market change. “I realized that Microsoft had not turned at all,” said Dave Winer in 1999. “What’s actually been happening is that Microsoft is exerting tremendous energy to stay right where it is.”† As an intrapreneur, you might find that this “innovate to stay still” notion does not sit well with you. You’re a disruptor, right? However, when you’re working for an incumbent with large market share, sometimes innovation is about maintaining a company’s dominance and suppressing change to continue making money in the traditional ways. If you don’t like that, you should probably leave the company and start something of your own.
Stars, Dogs, Cows, and Question Marks Why might you not want to disrupt things? To understand this, you need to look at how large organizations plan their product and market strategy. The Boston Consulting Group (BCG) box, shown in Figure 30-1, is a simple way to think about a company’s product portfolio. It classifies products or subsidiaries according to two dimensions: how quickly the market is growing, and how big a market share the company has in that market. Products with high market share but slow growth are “cash cows.” They generate revenue, but they aren’t worthy of heavy investment. By contrast, products with high growth but small market share are “question marks,” candidates for investment and development. Those with both growth and market share are the rising “stars.” Those with neither—called “dogs”— are to be sold off or shut down. The BCG box offers a thumbnail of a company’s product portfolio. It’s also a good way to think about innovation. If you’re trying to change a company, you’re either trying to create a new product (hopefully in a growing market) or you’re trying to innovate to revitalize an existing product with the addition of new features, markets, or services.
Seen from a Lean Startup perspective, the BCG box shows us what stage we’re working on and what metrics should apply. If you’re creating new products or companies (question marks), then you need to focus on empathy. If you’re trying to rescue a dog, you still need empathy, and you have access to existing customers. You’re either going to change the product (to enter an area of increased growth) or the market (to gain market share). If you have a question mark (high growth but nascent market share), you’ll be focusing on growing market share through organic (virality) or inorganic (customer acquisition) means. If you have a star, and the market’s growth is stalling, you need to optimize revenues and reduce costs so your marginal cost of product delivery is healthy. That way you can survive the coming commoditization and price wars. On the other hand, if there’s a disruption in the industry that might expand the market—such as the rise of mobile technology, or the emergence of international demand—you’ll be focusing on increasing growth rate to return a cash cow to star status. Companies tend to try to improve what they have, which is one of the reasons that incumbents get disrupted. In his book Imagine (Canongate
Books), author Jonah Lehrer talks about the creation of the Swiffer mop.* It’s a perfect example of how companies look for a local maximum rather than trying to solve a problem.
Case study | Swiffer gives up on Chemistry Proctor & Gamble (P&G) makes lots of cleaning products. It’s constantly trying to improve and revitalize its cash-cow products, but despite the hard work of many highly paid experts, it was stalled in its efforts to invent a better cleaning fluid. The company’s executives knew it was time to disrupt the industry, and they couldn’t do it from within. So they brought in Continuum, an outside agency, to help out.† Rather than mixing up another batch of chemicals, Continuum’s team decided to watch people as they mopped. They focused on recording, testing, and rapid iteration during their investigation phase.‡ At one point, they watched a test subject clean up spilled coffee grounds. Rather than breaking out a mop, the subject swept up the dry grounds with a broom, and then wiped the remaining fine dust with a damp cloth. No mop. That was an eye-opener for the design team, and they looked at the problem from a different angle. They discovered that the mop—not the liquids—was the key. They looked at the makeup of floor dirt (which is part dust, and thus better picked up without water)§ and innovated on the cleaning tool itself, giving P&G a $500-milliondollar innovation—the Swiffer, a more user-friendly style of mop—in an otherwise stagnant cleaning industry. The ability to step outside the frame of reference within which the existing organization works and see the actual need rather than the current solution, is a fundamental ability of any intrapreneur.
Summary • By using basic customer development approaches, P&G was able to create an entirely new product category. • Pretending you’re a startup, and focusing on disruption in the Empathy stage, is a good way to rediscover what’s possible and take off enterprise blinders. • Resist the temptation to use surveys and quantitative research; the insights from one-on-one observation can unlock an entire market segment.
Analytics Lessons Learned For intrapreneurs, sometimes starting back at the beginning, with a reconsideration of the fundamental problem you’re trying to solve, is the best way to move a cash-cow product—lucrative but not growing— back to a high-growth industry. After all, if you don’t see your customers through naïve eyes, someone else will.
You may be able to innovate and simultaneously involve the customer in the innovation itself, even turning testing and analytics into a marketing campaign. That’s what Frito-Lay did when it decided to find a new flavor of chips.
Case study | Doritos Chooses a Flavor If you’re a big company, it’s hard to incorporate customer feedback in real time. Typically, you rely on focus groups and product testing before spending big money on a new product launch. Frito-Lay found a way to mitigate this, and in the process took customer development to new heights. It also generated interesting advertising campaigns. In 2009, Dachis Group helped Doritos introduce an unnamed flavor, then asked customers to name it.* In later years, the company asked customers to choose which flavor it should add to its product line, literally labeling two new flavors A and B, and then testing them.† It also asked customers to help write the end of a TV ad that would be
broadcast during the Superbowl, giving them access to creative teams at its advertising agency.* This work required changes to distribution channels, from retail shelf space to the inclusion of temporary inventory. But the campaign worked—the company dominated social media. It had 1.5M visitors to its YouTube channel, and over 500,000 votes were cast by customers. It also found a way to iterate at scale, and do market development alongside brand building.
Summary • An established distribution system in the consumer packagedgoods industry might seem like a boat anchor that makes it hard to innovate, but Frito-Lay found a way to do so. • Leveraging social media and the prominence of in-store displays, the company turned its YouTube channel into a giant focus group and increased engagement with its customers.
Analytics Lessons Learned Another way to revitalize a product is to use a disruptive technology— in this case, ubiquitous social media and two-way interaction—to reconsider how product testing is done in the first place.
Working with an Executive Sponsor As an intrapreneur, you and your executive sponsor need to be absolutely clear what kind of change you’re trying to produce, how you’ll measure progress toward that change, what resources you’ll have access to, and what rules you’ll be subject to. This might seem overly “corporate” for a mercenary looking to blow up the status quo, but in a big organization it’s simple reality. If you don’t like it, go start your own company. If you want to work within the system, the change you’re after has to dovetail with the change the organization is ready for. This is why executive sponsorship is so important: it’s the difference between a “rogue agent” and a “special operative.”
Existing businesses are different largely because they already exist. Innovators can go rogue asking for forgiveness rather than permission— but the immune system of the host company may reject them. Ultimately, companies need to restructure themselves for a continuous cycle of innovation, but the way to get them to do so may involve baby steps— smaller, more controlled attempts at analytics. That’s the approach David Boyle used at EMI Music as he worked to introduce a data-driven culture. Case study | EMI Embraces Data to understand Its Customers David Boyle is the Senior Vice President of Insight at EMI Music, one of the major labels in the recording industry. His job is to help EMI make decisions based on data, and to help the company navigate the choppy waters of an industry in transition. To get the company more focused on data and analytics, and less concerned with anecdotes and opinions, Boyle first had to choose which decisions needed to be made, then find ways to get the right evidence in front of the decision makers. “The decisions we ultimately focused on were, ‘Which types of consumers should I try to connect an artist’s music to in which countries?’ and ‘What kinds of marketing should I do to try to reach those consumers?’ Most of that data came from consumer research.” Boyle wasn’t short on data. EMI has billions of transaction records from digital services, as well as usage logs from artist websites and applications. “But each of these data sources is very limited in scope and very skewed concerning the types of person that is represented in that data set,” Boyle explained. So EMI built its own survey tool. “We found that building our own data set based on asking people questions and playing them music was the way to go.” The result was over 1 million detailed interviews, and hundreds of millions of data points. “Bad data is a pain to sell to people. And even good data is a pain to sell to someone if it doesn’t actually help someone, whether that’s because it’s not in a form that helps them work out what to do or because it doesn’t actually answer the questions they are asking,” he says. “But when the data’s good and it really does help someone, then nobody can refuse it.” Many intrapreneurs talk about the friction they face when trying to create a data-driven culture in their organizations, but Boyle is quick to caution against calling it resistance. “One of the key things we realized early on was that it’s not helpful to think of it as resistance. When you
realize that the ‘resistance’ is actually good people who deeply care about the artists and music they are working with, trying to protect them from bad data or bad recommendations, then you see the whole thing differently.” “If you really believe in the data and the recommendations that the data makes, then you focus on why the person doesn’t understand the data and you help them to understand it,” he explained. “When they understand, then their eyes light up, and they become a bigger fan of the data than I am!” Despite his success with EMI, Boyle admits there are real differences between a startup and a big company. “In a startup, you have the benefits of starting off as you mean to go on: you can shape the way of thinking and behaving to, for example, incorporate data in decision making right from the start. That’s a great advantage over working in a business where the culture is already set.” But the startup world isn’t perfect, he says. “A startup has another big problem: intense pressure to deliver quickly. I’ve actually noticed that this can get in the way of things like building the right culture if you’re not careful.” To build support and report progress within EMI, Boyle used case studies. “We got lots of people who’d successfully used our data to help their artists tell their story. They were better and more creative than anything we could have organized centrally to spread the word.” EMI’s new data helped align particular artists with demographics to whom they’d appeal, allowing the music to reach the most receptive audiences. Boyle didn’t tie the results of research to hard numbers. “We simply said: ‘Asking thousands of people what they think about something is better than not asking them, right?’ and we showed that we could do so at high quality and low cost, and we went for it. After the first set of data came back, people fell in love with it: it helped them and they loved that.” Initially, the newly acquired research data helped EMI to understand the market and the ecosystem in which artists, music, and digital services exist. But now that the company has that context, it can revisit the billions of transactional records it collected in the past. “If we’d looked at that without first understanding the context in which it sits, we would have taken our artists in the wrong direction,” Boyle said.
The project has grown beyond the initial insight team, and now it’s owned by the overall business at EMI. In the end, because everyone had access to data, the entire organization bought into the change. But what surprised Boyle the most was how valuable the (relatively small) consumer research continued to be, even though the organization could use the Big Data hoard from billions of transactions. “Good data beats big data,” he concludes. “I am constantly surprised at how good it can be when done properly.”
Summary • EMI had a huge amount of data, and little idea of how to use it. • Rather than mining existing data sets, the company conducted surveys, building a simpler, more specific set of information that executives could get comfortable with. • Once the value of this smaller interview data was proven, it was easier to sell the value of a broader data-driven culture.
Analytics Lessons Learned Just because you have a lot of data doesn’t mean you’re data-driven. Sometimes, starting from scratch with a small set of data collected to solve a specific issue can help make the case for using data elsewhere in the organization. It’s also more likely to get executive sponsorship because the problem is bounded and constrained, whereas nobody knows what controversies are lurking in the larger amounts of “data exhaust” the organization has collected over the years.
the Stages of Intrapreneur Lean Analytics If you’re a pioneering intrapreneur, you’ll go through a series of stages that maps closely to the stages we’ve seen in other startup models. But you have a few important steps to consider, as Figure 30-2 illustrates. Note that we’ve also included a “step zero” for intrapreneurs: get executive buy-in.
Beforehand: get Buy-in Before you start doing customer development, you need executive buy-in. This may be implicit if it’s your job to try to find new opportunities, but even then, once you think you’ve found an opportunity, you need explicit approval from an executive. You want to know where you are on the BCG box, and where you’re trying to go, and you need to know what metrics your progress will be judged by. You need to know what resources you have, and what rules apply to you. This is like a prenuptial agreement: it’s better signed before the wedding. At this stage, you’re defining your analytical strategy, and the lines in the sand against which you’ll be judged. These may be goals for the whole company, such as margins, or they may be a growth rate that’s considered success. You’ll also need to define how you will adjust these metrics based on what you learn.
Empathy: Find Problems, Don’t test Demand Once you start doing customer development, remember that you’re testing problems and solutions—not existing demand. If you’re truly disruptive, customers won’t tell you what they want, but they will tell you why they
want it. In 2008, Swiffer creator Gianfranco Zaccai explained, “Successful business innovation isn’t about giving consumers what they need now, but about giving them something they’ll desire in the future.”* Customers weren’t telling Netflix they wanted to stream videos, but their patterns of usage, computer adoption, broadband deployment, and browsing told the company a need existed. This is a place for qualitative interviews. You should talk to existing users and customers, of course. But if you’re trying to grow market share, you’ll also want to talk to your competitors’ customers, to distributors, and to everyone involved in purchasing the product. If you’re trying to improve growth rate, you’ll talk to adjacent customers. That’s what Bombardier did when it expanded from snowmobiles to personal watercraft (despite an initial, failed 1960s foray into the industry that was plagued by mechanical issues).†
Skip the Business Case, Do the Analytics At some point, when it comes time to go beyond interviewing people, you’ll need to build a business case. Traditional product managers build profitand-loss analyses to try to justify their plans: they create a convincing business case, and once someone believes it, they get funding to proceed. But a Lean mindset reverses this: you sell the business model—not the plan—without a lot of prediction, and then rely heavily on analytics to decide whether to kill the product or double-down on it. This analyze-after rather than predict-before model is possible because many of the costs of innovation can be pushed later in the product development cycle. Just-in-time manufacturing, on-demand printing, services that replace upfront investment with pay-by-the-drink capacity, CAD/CAM design, and mercenary contractors all mean that you don’t have to invest heavily up front (and therefore don’t have to argue a business case at the outset). Rather, you can ask for a modest budget, build analytics into the product, and launch sooner for less money. You can then use the data and customer feedback you get, which is vanishingly cheap to collect given today’s technology, to plead your case based on actual evidence.
Stickiness: Know your Real Minimum If you’ve identified a problem worth solving and a solution that customers will want, it’s time to make an MVP. But you need to know the real minimum
that you can build. As a big organization, you may have restrictions on data sharing, reliability, or compliance to which smaller organizations (that have less to lose) aren’t subject. You also need to identify your unfair advantages. Consider, for example, the many meal pre-ordering tools on the market today. These mobile applications let you place an order from a food court restaurant, pay, and pick up at an agreed-upon time without waiting. The restaurants like them because they save precious time in the lunchtime rush, and the diners like them because they’re simple and buyers can browse the menu at their leisure. It’s like Uber for lunch. Now consider what would happen if McDonalds were to decide to compete by introducing an application. It might have franchise constraints, or regulations for restaurants located in airports, or state laws about disclosing caloric content. All of these would have to be part of the MVP. Offsetting this, however, is the huge amount of market control the company has. It could promote the app by giving away three hamburgers for free to everyone who installed it. The company would make back the money quickly in saved time at the cash register, and have access to a new marketing channel and untapped analytical insight into its customers. Intrapreneurs need to factor these kinds of constraints and advantages into their MVP far more than independent startups do. What’s more, as people start using your MVP, you have to manage the beta process carefully. You may be interfering with existing deals in the sales pipeline, or creating more work for customer support. If so, you need to have approval for the rollout and the buy-in of stakeholders. If you’re launching an entirely new product line, you may even have to camouflage it so you don’t cannibalize existing markets until you know it’s successful. This, of course, undermines your ability to use unfair advantages like an existing customer base.
Viral from the Start If you’re trying to move upward in the BCG box, your product should include viral and word-of-mouth elements. In a world where everyone has access to a mobile device, every product needs to have an interactive strategy. There’s simply no excuse not to find a viral angle to act as a force multiplier for growth. In fact, adding a viral component is one of the keys to moving dogs and cash cows up into question marks and stars.
Revenue Within the Ecosystem You’ll have less flexibility to set pricing and reinvest revenues in product marketing, because as you grow you’ll have to coexist with other marketing efforts by your host company. When Microsoft wanted to test its SaaSbased Office suite, it could do so in a relatively controlled way. But as soon as it wanted to monetize the product, it had to contend with cannibalization and pushback from a channel that depended on license revenue. Your pricing may have to take into account channels, distributors, and other factors that restrict your freedom to experiment, because changes you make will have an impact on other products in the marketplace. Had Blockbuster entered the streaming video market, it would have had to deal with labor and real estate issues at existing stores.
Scale and the Handoff In the final stages of intrapreneur innovation, the new product has proven its viability. It’s either stolen by a more mainstream part of the organization— which can help it cross the chasm and broaden its appeal—or the team that created it must itself transition to a more traditional, structured model of business and take its place among the other products and divisions of the host organization. Most of the time, the DNA of a disruptive organization isn’t well suited to “boring” management and growth, so you’ll need to hand off the product to the rest of the organization and find the next thing to disrupt. That means you really have two customers: the external one buying the product, and the internal one that has to make, sell, and support it. Ultimately, the intrapreneur must manage the relationship with the host organization as well as the relationship with the target market. Initially, this can be intentionally distant, but as the disruptive product becomes part of the host, the handoff must be graceful.