Getting to “Yes” for Corporate Innovation

I’ve been working with Roberto, the Chief Innovation Officer of a diversified company I’ll call Sprocket Industries.

I hadn’t heard from Roberto in awhile and when we caught up, it was clear his initial optimism had faded. I listened as Roberto listed the obstacles to the new innovation program at Sprocket, “We’ve created innovation teams in both the business units and in corporate. Our CEO is behind the program. The division general managers have given us their support. But the teams still run into what feel like immovable obstacles in every part of the company. Finance, HR, Branding, Legal, you name it, everyone in a division or corporate staff has an excuse for why we can’t do something, and everyone has the power to say no and no urgency to make a change.”

Roberto was frustrated, “How do we get all these organizations to help us move forward with innovation? My CEO wants to fix this and is ready to bring in a big consulting firm to redo all our business processes.”

Uh oh…

—–

As Sprocket’s Chief Innovation Officer, Roberto was a C-level executive responsible for the corporate innovation strategy in a multi-billon dollar company. Over the last 9 months his staff got innovation teams operating with speed and urgency. The innovation pipeline had been rationalized. His groups whole-heartedly adopted and adapted Lean. His organization ran a corporate incubator for disruptive (horizon 3) experiments and provided innovation support for the divisions for process and business model innovations (Horizon 1 and 2.) He had an innovation pipeline of hundreds of employees going through weekend hackathons and 45 different innovation teams going through 3-month rapid Lean LaunchPad programs to validate product/market fit.

The next day Roberto and I sat together and listed what we knew about the innovation conundrum at Sprocket:

  1. Sprocket is a permanent organization designed to execute a repeatable and scalable business model.
  2. Roberto’s innovation teams are temporary organizations designed to search for a repeatable and scalable business model.
  3. Sprocket had world-class resources and capabilities in brand, supply chain, distribution, sales force, financial metrics, all tailored to execute the existing business model, not to help search for a new one
  4. The resources and capabilities optimized for execution interfere with the processes needed to search for a new business model
  5. Sprocket needed new and different processes for innovation while retaining the ones that work well for execution
  6. Sprocket wanted to use the same organizations that provided support for execution (brand, supply chain, distribution, sales force, financial metrics) to provide support for innovation

Roberto’s group had spent the last 9 months educating the company about why they needed to deliver continuous innovation, and why the execution and innovation teams need to work collaboratively. But while there was lots of theory, posters, memos, and lip-service to being innovative, it wasn’t working.

So what to do?

I offered that a top-down revamp of every business process should be a last resort. I suggested that Roberto consider trying a 6-month experimental “Get to Yes” program. His teams, not outside consultants, would write their own innovation processes and procedures.Get to Yes

Recognizing the Roadblocks
Most of the impediments the innovation teams faced were pretty tactical: for example an HR policy that said the innovative groups could only recruit employees by seniority. Or a branding group that refused to allow any form of the Sprocket name to appear on a minimal viable product or web site. Or legal, who said minimal viable products opened the company to lawsuits. Or sales, who shut out innovation groups from doing customer discovery with any existing, or even potential customer. Or finance, who insisted on measuring the success of new ventures on their first year’s revenue and gross margin.

We agreed that the goal was not to change any of the existing execution processes, procedures, incentives, metrics but rather to write new ones for innovation projects.

And these innovation policies would grow one at a time as needed from the bottom of the organization, not top down by some executive mandate.

If we were successful, innovation and execution policies, processes, procedures, incentives, metrics would then co-exist side-by-side. In their day-to-day activities, the support organizations would simply ask, “Are we supporting an execution process (hopefully 90% of the time) or are we supporting an innovation process?” and apply the appropriate policy.

Get to Yes
The “Get to Yes” program was pretty simple. Every time an innovation team needed a new policy, procedure, etc. from an existing organization (legal, finance, sales, HR, branding, etc.), they submitted a standard Sprocket corporate “Get to Yes” request form. The form was a single page. It asked what policy the innovation group wanted changed, why it wanted it changed, how it wanted the new policy to read, the impact the new policy would have on other policies and organizations, and most importantly the risks to the core existing business.

The “Get to Yes” request form looked like this:

Sprocket Get to Yes Form page 1

The appropriate department had one week to ask questions, gather information, meet with the innovation team and evaluate the costs and risks of the proposed process. They could either:

  1. approve and adopt
  2. suggest modifications that the team agreed with
  3. deny the request.

The approval form looked like this:

Sprocket Get to Yes Form page 2

Although it was just a one-page form, the entire concept was radical:

  • The innovation team would be proposing the new process, procedure, metric, etc. – not waiting for one to be written.
  • There was a hard 1-week deadline for the execution team to respond.
  • Yes was the default answer, a No required detailed explanation.
  • Appeals went straight to the Chief Innovation Officer.

The big idea is that Sprocket was going to create innovation by design not by exception, and they were going to do it by co-opting the existing execution machinery.

The key to making this work was that if the request was denied, it automatically was kicked upstairs to the Chief Innovation Officer – and would be acted on the next week. And it’s there that the execution department had to make its case of why this request should not be approved. (If there was still no agreement, it became an issue for the executive staff.)

The time for a process resolution in a billion dollar corporation – two weeks. At Sprocket innovation was starting to move at the speed of a startup.

Lessons Learned

  • Innovation by design, not by exception
  • Execution organizations now manage both execution and innovation
  • Innovation teams write their own process and procedures
  • Innovation policy, process and procedures get written as needed, one at a time
  • Over time a set of innovation processes are created from the bottom up
  • Bias for immediate action not perpetual delay

I’m on the Air – On Sirius XM Channel 111

Starting this Monday, March 9th 4-6pm Pacific Time I’ll be on the radio hosting the Bay Area Ventures program on Sirius XM radio Channel 111 – the Wharton Business Radio Channel.Untitled

Over this program I’ll be talking to entrepreneurs, financial experts and academic leaders in the tech and biotech industries. And if the past is prologue I guarantee you that this will be radio worth listening to.

On our first show, Monday March 9th 4-6pm Pacific Time join me, as I chat with Alexander Osterwalder – inventor of the Business Model Canvas, and Oren Jacob, ex-CTO of Pixar and now CEO of ToyTalk on Sirius XM Radio Channel 111.

Oren Jacob - CEO ToyTalk

Oren Jacob – CEO ToyTalk

Alex Osterwalder - Business Models

Alex Osterwalder – Business Models

On Monday’s show we’ll be talking about a range of entrepreneurship topics: what’s a Business Model Canvas, how to build startups efficiently, the 9 deadly sins of a startup, the life of a startup CEO, how large companies can innovate at startup speeds. But it won’t just be us talking; we’ll be taking your questions live and on the air by phone, email or Twitter.

On April 27th, on my next program, my guest will be Eric Ries the author of the Lean Startup. Future guests include Marc Pincus, founder of Zynga, and other interesting founders and investors.

Is there anyone you’d like to hear on the air on future shows? Any specific topics you’d like discussed? Leave me a comment.

Mark your calendar for 4-6pm Pacific Time on Sirius XM Radio Channel 111:

  • March 9th
  • April 27th
  • May 11th
  • June 29th
  • July 13th
  • Aug 24th in NY

Blowing up the Business Plan at U.C. Berkeley Haas Business School

During the Cold War with the Soviet Union, science and engineering at both Stanford and U.C. Berkeley were heavily funded to develop Cold War weapon systems. Stanford’s focus was Electronic Intelligence and those advanced microwave components and systems were useful in a variety of weapons systems. Starting in the 1950’s, Stanford’s engineering department became “outward facing” and developed a culture of spinouts and active faculty support and participation in the first wave of Silicon Valley startups.

At the same time Berkeley was also developing Cold War weapons systems. However its focus was nuclear weapons – not something you wanted to be spinning out. nuclearSo Berkeley started a half century history of “inward facing innovation” focused on the Lawrence Livermore nuclear weapons lab. (See the presentation here.)

Given its inward focus, Berkeley has always been the neglected sibling in Silicon Valley entrepreneurship. That has changed in the last few years.

Today the U.C. Berkeley Haas Business School is a leader in entrepreneurship education. It has replaced how to write a business plan with hands-on Lean Startup methods. It’s teaching the LaunchPad® and the I-Corps for the National Science Foundation and National Institutes of Health, as well as corporate entrepreneurship courses.haas logo

Here’s the story from Andre Marquis, Executive Director of Berkeley’s Lester Center for Entrepreneurship.

—–

When I came to U.C. Berkeley in 2010 to run the Lester Center for Entrepreneurship in the Haas School of Business we were teaching entrepreneurship the same way as when I was a student back in 1995. Our core MBA class used the seminal textbook New Venture Creation by Jeffrey Timmons of Babson College that was first published in 1977. The final deliverable for that class was a 30-page business plan. We had multiple business plan competitions. As I looked around at other schools, I saw pretty much the same landscape – business plan classes, business plan competitions and loosely coupled accelerators that focused primarily on mentoring.

Over my career as a serial entrepreneur I observed that since the late 1990s, no early-stage Silicon Valley investor had used business plans to screen investments. Even those who asked for them never read them. Traction and evidence from customers were what investors were looking for – even in “slow” sectors like healthcare and energy. There had been tectonic shifts in the startup world, but our business school curriculum had barely moved.

There was a big gap in our educational paradigm. To create great entrepreneurs, we had to give our students the experience of navigating the chaos and uncertainty of running a lean startup while providing the same kind of rigorous framework the business plan did in its day. The advantage of following New Venture Creation is that it had a deep pedagogical infrastructure that students took away after they left school. The disadvantage is that its methodology was based on the old waterfall model of product development and not the agile and lean methods that startups use today.

As I began my search to increase the relevance of our entrepreneurship curriculum with the same rigor as Timmons and New Venture Creation, I found the answer right here at Berkeley, in Steve Blank’s Lean LaunchPad class.

(Our founding Executive Director Jerry Engel, recently retired to become dean of faculty for the National Science Foundation I-Corps, had a tradition of incorporating leading practioners, like Steve. These ‘pracademics’ proved to be some of the biggest innovators in entrepreneurship education.)

Seeing Is Believing
The Lean LaunchPad class was completely different from a traditional entrepreneurship class. It taught lean theory (business model design, customer development and agile engineering) and practice.

Every week, each student team stood in front of the class and presented their business model hypotheses, what they had learned from talking to customers, demo’d their minimal viable products and had to explain what they were going to do next. Steve and the venture capitalists at the back of the room relentlessly peppered them with questions and pushed them to get out of the building and call on the real decision-makers instead of talking to people they already knew. Some teams stepped down from the podium proud that they had made real progress that week while others were chastised because they stuck to their comfort zone, were not doing the tough work required by entrepreneurs and on the road to failure.

I realized this class was teaching students exactly what it felt like to be an entrepreneur! Great entrepreneurs are on a search for the truth, no matter how wrong their initial conception is. Being an entrepreneur is about starting out with no idea whether you are working on the next big thing or something no one wants and certainly no one will pay for. It’s struggling to find the right path forward through chaos and uncertainty. Killing bad ideas quickly and moving on. Staring at the phone while mentally wrestling to pick it up to make that next cold call. It’s having investors tell you that you’re dead wrong and, perhaps with enough customer traction, showing them the path to a new future neither of you could see at the time.

And there it was. The Lean LaunchPad was unlike any class I’d ever seen.

As a Silicon Valley entrepreneur I had lived the lean approach, yet I had never seen it taught. Done informally as part of an accelerator, yes, but not with a framework based on a clear process and clear pedagogy. The Lean LaunchPad was teaching students concepts and a process that they took away from the class and could use again for their next startup. I realized I was looking at a paradigm shift in entrepreneurial education – away from the business plan-focused model to a Lean Startup model. (The irony is that once you’ve gone through the lean cycle, you have all the information that goes in a business plan: customers, sales strategy, product features, and financial metrics. It’s just that they are validated instead of made up.)

The Business Plan is Dead
Now, 4 years after I arrived at BerkeleyHaas, we don’t teach business plan writing in any of our entrepreneurship classes or in any of our dozens of programs and competitions. We use Customer Development and the Lean LaunchPad to train and accelerate teams U.C. Berkeley-wide.

We’ve gone global as well. In the past year alone, we’ve taught over 250 teams, over 1,000 entrepreneurs and their mentors in dozens of countries how to create scalable startups in domains from software and hardware to healthcare and energy.

Haas global footprint

Haas global footprint

The international teams watch the lectures online, get out of the building, present to us each week via WebEx and get the same brand of relentless and direct feedback their U.C. Berkeley peers got in Steve’s class. For example, our Intel Technology To Market Accelerator took 22 teams from 11 countries across 15 time zones, from northern Russia to southern Chile and from Saudi Arabia to the U.S. (Chicago) through the Lean LaunchPad process. Clearly, lean works globally.

And we’ve been part of the U.S. effort to use the Lean LaunchPad to accelerate commercialization for the country’s best research spinouts from the National Science Foundation and National Institutes of Health. We do this by running classes for the NSF Innovation Corps and The I-Corps at the NIH. And the same lean techniques work just as well in the corporate innovation programs we run such as the Intel Make It Wearable Challenge.

An important distinction is that these programs are accelerators. The teams in them start with an idea or product, meet with customers, build prototypes and search for a scalable business model. All declare their startup a “go” or “no go” at the end. They learn it’s all about building to scale, pivoting or declaring failure, and moving on using a hypothesis-driven search for the truth.

Even our venerable 15-year old business plan competition, once dubbed “bplan,” has transformed into LAUNCH, a multi-month accelerator with a rigorous process combining the Lean LaunchPad, agile product development and a focus on measurable Lean Analytics. Ironically, LAUNCH has turned out to be much more rigorous than the prior business plan competition because we immerse every entrepreneur and their mentors in conquering the chaos and uncertainty that is normal for startups. We expect them to come out with specific knowledge of their markets and business ecosystem, verified metrics, a product and a plan for moving forward based on interacting with their actual customers – not honing the teams for a beauty pageant-like pitch fest or making them produce a business plan that’s fundamentally speculative. As educators, we are having a deep impact on these entrepreneurs and their startups.

Lean LaunchPad Works Across Industries
I often hear the concern that the Lean LaunchPad only works for software. After 700 teams in robotics, materials, hardware, therapeutics, diagnostics, medical devices, and enterprise software, it’s clear that Lean Startup methods work across all industries. We’ve taught versions of the Lean LaunchPad for life sciences at UCSF and as part of the National Institutes of Health, for hardware-focused startups making wearable devices as part of the Intel Make It Wearable Challenge, for teams working on nanotechnology and in education (STEMKids and Build and Imagine). Two of our BerkeleyHaas Faculty, Jorge Calderon and Will Rosenzweig, created a Social Lean LaunchPad class that embraces the mission and stakeholders central to social ventures.

Whether it’s making iPhone apps or medical devices, every startup is looking for a repeatable and scalable business model. Focusing on finding customer needs, figuring out how they buy and how to scale up product delivery are universal.

Where We Are Going From Here
At U.C. Berkeley we’ve undergone a complete transformation in just four years. But the longer journey is to continue to build new lean-tools and classes separate from the 40 year-old, business plan-based tradition.

We continue to ask ourselves, “What can we do to get our students out of the classroom, in cross-functional teams, building for specific customers and having the experience of making hard decisions under conditions of uncertainty? What can we do to expand and deepen the rigor of the Lean Startup methodologies and fully elaborate our curriculum?”

At BerkeleyHaas we are sharing what we are learning (see below). By embracing lean, you can be assured you will be giving your students essential innovation skills they will use for the rest of their lives. You will see great startups focused on solving real customer problems emerge as well. This is an exciting journey and we are all right at the start.

Some resources for shifting the paradigm in your organization:

Lessons Learned

  • Early-stage investors don’t read business plans
  • We are in the middle of a shift in entrepreneurship education from teaching the waterfall model of startup development (enshrined in business plans) to teaching the lean startup model
  • The Lean LaunchPad process works across a wide range of domains – from science and engineering to healthcare, energy, government, the social sector and for corporate innovation
  • Customer Development works outside Silicon Valley. In fact, it works globally
  • The Lean LaunchPad is a business process that teaches entrepreneurs and innovators to make business-focused, evidence-based decisions under conditions of chaos and uncertainty. It’s a big idea

Life Science Startups Rising in the UK

Stephen Chambers spent 22 years in some of the most innovative companies in life science as the director of gene expression and then as a co-founder of his own company. Today he runs SynbiCITE, the UK’s synthetic biology consortium of 56 industrial partners and 19 Academic institutions located at Imperial College in London.

Stephen and SynbiCITE, just launched the world’s first Lean LaunchPad for Synthetic Biology program. Here’s his story.

—-

Why did you come back?
This is the question I most often hear, having now returned to the UK after leaving 24 years ago to work in the US. The answer is simple. The reason I came back is the same reason I left – to be where life science startups are happening.abbey road

Hard to imagine now, but in the late ’80s the life sciences startup landscape in the UK was almost non-existent. One or two companies existed which at the time were described as startups, but in reality were government-backed small companies attempting, and ultimately failing, to execute business plans.

At that time for any life-scientist wanting to work in the commercial sector there were few, if any, jobs in the UK. Along with the rest of British industry, the pharmaceutical sector was under going massive re-organization and mergers creating much of today’s big pharma in the process. These where the Thatcher years: when we were told to  ‘get on your bike’ and many of us did.

I left the UK joining a newly formed startup, Vertex Pharmaceuticals in Cambridge, Massachusetts, as one of the founding scientists. There were few alternatives then, if you wanted to work in a startup you had to go to the US. Fortunately, Vertex became one of the most successful US pharma companies in recent history. But even if it hadn’t, in the rich life-science ecosystem around Cambridge and Boston, there are plenty of other opportunities. Or you could start your own company, which I did after Vertex.

So what has changed in the UK?
Probably the biggest change was the UK government’s recognition of the importance of synthetic biology. (Synthetic biology engineers biologically based chemicals, drugs and materials.) The government designated the field as one of the UK’s Eight Great Technologies (along with advanced materials, agri-science, big data, energy storage, regenerative medicine, robotics, and satellites) that the country would focus on. The UK invested ~ £150 million in synthetic biology research and training through the Research Councils and Innovate UK.

To focus the national synthetic biology effort the UK created SynbiCITE, as the public-private partnership responsible for taking synthetic biology from the lab bench into commercial products in the UK.

And this is what has drawn me back. Looking at the UK, I saw a hotbed of startup activity, especially among companies looking to exploit the latest developments in synthetic biology.

I jumped at the opportunity to be the CEO of SynbiCITE, where I can pursue my passion of working with scientists and entrepreneurs who want to create and build something spectacular in the UK.

The Foundry
SynbiCITE provides financial aid for Proof of Concept and collaborative research, and logistical support in the form of access to a state-of-the-art ‘Foundry’ for DNA synthesis, assembly and verification.

Often the limiting step in synthetic biology innovation is the generation of the prototype, the model or the data: the Foundry seeks to bridge the critical gap between ideation and physical product in synthetic biology. Think of it as a “maker-space” specifically designed to support the commercialization of synthetic biology allowing startups to prototype new biologically based chemicals, drugs and materials.

The Foundry accelerates the translation of synthetic biology research into the marketplace. Small and medium-sized companies, startups or virtual companies can use the Foundry as a remote laboratory. We provide automated end-to-end design, construction and validation of synthetic biologic components. It is the generation of these parts, devices and systems, and the diversity of products they can produce and the range of functions they perform, which is creating the enormous excitement around this technology.

Another change in the UK, is the growing acceptance that startups are the true engines of not only economic and job growth but also the medium by which innovation most efficiently takes place. While there are still universities in the UK that would rather not have to deal with messy, cash-strapped entrepreneurs and startups most are beginning to realize that licensing doesn’t create jobs, startups do.

Lean LaunchPad to Accelerate Commercialization
The goal of our Synthetic Biology consortium is to turn our world-class scientific research into commercial products. This is why we’re excited about offering the Lean LaunchPad at SynbiCITE. Our goal is to help would-be scientist/entrepreneurs translate their ideas and research in synthetic biology into the marketplace. We want to teach them how successful startups really get built – and do it with urgency.

If you can’t see the video click here

The goal is to provide them a route from coming up with an idea for a product, through generation of business model canvas via the Lean LaunchPad program and in parallel, harness the Foundry for the production of prototypes, models and data all the while providing evidence of commercial potential.

The program gives those involved direct hands-on experience of identifying a product that the customer really needs and is prepared to buy. I want the participants in the program to have the excitement of finding their first customer, shipping that first product and in doing so learn about all the other aspects of building a successful business.  The Lean LaunchPad does that it in 12 weeks.

Going forward this initial Lean LaunchPad cohort at SynbiCITE will be the first of many. The course is the most important of all the innovation programs we are providing.

This will be the first time in the UK, scientists in the field of synthetic biology have being given the unique opportunity to learn how to become would-be entrepreneurs, by getting out of the lab, talking to potential customers and partners, and identifying what’s needed to turn science into commercial products.

Lessons Learned

  • The UK has established a national effort in Synthetic Biology
  • The Lean LaunchPad is being used to rapidly turn science into commercial products

What Do I Do Now? The Startup Lifecycle

search build growLast week I got a call from Patrick an ex-student I hadn’t heard from for 8 years. He was now the CEO of a company and wanted to talk about what he admitted was a “first world” problem. Over breakfast he got me up to date on his life since school (two non-CEO roles in startups,) but he wanted to talk about his third startup – the one he and two co-founders had started.

“We’re at 70 people, and we’ll do $40 million in revenue this year and should get to cash flow breakeven this quarter. ” It sounded like he was living the dream. I was trying to figure out why we were meeting. But then he told me all about the tough decisions, pivots and firing his best friend he had to do to get to where he was. He had been through heck and back.

“I made it this far,” he said, ”and my board agreed they’d bet on me to take it to scale. I’m going to double my headcount in the next 3 quarters. The problem is where’s the playbook? There were plenty of books for what to do as a startup, and lots of advice of what to do if I was running a large public company, but there’s nothing that describes how to deal with the issues of growing a company. I feel like I’ve just driving without a roadmap. What should I be reading/doing?”

I explained to Patrick that startups go through a series of steps before they become a large company.

Search
In this first step, the goal of a startup is to search for a repeatable and scalable business model. It typically takes multiple iterations and pivots to find product/market fit – the match between what you’re building and who will buy it.

searchYou’ll realize you’re ready to exit the Search step when you have customer validation:

  • You’ve found a sales channel that matches how the customer wants to buy and the costs of using that channel are understood
  • Sales (and/or customer acquisition in a multi-sided market) becomes achievable by a sales force (or network effect or virality) without heroic efforts from the founders
  • Customer acquisition and activation are understood and Customer Acquisition Cost (CAC) and Life Time Value (LTV) can be estimated for the next 18 months

Startups in Search mode have little process and lots of “do what it takes.” Company size is typically less than 40 people and may have been funded with a seed round and/or Series A.

Most startups die here.

Build
At about north of 40 people a company needs to change into one that can scale by growing customers/users/payers at a rate that allows the company to:

  • achieve positive cash flow (make more money than it spends) and/or
  • generate users at a rate that can be monetized…

buildUnfortunately as you hire more people, the casual, informal “do what it takes” culture, which worked so well at less than 40 people, becomes chaotic and less effective. Now the organization needs to put in place culture, training, product management, processes and procedures, (i.e. writing the HR manual, sales comp plan, expense reports, branding guidelines, etc.)

This Build phase typically begin with around 40 employees and will last to at least 175 and in some cases up to 700 employees. Venture-backed startups will often have a Series C or D or later rounds during this phase.

Grow
In the Grow phase the company has achieved liquidity (an IPO, or has been bought or merged into a larger company event) and is growing by repeatable processes. The full suite of Key Performance Indicators (KPI’s) processes and procedures are in place.

Lucky you’re not the ex-CEO
I pointed out to Patrick that he was in the middle of the transition from Search to Build. And I suggested that he was lucky to be encountering this problem as a 21st century startup rather than one a decade or two ago. In the past, when venture-funded startups told their investors they’d found a profitable business model, the first thing VC’s would do is to start looking for an “operating exec” – usually an MBA who would act as the designated “adult” and take over the transition from Search to Build. The belief then was that most founders couldn’t acquire the skills rapidly enough to steer the company through this phase. The good news is that VC firms are beginning to appreciate the value of keeping the founder in place.

I reminded Patrick that the reality is startups are inherently chaotic. As a founder he got the company to the Build phase because he was able to think creatively and independently since conditions on the ground changed so rapidly that the original well-thought-out business plan became irrelevant.

He managed chaos and uncertainty, and took action rather than waiting around for someone on his board to tell him what to do, and his decisions kept his company from dying.

Now Patrick would have to pivot himself and the company. In this Build phase he was going to have to focus on how to thoughtfully start instituting things he took for granted in the Search phase. He was going to have build into his organization training, hiring standards, sales processes and compensation programs, all the while engineering a culture that still emphasized the value of its people.

Patrick took a bunch of notes, and said, “You know when I figuring out how to search for a business model, I read the Startup Owners Manual and Business Model Generation, but where are the books for this phase? And come to think of it, in the Search phase, there are Incubators and Accelerators and even your Lean LaunchPad/I-Corps class, to give us practice. What resources are there for me to learn how to guide my company through the Build phase?”

Time to Make New Friends
I realized Patrick just hit the nail on the head. As chaotic as the Search phase was in a startup, you were never alone. There was tons of advice and resources. But in the past, the Build phase was treated like a smaller version of a large company. Operating execs hired by investors used the tools they learned in business school or larger corporations.

I suggested it was time for Patrick to consider four things:

  1. Read the sparse but available literature that did exist about this phase. For example, The Four Steps to Epiphany Chapter 6, Company Building, Ben Horowitz’s The Hard Thing About Hard Things (a series of essays) or Geoff Moore’s classic Crossing the Chasm
  2. If he already had an advisory board (formal and/or informal), add CEO’s who have been through this phase. If not, start one
  3. Get a one-one CEO coach or join a CEO peer group
  4. And potentially the most difficult, think about upgrading his board by transitioning out board members whose expertise was solely rooted in the Search

As we finished our coffees, Patrick said, “Thanks for the advice, though I wish someone had a methodology as simple as the Lean Startup for how to scale my company.”

Lessons Learned

  • Startups go from Search to Build to Scale
  • The Search to Build phase happens ~40 people
  • Very different management tools and techniques are needed to guide your company through this new phase
  • You need to reset your board and your peer advisers to people who know how to manage building a company versus starting one

It’s About Women Running Startups

Just before the holidays I had coffee with Anne, an ex MBA student running a fairly large product group at a search engine company, now out trying to raise money for her own startup. She had an interesting insight: existing content/media companies were having the same problem as hardware companies that rarely made the leap to new platforms. And she had a model for a new media company for mobile and wearables.women innovation I thought we were going to talk about her product progress, so I was a bit taken aback by her most pressing question, “Why is it so hard for a woman to still get taken seriously by a venture capitalist?”

I had lots of answers, but none of them good enough for either of us.

I had a better one when I came back from New York.

——
Entrepreneurship at Columbia
I was in New York last week teaching my annual 5-day version of the Lean LaunchPad class at the Columbia Business School. We had 130 students in 30 teams who got out of the classroom and did 2154 customer interviews in 5 days – a remarkable effort for 120 hours. Their amazing Lessons Learned presentations can be seen here.

In the last year entrepreneurship at Columbia has taken a pretty remarkable leap across the entire university. The Columbia Startup Lab is a visible symbol of how the university is making entrepreneurship an integral part of all colleges at the university.

New York Startups
The Columbia Startup Lab is in a building completely taken over by WeWork – a company that provides co-working spaces in 12 cities worldwide. I wandered through four full floors of SohoWest WeWork sticking my head into the random startups’ offices.

Looking at office after office of startups a few things stood out.

  • This was just one of the 14 WeWork co-working spaces in New York City— there are over 100 co-working spaces in New York
  • Michael Bloomberg has yet to get his due for engineering the New York entrepreneurial ecosystem
  • I was struck by something that had been slowly percolating through my head during my entire week – there are a higher percentage of women on the founding teams of New York City startups than in Silicon Valley

Women in New York Startups
This last point is definitely not a data-driven survey. However after spending a week teaching 130 entrepreneurship students, ~35% of them women, and then walking through ~100+ WeWork and TechSpace offices in New York, I get the impression that the number of women leading startups in New York is much higher than in the San Francisco Bay area.

When I mentioned this to my friends running the NYU and Columbia entrepreneurship programs, they looked at me like I just discovered that it gets dark at night. Their answer seemed to make sense: a higher percentage of startups in New York are focused on media, fashion, communications, real estate, financial tools – all the products of industries centered in NYC – and all are attempting to disrupt them with products that run on and are delivered by 21st century platforms. (Think of what Refinery29 is doing to Conde Nast.)

These are industries where women have had a history of leadership positions and more importantly, where young women entrepreneurs can find role models and mentors as their male counterparts do in Silicon Valley’s tech-centered, pay-it-forward culture.

This raises an interesting question: is the credibility of female entrepreneurs in the eyes of New York VC’s something about the venture firms, or is it about the industries they are funding?

One can make the case that New York venture capital industry is rooted in the 21st century not the 20th. While some venture firms have been around for awhile, perhaps the newer partners have a different model of what a successful founder looks like than their west coast peers.

Or perhaps it’s as simple as New York VC’s are funding startups that play on the disruption of New York’s key strengths in Media, Fashion, Finance and Real Estate, and the women founding New York startups have an existing track record in those industries, and pass a gender neutral “VC credibility” bar.

Correlation does not imply causation
Those bemoaning the dearth of women founders in Silicon Valley might want to see if there is a real disparity between the coasts or if it is just my selection bias?

If it’s real why?

  • Women founders already had leadership roles in the industries they’re about to disrupt?
  • Women can find existing role models?
  • Women have built a network of women mentors?

What role does the type of startup play?

  • Companies that get started and built in New York City tend to be applied technology
  • Companies that get started and built in Silicon Valley have historically focused on core technology

What role does venture capital play?

  • Is there any difference in funding women for old-line firms versus 21st century firms?
  • What role does industry segment play? (i.e. lots more women founders in media companies than you find in enterprise software companies.)
  • On the West Coast the history of successful startups is technology first, and perhaps VC’s weigh that more in what they want to see in founders.
  • Is it as simple as having credibility in the industry you want to startup in?

—–

I sent Anne, my student, an email when I returned, “You may want to take a trip to NY and pitch some of their VCs.”

Lessons Learned

  • Lots of entrepreneurial activity in NY
  • Different industry focus than in Silicon Valley – more media, finance, real estate
  • Women seem to be more represented as founders
  • If a NY bias toward women as founders is true, why? And what are the lessons for Silicon Valley?

Getting out of the building…by staying in the building!

The landscape for how to turn life science and health care technologies into viable companies has changed more in the last 3 years than in the last 30. New approaches to translational medicine have emerged. Our Lean Launchpad® for Life Sciences is one of them. But a new class of life science/healthcare co-working and collaboration space is another.

———–

The National Institutes of Health recognizes that Life Science/Health Care commercialization has two components: the science/technology, and the business model. The Lean Launchpad® for Life Sciences (the I-Corps @ NIH) uses the Lean Startup Model to discover and validate the business model.

two parts to commericializationThe class provides Life Science/Health Care entrepreneurs with real world, hands-on learning on how to rapidly:

  • define clinical utility before spending millions of dollars
  • understand who their core and tertiary customers are, and the sales and marketing process required for initial clinical sales and downstream commercialization
  • assess intellectual property and regulatory risk before they design and build
  • know what data will be required by future partnerships/collaboration/purchases before doing the science
  • identify financing vehicles before you need them

This user/customer-centered approach is a huge step in the right direction in the life science/health care commercialization. However, one of the bottlenecks in actually doing Customer Discovery for medical devices/health care is testing how minimal viable products work in-context. Testing hypotheses with doctors, patients, payers, providers, purchasing departments, strategic partners is hard. It can involve traveling hundreds of miles and can consume months of time and loads of money. Scheduling time to look over a surgeon’s shoulder in an operating room is tough. Getting time to brainstorm with payers or experts in clinical trials is hard.

It would be great if there were a way to first test these hypotheses and minimal viable products in a realistic setting locally. Then after a first pass of validation, take them on the road and see if others agree.

A new life science/healthcare co-working and collaboration space
It looks like someone is actually pulling this together in a life science/healthcare co-working and collaboration space in Chicago called MATTER.

Co-working spaces seem to be evolving into the startup garages of the future. It’s a shared work environment (typically a floor of a building) where individuals (or small teams) rent space and work around other people but independently. Yet they share values and hopefully some synergy around topics of mutual interest (same customers, or technologies). Incubators are designed for teams with an idea. They add mentors and additional services and some offer free space in exchange for equity. Accelerators take teams with fairly focused ideas and offer a formal 3-4 month program of tutoring/mentoring with seed funding in exchange for equity.

The MATTER co-working space will have five unique things specifically for life science/healthcare companies:

  1. It’s focused exclusively on life science/health care (therapeutics, medical devices, diagnostics, digital health, health care IT, etc.)
  2. Key stakeholders in the broader healthcare ecosystem will be co-located under one roof: entrepreneurs, universities, established companies and strategic partners, providers, payers, hospitals, service providers, associations, advocacy groups, government and more.
  3. It will have a simulated procedure space that can be configured as an Operating Room, Emergency Room, Intensive Care Unit and other clinical/procedural settings. The space will include authentic lighting, equipment and other features that very closely resemble the look, sound and feel of these environments in the “real world”.
  4. It will have a clinician and patient studio configurable as a doctor’s office or a home care setting to simulate clinician and patient interactions. It will serve as a test bed for software, services and other technologies to improve the clinician/patient dynamic as well as improving workflows in the clinic.
  5. It will have a fabrication space where device startups can build minimum viable products and iterate on their designs while in the facility.

By building a co-working space that includes all of these stakeholders, MATTER allows startups (and companies) to get in front of customers and other members of the value chain first, before they leave the building.

The team at MATTER also realizes that facilities alone will not do the trick. In order to get the healthcare community to collaborate with each other to bring new ideas to market they will need some help to catalyze  the “co” part of co-working.

“The life sciences community is still warming-up to the value of customer development in the early stages of building new ventures”, says David Schonthal, MATTER Co-founder and Clinical Assistant Professor of entrepreneurship & innovation at the Kellogg School of Management. “Many of them aren’t yet clear on who their customer actually is – and as a result – what value they should be focused on creating. Essentially, through programming and content, we will need to teach many of our members the importance of understanding the needs of stakeholders and customers – we just aim to make it easier by bringing these people into the building.”

The procedure space and clinician and patient studio allow startups to test and demo medical devices, diagnostics, software and other technologies, with real clinicians, to validate hypotheses, their technologies, and discover the “unknown unknowns” that they wouldn’t learn until the product was used in a real clinical setting (meaning: after years of development and regulatory clearances).

But the real benefit for a Lean Startup is that unlike a traditional OR/ER, technologies/devices used in these spaces can be minimum viable products. They can be crude, non-sterile prototypes tested at any phase of their development (from sketch to machined parts), to answer any number of important questions that innovators might have about how, when, why and by whom a technology is used.

(Think of a startup building a diagnostic display designed for an operating room that discovered it was virtually unreadable and inaudible in the bright lights and loud sounds of a real operating room. Finding this out late in the development process can burn cash and time in a med tech company.)

MATTER is funded and supported by a broad range of private sector partners including established companies, providers, payers, service providers and others; as well as public sector support from the State of Illinois and the City of Chicago.

It Takes a Village
“This has been nearly a 4-year journey,” said Schonthal who prior to moving back to Chicago in 2011 had been working in healthcare venture capital in San Diego.

“One of the noticeable things about the San Diego health tech community is that it feels like a community. It has density,” he said. “People bump into each other, seek each other’s advice, make connections and collaborate on projects. In Chicago, despite having a lot of talent, companies and great research, we are a big, spread-out city. As a result we needed to design some of that density inside of MATTER so that serendipity can occur”.

Schonthal found that others in Chicago saw the vision. He enlisted the help of serial medical device entrepreneur Andrew Cittadine, biotech startup veteran Jeffery Aronin and Patrick Flavin and Steve Collens who was a major force behind the development of 1871 – Chicago’s digital co-working space. Together they recruited the support of the city, state and private industry who all agreed that frequent and early community collaboration to support young companies would be key to Chicago’s future in healthcare entrepreneurship.

Others Are Doing this As Well
MATTER is one of many organizations supporting life science/healthcare entrepreneurship across the country. In New York there’s Blueprint Health and Startup Health, in Denver there’s Stride and Princeton has Tiger Labs. Other incubators and accelerators in the health tech space include Health WildCatters in Dallas, RockHealth in Silicon Valley, Iron Yard in North Carolina, HealthBox Accelerator, Athena Health MDP in Boston and others. And probably the most important will be the Lean LaunchPad @ Life Science Angels class for early stage life science companies. Each of these has their own approach to supporting the creation of new ventures – but all are working to help young startups solve big problems.

Lessons Learned

  • Our knowledge of how to efficiently turn life science/health care technology into companies is rapidly increasing
  • Lean Methods are one such tool
  • Healthcare co-working and collaboration space is another
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