… you need smart, strategic and systematic experiments plus a shit load of patience.
When we work with our innovation labs across industries, we work closely with senior leadership / management of corporates to understand how their innovation lab can create most impact. Our mantra here is to be strategically aligned but tactically decoupled i.e. understand and help shape digital strategy through execution that is not going through the same process or systems or structures.
I recently asked our corporate partners that we run innovation labs with, what their 5 key strategic challenges for running digital are, and they replied:
- How do we transition our infrastructure from 80’s IT to cloud or new modern technologies?
- How do we manage and make sense of data and changing regulations around this?
- How do we get more efficient in servicing our customers better?
- How do we get our people to work better, faster and organisation to have a culture of sharing?
- How do we work with new business models that are growing out there?
My post focuses on the last question — the question of new business models.
New business models are generally made up of some interesting building blocks:
- Existing customer job that is serviced differently e.g. Netflix or Spotify through subscription
- Existing market niche serviced 10x better e.g. Patients going through IVF get better help through services that curate content, create a community that is completely outside the existing infrastructure of IVF clinics, pharma companies or hospitals.
- A completely new behaviour through a new solution e.g. Uber got more people to drive cars and make money through seamless payment integration and brilliant marketing
It is so 2015 for corporates to say Uber for Banking or AirBNB for medicine or Spotify for Cooking (whatever the hell they mean). For one, it is great that there is understanding that new business models need to be looked at differently. However, just saying it 1000x times on stage at fancy events does not mean change happens.
Or investing through Corporate Venture Capital or using Accelerator partnerships does not move the business model. They create understanding and appeal to the soft metrics of being in the know and learning (which are important no doubt), but they do not translate to money or new revenues necessarily.
Our 10 principles to systematically transition business models of corporates
- Leadership: I am not going to spend too much time here, but if the leadership does not prioritise important new business model experiments as much as urgent things that are on their plate, then we are in fantasy land of innovation theater. But as mentioned, let us assume this is in place
- Fuck early stage startups, focus on scale ups: Startups are great. But most of them are struggling to pay rent and put food on the table. Yes, there is vision. Yes there is hope, but our theory is that mentor, help startups, may be invest in them if there is a breakthrough technology or wonderful team, but to transition your business model find young companies with great traction. We call them scale-ups. Companies that have revenues or lots of customers and has funding to find resources.
- Unfair Advantages: Most corporates have lots of customers, data (even if they are unstructured or fragmented), brand etc. We call them unfair advantages. How can you package your unfair advantages to bring that to a potential partner to create an autobahn for growth? We start working with this team after team in every context, and then influence the strategy teams to prioritise this as part of their infrastructure investments.
- Forget Geography: If you are a bank in the Nordics, the chances are you have met most of the fintechs. Your funnel dries up after a while. Our view is to forget geography, and find the best business models or solutions wherever they are. While not all American companies are thinking of the Nordics, there might be an interesting deal to be made by licensing their technology or solution for your geography that might be more lucrative potentially.
- Manage risk and reputation, and don’t talk about cannibalizing: Most of our pilots run with a big beta label on, with clear risk mitigation plan that is communicated internally to the stakeholders. We also tell our teams not to worry about cannibalizing existing products or business. The alternative of not doing is more expensive than trying. This needless to say is not easy, but key. We do this through a combination of teaching from other industries, getting permission to an extent, and informing and managing to an extent, and in some cases escalating to the senior person in the management to clear the obstacles (cannot stress how important it is that the labs are anchored right on top?)
- Run Small Scale Pilots to test the riskiest joint assumption: We love pilots. The beauty? — they are limited in scope to test the riskiest joint assumption. Can the partner’s technology work? Does the corporate partners distribution work? The pilot typically is limited in scope but tests a new part of the business model solution (customer problem, customer segment, solution / value proposition etc).
- Agree on what good looks like for a pilot: Every pilot we run use a pilot charter — a canvas that is easy to work with and to agree on the key criteria to judge if the pilot is a success. Getting alignment on key metrics before a pilot starts is key both for expectation management and for the team working with it.
- Scaling Plan that is not from bureaucracy hell: If a pilot is successful, then it is easy to create a scaling plan that will save the world. We try to bring sanity here by making it a step-wise approach e.g. continuing the example of fertility, if the pilot was with 2 IVF clinics, let us try it in the region, and may be into the country if it small enough. If that works, let us escalate the case to find a more suited home within the organisation that can put more resources and power behind it.
- Once proven, more experiments the better: After running 4–8 pilots like this, we start scaling the whole unit by running more experiments. We think a corporate needs to keep taking more bets to show value. Doing 2 small pilots per year does not change anything over time. We need momentum, we need a new way to show revenues and way of working
- Adding more bells and whistles: Once you start showing some traction in revenues or new segment, then you can start communicating it, get on the equity side more aggressively and start building bridges into parts of the organisation that is already working like this.
I think all the above 10 points can be their own detailed post, but I hope you get the gist of what I am saying, which is there is no magic box. There is only a systematic way of transitioning. It is painful, it takes time, but when you start experimenting, and in parallel investing in infrastructure and people, they add up when there is good leadership that prioritises a new way of experimenting and working. Needless to say these business model experiments can also help prioritise which infrastructure and investments are more critical, since they will have actual proof points and data from the pilots.
If you are interested, here is some more reading from the ever wise Steve Blank:
Entrepreneur: MagineTV, FitnessCollection
Intrapreneur: SEB, Merck, Telenor