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

Lean Analytics,
Innovation, and
Tilting at Windmills
Hive data meetup
August, 2014
@acroll
Thursday, August 14, 14

(http://csinvesting.org/2012/01/06/fortune-500-extinction/)
F500 Life
Expectancy
Growth by entering
a new business 95
% fail
Corporate
Strategy Board
99
% fail
Clay
Christensen
75
years
15
years
1950 2010...

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.

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

Clay Christensen, The Innovator’s Dilemma
CostperMB
$1000
$100
$10
$1
Time
14”
M
ainfram
e
8”
M
inicom
puter
5.25”
Desktop
3.5”
N
otebook

Technologies
outstrip what
the market
needs, driven
by feedback
from the
“best”
current
customer.
$1000
$100
$10
$1
Time
8” 5.25”
High end
customer
Low end
customer

The new
market has
different criteria
for success,
which are
uninteresting to
incumbents.
$1000
$100
$10
$1
Time
Storage
capacity
Portability

Sometimes
this has
unintended
consequences
$1000
$100
$10
$1
Time
Smaller disc size means less vibration
impact, leading to greater density,
increasing storage capacity

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-1

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
Value
criteria
Money
Buyer

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

YOU ARE
HERE

YOU ARE
HERE
LOCAL
MAXIMUM
OPTIMIZATION
OF CURRENT
METRICS

YOU ARE
HERE
GLOBAL
MAXIMUMINNOVATION
WITH NEW
RULES

YOU ARE
HERE
SHORT-TERM INVESTORS
HATE GOING DOWNHILL

Why now?
First: High rate of change of digital
technologies & channels.

http://www.ﬂickr.com/photos/ebolasmallpox/3733059220/
Software is eating the world.

Arbitron and radio data

Times a song in “heavy
rotation” is played daily
0
15
30
2007 2012

Why now?
Second: It’s no longer about whether
you can build it—it’s about whether
anyone will care.

The Attention Economy
“What 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

Lit motors tests the risky part

Everything to lose:
Why big companies need innovation.

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

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 along
current metrics...
...or alter
the rate of
improvement
Switch to a new
value model
Change the business
model entirely

Improvement Adjacency Remodeling
Do the same,
only better.
Explore what’s
nearby quickly
Try out new
business models
Lean approaches apply, but the metrics vary widely.
Sustain/
core
Innovate/
adjacent
Disrupt/
transformative

Sustaining Adjacent Disruptive
Next year’s car Electric car,
same dealer
On-demand, app-based
car service

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 optimization
Per-transaction cost reduction
Loyal customer base that returns
Demand prediction, notiﬁcation
Maximum shopping cart
Price skimming/tiering
Highly viral offering
Low incremental order costs
Inventory increase
Gifting, wish lists

Adjacent innovation is about changing
one part of the model in a way that
alters the value network.

Experiment with product, market,
and method.

Product
(new “what”)
Market
(new “who”)
Method
(new “how”)
3 kinds of
innovation

Adjacent product
to 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 2011
Market 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.

(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.

Transformative isolation:
Skunkworks

If sustaining, incremental innovation
produces linear growth, then
disruptive, transformative innovation
produces exponential growth.

Transformative
incubation:
Metlife Inﬁnity

Significant market
850K full-time law enforcement officers in
the US; 700K state/local; 525K patrol
officers
130M incident reports/y. 70M new
incidents; 200K involve use of force
Only 31% of local police agencies keep
computer files on use-of-force incidents
Strong product benefits
Exonerates 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
Challenges
New business model
Pricing unclear
SaaS offering
Compliance and governance
Unions, regulation, chain of evidence
Changing the current model (radio is
everything)
Transformative incubation:
Taser evidence.com

Engine as a service

http://www.nasa.gov/images/content/365835main_airplane_noise_qtd2_3024x2016.jpg
Engine as a service

“Efficiency is tied to
analytics. We’ll still look
for new materials, or
for the physics of
devices, but the
analytics ... is what’s
really untapped.”

Intrapreneurs drive innovation in
organizations that have already
found product-market ﬁt.

Intrapreneur:
Someone working to produce
disruptive change in an organization
that has already found a sustainable,
repeatable business model.

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

Some things smart Intrapreneurs
do diﬀerently

Think Lean, and analytically.

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

Don’t sell what you can make. Make what you can sell.
Kevin Costner is a lousy entrepreneur.

The core of Lean
is iteration.

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.

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

Empathy
Stickiness
Virality
Revenue
Scale
E-
commerce
SaaS Media
Mobile
app
User-gen
content
2-sided
market
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

Frame it like a study
Product 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 data
From 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 data
David Boyle ran 1M online surveys
Once the value was obvious to
management, got license to dig.

Don’t just collect data,
chase it.

Know what has to
be built in-house
SAP integration
Employment law

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

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 individual’s political ideology ...
Conservatives who learn that their
consumption is less than their
neighbors’ “boomerang” whereas
liberals reduce their consumption.

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
http://i.i.cbsi.com/cnwk.1d/i/tim/2011/11/18/
sms_screen_twitter_activity_stream_270x405.png

Innovation portfolios at big companies
Core Adjacent Transformative
70% 20% 10%
Investment
70%20%10%
Return

“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 others
in the absence of data.

Now, a leader knows
what questions to ask.

solveforinteresting.com/@acroll
tiltthewindmill.com/@tiltmill
strataconf.com/@strataconf
Thanks!

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

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