Don’t Underestimate the Undergraduates

Jim Hornthal splits his time between venture capital, entrepreneurship and education. Jim has founded six companies, including Preview Travel, one of the first online travel agencies, which went public in 1997 and subsequently merged to create Travelocity.com as an independent company.  Today he is the co-founder and Chairman of Triporati, LaunchPad Central and Zignal Labs.

JIm Hornthal

Jim co-taught classes with me at U.C. Berkeley, joined me in launching the National Science Foundation Innovation Corps class and now has been teaching his own Lean LaunchPad class at Princeton. I asked Jim to share what he learned in teaching the Lean LaunchPad class to undergraduates.  Here’s what Jim had to say…

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Don’t Underestimate the Undergraduates
Last fall, I began teaching the Lean LaunchPad course at Princeton (EGR 495: Special Topics in Entrepreneurship) with four teams of undergraduates (ok, there were a few engineering grad students in the mix), a brave first-time LLP co-teacher (Cal Simmons), and a talented and dedicated teaching assistant (Ismaiel Yakub).

This would be my fourth voyage in the captain’s cabin of the SS LaunchPad.  My prior journeys were spearheaded by the founder of this school of teaching, Steve Blank. Our teams were from Berkeley/Columbia EMBA, the Haas/Berkeley Engineering graduate student ranks, and as a co-teacher at Stanford for the National Science Foundation I-Corps program.

This would be the first time the course was taught in an undergraduate environment, and the first time we would use Steve’s Udacity lectures to “flip” the classroom.  This approach helped in several ways.  First, it allowed us to use the classroom time to dive deep into each team’s discovery narrative as it related to that week’s section of the business model canvas.  Second, it allowed the teams mentors to “follow along”, since they were all first timers to the Lean LaunchPad approach.  I believe this ability to synchronize the teams with their mentors added a lot to the successful outcomes of each team’s process.  Mentors also got a weekly email of things to look out for from their teams.  These notes were derived (read: stolen) from the Lean LaunchPad Educator’s guide.  Sharing the week-by-week highlights was a great way to focus the mentor’s attention on what we were trying to accomplish at the team level.

Challenges
As a fall course being taught for the first time, there were additional challenges.  The first was selecting the students who could take the class.  Last spring, the course was listed for students, requiring an application AND an in-person interview.  I wanted to make sure that students understood the significant amount of work outside the classroom that this would entail, and did not want to have a significant drop/add turnover once the teams had begun their work in the fall.

We had over 55 students apply, and based on a careful read of their applications, all were eager and capable.  I flew out to Princeton to conduct 5 minute “speed dating” interviews with all of them.  I wanted to assess their flexibility, willingness to accept direct, sometimes harsh input and criticism, and to get a sense of their resiliency in the face of almost certain failure.  That ‘cut’ still left me with over 40 potential thick-skinned budding entrepreneurs.

I next cut out any students for whom this would be one of five courses.  I also eliminated rising all rising sophomores, and got a list of 20 that were invited to the class.

In the fall, 18 showed up, and we then had to address another flaw with a first-time course offered in the fall to undergraduates.  We had no pre-formed teams to work with.  Fortunately, the Princeton academic calendar affords 13 weeks, and the Lean LaunchPad process takes 10, so we had a few weeks in the beginning to run a modified “Startup Weekend” process where students could pitch their ideas to their peers, and the class would rank vote their top 3 choices from the 15 options (some students had more than one idea, and a few chose to work on the ideas of others, so they did not ‘pitch’ on their own).

When the dust settled, we had 4 teams ready to start, and in the context of the overview lecture and discussion from week one, each team was connected to their mentor (most interactions were via Skype), and we were ready to take off for parts unknown.

A huge concern of mine going in was wondering at what level could these students absorb the material?  There was little-to-no practical work experience (one or two summer jobs seems potentially useful, but in the whole, this was virgin territory for nearly every student in the class).

Can you teach the Lean LaunchPad to Undergraduates? Heck Yes!
What did we experience?  Compared to all of the other teams I have taught in my three other “performances”, I can say categorically that these students were the most fearless, adaptable, and relentless of any of the other cohorts, taken as a whole. One inadvertent mistake that we made (and were able to correct mid-course), was that the students took the “get out of the classroom” mandate too literally.  The first month of customer discovery for most of their initiatives relied too much on conversations within the Princeton University community itself (fellow students, faculty and admin).  This inadvertent filter created the risk of generating false positive (and false negative) results to a lot of the preliminary hypothesis testing that is a key part of an early Lean LaunchPad experience — searching to find a solid product-market fit.

Maybe it is because they are all “professional students”, or that they were particularly motivated to have a “real world” class experience for a change, they all devoured the work, their peer-to-peer interactions were exceptional, every week they raised the bar for themselves and each other, and by the end of the class, the teams averaged nearly 200 “customer discovery” engagements (this metric refers to customer interviews + business model canvas entries (and deletions), mentor engagements and faculty engagements.  We were able to track their progress with the LaunchPad Central platform (disclosure: Steve and I are investors), which made keeping up with all of the chaos a more manageable task for faculty, mentors and teams alike.

Rather than try and tell you more about their amazing journeys, I invite you to explore the teams final videos and slides for yourselves.  I think you will see the work of some talented and determined entrepreneurs who have honed their customer discovery and customer development skills to an impressive level.  Don’t underestimate the undergraduates; in fact, the potential dividends of their academic prowess, augmented by their hard fought real-world experience makes them all formidable opponents.  Hopefully none of you will have to face off against any of them in the marketplace.  If you do, my bet is on these talented, motivated and well-prepared undergraduates.  Let the games begin …

Class goals:
“Acquire real-world experience outside the classroom, working as a team to learn the skills of customer discovery and customer development; understand the business model canvas as a tool and learn how to create fast, cost-effective tests for each of their hypothesis along the way, and in the process acquire “x-ray” vision to see through business pitches and be able to ask the questions that matter.”

Lessons Learned

  • The student interview process and selection is critical
  • Undergraduates can handle the class
  • Clarify that “get out of the classroom” means “get off the campus”
  • Students bounce back from the direct and sometimes tough live feedback
  • Align and train mentors to embrace customer development
  • Go for it!

Team Final Videos and Presentations

Beertending

Cookies to Crumbs

Dream Figures

Narrathon.TV


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The Endless Frontier: U.S. Science and National Industrial Policy (part 1)

The U.S. has spent the last 70 years making massive investments in basic and applied research. Government funding of research started in World War II driven by the needs of the military for weapon systems to defeat Germany and Japan. Post WWII the responsibility for investing in research split between agencies focused on weapons development and space exploration (being completely customer-driven) and other agencies charted to fund basic and applied research in science and medicine (being driven by peer-review.)

The irony is that while the U.S. government has had a robust national science and technology policy, it lacks a national industrial policy; leaving that to private capital. This approach was successful when U.S. industry was aligned with manufacturing in the U.S., but became much less so in the last decade when the bottom-line drove industries offshore.

In lieu of the U.S. government’s role in setting investment policy, venture capital has set the direction for what new industries attract capital.

This series of blog posts is my attempt to understand how science and technology policy in the U.S. began, where the money goes and how it has affected innovation and entrepreneurship. In future posts I’ll offer some observations how we might rethink U.S. Science and National Industrial Policy as we face the realities of China and global competition.

Office of Scientific Research and Development – Scientists Against Time
As World War II approached, Vannevar Bush, the ex-dean of engineering at MIT, single-handledly reengineered the U.S. governments approach to science and warfare. Bush predicted that World War II would be the first war won or lost on the basis of advanced technology. In a major break from the past, Bush believed that scientists from academia could develop weapons faster and better if scientists were kept out of the military and instead worked  in civilian-run weapons labs. There they would be tasked to develop military weapons systems and solve military problems to defeat Germany and Japan. (The weapons were then manufactured in volume by U.S. corporations.)

In 1940 Bush proposed this idea to President Roosevelt who agreed and appointed Bush as head, which was first called the National Defense Research Committee and then in 1941 the Office of Scientific Research and Development (OSRD).

OSRD divided the wartime work into 19 “divisions”, 5 “committees,” and 2 “panels,” each solving a unique part of the military war effort. These efforts spanned an enormous range of tasks – the development of advanced electronics; radar, rockets, sonar, new weapons like proximity fuse, Napalm, the Bazooka and new drugs such as penicillin and cures for malaria.

OSRD

The civilian scientists who headed the lab’s divisions, committees and panels were given wide autonomy to determine how to accomplish their tasks and organize their labs. Nearly 10,000 scientists and engineers received draft deferments to work in these labs.

One OSRD project – the Manhattan Project which led to the development of the atomic bomb – was so secret and important that it was spun off as a separate program. The University of California managed research and development of the bomb design lab at Los Alamos while the US Army managed the Los Alamos facilities and the overall administration of the project. The material to make the bombs – Plutonium and Uranium 235 – were made by civilian contractors at Hanford Washington and Oak Ridge Tennessee.

OSRD was essentially a wartime U.S. Department of Research and Development. Its director, Vannever Bush became in all but name the first presidential science advisor. Think of the OSRD as a combination of all of today’s U.S. national research organizations – the National Science Foundation (NSF), National Institute of Health (NIH), Centers for Disease Control (CDC), Department of Energy (DOE) and a good part of the Department of Defense (DOD) research organizations – all rolled into one uber wartime research organization.

OSRD’s impact on the war effort and the policy for technology was evident by the advanced weapons its labs developed, but its unintended consequence was the impact on American research universities and the U.S. economy that’s still being felt today.

National Funding of University Research
Universities were started with a mission to preserve and disseminate knowledge. By the late 19th century, U.S. universities added scientific and engineering research to their mission. However, prior to World War II corporations not universities did most of the research and development in the United States. Private companies spent 68% of U.S. R&D dollars while the U.S. Government spent 20% and universities and colleges accounted just for 9%, with most of this coming via endowments or foundations.

Before World War II, the U.S. government provided almost no funding for research inside universities. But with the war, almost overnight, government funding for U.S. universities skyrocketed. From 1941-1945, the OSRD spent $450 million dollars (equivalent to $5.5 billion today) on university research. MIT received $117 million ($1.4 billion in today’s dollars), Caltech $83 million (~$1 billion), Harvard and Columbia ~$30 million ($370 million.) Stanford was near the bottom of the list receiving $500,000 (~$6 million). While this was an enormous sum of money for universities, it’s worth putting in perspective that ~$2 billion was spent on the Manhattan project (equivalent to ~$25 billion today.)OSRD and Universities

World War II and OSRD funding permanently changed American research universities. By the time the war was over, almost 75% of government research and development dollars would be spent inside Universities. This tidal wave of research funds provided by the war would:

  • Establish a permanent role for U.S. government funding of university research, both basic and applied
  • Establish the U.S. government – not industry, foundations or internal funds – as the primary source of University research dollars
  • Establish a role for government funding for military weapons research inside of U.S. universities (See the blog posts on the Secret History of Silicon Valley here, and for a story about one of the University weapons labs here.)
  • Make U.S. universities a magnet for researchers from around the world
  • Give the U.S. the undisputed lead in a technology and innovation driven economy – until the rise of China.

The U.S. Nationalizes Research
As the war drew to a close, university scientists wanted the money to continue to flow but also wanted to end the government’s control over the content of research. That was the aim of Vannevar Bush’s 1945 report, Science: the Endless Frontier. Bush’s wartime experience convinced him that the U.S. should have a policy for science. His proposal was to create a single federal agency – the National Research Foundation – responsible for funding basic research in all areas, from medicine to weapons systems. He proposed that civilian scientists would run this agency in an equal partnership with government. The agency would have no laboratories of its own, but would instead contract research to university scientists who would be responsible for all basic and applied science research.

But it was not to be. After five years of post-war political infighting (1945-1950), the U.S. split up the functions of the OSRD.  The military hated that civilians were in charge of weapons development. In 1946 responsibility for nuclear weapons went to the new Atomic Energy Commission (AEC). In 1947, responsibility for basic weapons systems research went to the Department of Defense (DOD). Medical researchers who had already had a pre-war National Institutes of Health chafed under the OSRD that lumped their medical research with radar and electronics, and lobbied to be once again associated with the NIH. In 1947 the responsibility for all U.S. biomedical and health research went back to the National Institutes of Health (NIH). Each of these independent research organizations would support a mix of basic and applied research as well as product development.

The End of OSRD

Finally in 1950, what was left of Vannevar Bush’s original vision – government support of basic science research in U.S. universities – became the charter of the National Science Foundation (NSF).  (Basic research is science performed to find general physical and natural laws and to push back the frontiers of fundamental understanding. It’s done without thought of specific applications towards processes or products in mind. Applied research is systematic study to gain knowledge or understanding with specific products in mind.)

Despite the failure of Bush’s vision of a unified national research organization, government funds for university research would accelerate during the Cold War.

Coming in Part 2 – Cold War science and Cold War universities.

Lessons Learned

  • Large scale federal funding for U.S. science research started with the Office of Scientific Research and Development (OSRD) in 1940
  • Large scale federal funding for American research universities began with OSRD in 1940
  • In exchange for federal science funding, universities became partners in weapons systems research and development

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Завзятість – Tenacity: How I Spent A Year One Night in Kiev

This July I thought I had set the record for tenacity in my age group. Go ahead and take a moment to read the post, it’s short. I reminded my Startup Owners Manual co-author Bob Dorf this is how entrepreneurs played the game, blah, blah, blah.

As usual Bob did one better. Here’s a guest post on what happened to him in the Ukraine.

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Usually when you teach entrepreneurship, one of the key things you teach is tenacity, a vital characteristic of great entrepreneurs.  Only rarely does the teaching itself require tenacity, as it did late last month in Kiev, Ukraine.

Following two days with a dozen startups at a brand-new incubator in Kiev called “Happy Farm,” it was time to head to my next stop: Skolkovo, the private Moscow business school formed to bring Silicon Valley-quality training to young Russian entrepreneurs.  I was headed to my second Lean LaunchPad launch, excited that the first one in June had led to four funded startups raising some $2-million from Russian VC’s.

Ukraine was magnificent. Kiev is a beautiful city and Happy Farm Training Director Elena Kalibaba led me on a walking tour. Then it was on to a series of workshops and one-on-one coaching sessions with ten terrific startup teams, plus a press conference with Forbes Ukraine and others. When it was over, Happy Farm CEO and founder (and serial entrepreneur) Anna Degtereva drove me to the airport and–for some strange reason–escorted me to the gate.

I Spent A Year One Night in Kiev
As I approached the check-in desk, a very gruff Ukrainian customs official looked at my visa to Russia and said, “You cannot travel.  Your visa to Russia has already been used.  No exceptions.” He said nothing else in English, and waved me out of the line.

A mad scramble uncovered the problem:  when I had changed planes for Kiev back in Moscow they stamped my visa as “entered” so that counted as “visiting” Russia. As far as Ukrainian customs was concerned I didn’t have a valid visa to enter Russia therefore I couldn’t get on my plane. No charm or magic worked at all with airport customs, and we were told in no uncertain terms that Bob Dorf would be living in Kiev for two weeks, absent miracles that seldom happen in government bureaucracies, at home or in Ukraine, for sure.

The problem was that I had 25 founders from all over the Russian republics expecting me to teach a Lean LaunchPad class 12 hours later in Moscow. And then I was heading to Paris and Bogota to teach as well.  Oops. Not if I had to spend two weeks in the Ukraine applying for a new Russian visa!

We dashed off from the Kiev airport to the Russian consulate in hopes of sorting it out in two hours rather than two weeks. While on the way, we called the embassy at 12:55 and found out that the Embassy closes at 13:00 on Fridays, and we were 30 minutes away. And I don’t even like borscht, a prime Ukrainian delicacy, nor did I know how the “Bob Dorf world tour” would continue.

Four entrepreneurs in a car
Was this time to give up?  Of course not. Four entrepreneurs in a car in Kiev means three cell phones buzzing in different directions in Russian and me as the non Russian-speaker on my iPad looking at travel sites for the next flight, just in case I could get a visa. We went to the consulate anyway, where two armed guards right out of your favorite spy movie (fat, grumpy, unshaven and did I say grumpy?) barred the door. After rapid-fire begging in Russian, a phone finally call got a functionary out to basically shoo us away. “Visa processing takes two weeks, and that would start Monday, since the visa office is now closed. The Professor can go home to America, but can not go from here to Russia.” Visions of stealth border crossings or—perhaps even worse—a ten-hour Skype talk with my Moscow students—played over and over again.Cossack Attack

While the thoughts of going back to the U.S. for a weekend at home with my long-lost wife Fran were lovely, the thought of disappointing 25 students the next day and 50 more two days later in Bogota weren’t fun. I immensely enjoyed my last lectures at Skolkovo and was eager to do it again. 

So we started an international incident of sorts
First, the truly entrepreneurial and unstoppable Happy Farmer, Anna, somehow in five phone calls got through to the Foreign Minister of Ukraine, told him the story, begged for his help. She did this through a friend (how everything happens in Ukraine, of course) who served as one of his deputies. “I will talk to him at four pm and he will call the Russians,” she said, which offered only nominal relief: the last flight out was at 7 pm, and there was no firm commitment that anything good would happen.

At the same time, on the Russian side of the border, Skolkovo’s equally tenacious Startups Project Director, Lawrence Wright, went to work, calling the Russian foreign office and imploring them to call the Ukrainian embassy and tell them “let Dorf out.” When they agreed to consider breaking every rule in the 40-pound Russian rulebook, the fun began.

The Ukrainian solution to all this, while we paced for two hours to see if anybody heard our cries: “lets go to lunch and have a drink.” In perhaps one of four times in my entire life, I was actually unable to eat. The thought of jumping barbed wire fences, pursued by Cossacks, was quickly looming as my only choice for an on-time performance launching the LaunchPad.  Meanwhile, something clicked. Somebody got to somebody, and suddenly the Russian Consul himself, boss of the entire place, headed back to—or was sent back to–the office himself to personally produce a visa for Bob Dorf in one hour, not two weeks.

We were given less than an hour to find wifi and download the 20-page visa application in the backseat of an SUV.  Needed to have the original, not a copy, of the new Skolkovo “invitation letter” physically in my hand. Scrambled to get a passport photo and a printer to print out the application. Done, back to the Consulate at Indy 500 speed!

Somehow it worked. If Anna and her team are as good at running over hot coals and through brick walls with their startups as they were with my visa, watch for lots of great companies emerging from the Happy Farm.  As for me, I was sure I was headed to the funny farm.  By nine I was heading to Moscow. Six hours of fun aggravation, five and a half of which had me absolutely sure we were opening a branch of K&S Ranch in Kiev.

But the best part of the adventure is that I now had a better tenacity story than Steve.  Beat this one!
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Developing a 21st Century Entrepreneurship Curriculum

In 2012, in partnership with Stanford University, U.C. Berkeley and NCIIA, Jerry Engel and I first offered the Lean LaunchPad Educators Class. The class was designed to teach educators (and the entrepreneurs that support them) the Lean LaunchPad approach (Business Model Design, Customer Development and Agile Engineering) for teaching entrepreneurship. In addition the class offers a suggested “Lean Entrepreneurship” curriculum and the details of how to teach the capstone Lean LaunchPad class.

Sidnee Peck from Arizona State University’s Carey School of Business attended the last Lean LaunchPad Educators Class. At ASU Sidnee is the Director of Entrepreneurial Initiatives, and the co-facilitator for the Venture Catalyst’s Rapid Startup School. Sidnee taught her own Lean LaunchPad class a week after returning to ASU, (holding some sort of record for a curriculum Pivot.) I asked her to share what she learned in the class and what she learned when she put it to practice.  Here’s what she had to say…

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As an entrepreneurship educator, I have two goals:

Sidnee Peck

  • inspire and encourage students to spark energy around entrepreneurship and their dreams,
  • make the reality of entrepreneurship clear enough to prevent students from wasting time on a life decision that is not right for them.

I believe this is best done through experiential learning where students spend most of their time “doing.” I have spent my entire time at Arizona State University trying to find the most effective tools and methods for teaching entrepreneurship to my students in order to achieve these goals. I update my course frequently in an effort to create the optimal learning environment and before the Lean LaunchPad training course I was still searching for the perfect action-oriented learning model.

The Lean LaunchPad Educators course
I truly did not know what to expect when I arrived for the LLP educators course.  I had been referred by a colleague in the University’s incubator and did some preliminary reading as the trip approached but wasn’t familiar with the concepts of business models or customer development.

I was blown away by what I actually learn and take away from this experience – it has changed the way I teach and the way I view my time in the classroom.  It has also impacted my students’ lives in a significant way.

The biggest surprise I encountered may seem simple, but significantly changed the way I viewed the process.  Coming into the course I had been teaching the class on the basis of execution; teaching my students that they needed to be actively setting goals supported by tasks and executing on them.  My philosophy was sound (and was supported by many bright people): nothing happens on paper or in the classroom, it all happens outside via real action and interaction.

But on the first day, Steve framed it in a different way: execution of a business plan doesn’t matter.  It doesn’t matter because executing on a business plan that has not been validated is a waste of time and energy.  Instead, we should first focus on searching for the best business model and validating our assumptions.  After we prove that the model works, then, and only then, execute on it and build a business.

I may have been the only person at the conference who was learning the methodology for the first time and would be applying it upon my return to ASU within the coming week in my fall class.  This was bold…but it was a “why wait?” mentality, and I am SO thankful that I went for it.  Luckily, I had interviewed students for the course (as I had designed it before coming to the conference) during enrollment months (before I knew I would even teach this methodology) because I knew I wanted only the most passionate and committed students and I would do my best to hold them accountable to executing on their ideas.  It took time and preparation to roll this out so quickly, but the materials I received at the conference made it possible.  I had a roadmap in front of me, and I just had to be prepared to deliver it.

Sidnee Peck ASU ClassOne of the biggest (and best) surprises from actually teaching the class is the way that students bounce back from the direct and sometimes tough live feedback.  I had a major fear that we would scare students right out of the class, but after the first two weeks, they expressed how much they appreciated it, one student tell me that this was his favorite class because he had learned so much in just two weeks.  This realization made the rest of the semester easier, knowing that the feedback that is sometimes hard to give and take is the most important, and is valued by the students.  We established an environment of trust and a place where we were comfortable being uncomfortable.

What I wish I knew going into the semester is that the interview process and student selection is incredibly impactful on the success of the class.  In an effort to be inclusive, I allowed any student who had a business he/she wanted to launch enroll.  Going forward, I will be much more particular based on each student’s readiness.  I did get quite lucky, however, as the majority of my students are a good fit and truly want to work on their business models.  Some, however, are not ready.  They need to mature a bit before the LLP process will hit home with them and I should defer these students to a later year.

In the future I will also train my mentors in a more significant way.  I had an incredible pool of experienced entrepreneurs and business people to choose from – but without fully understanding the customer development process, some were steering my students way off track (asking for business plans!) and I had to pull them back when we met in class.

I also wish I could have recruited more in-class advisors to give live feedback…this was challenging because of my timeline, and while I did get a fair number to visit, more would have been welcomed.  There is an art to giving the right type of feedback in the right manner at the right time.  It takes practice, and the more experts we have in the room, the more powerful it can be.

The best part about the whole thing is, of course, the results my students have experienced from giving the process the attention it deserves.  I was blown away by how hard undergrads would work for their business idea.  I was impressed EVERY week by the outside work that was done and the number of interviews performed.  There were incredible learning points every single week and over the course of the semester multiple businesses made first sales, gained new customers, launched, and one even got hired by a competitor to roll his product into a product line through a proprietary manufacturing process.  Because of this success I have seen increased interest from other colleges and from the MBA program…spring will be an incredible class!

Lessons Learned

  • The student interview process and selection is critical
  • Undergraduates can handle the class
  • Students bounce back from the direct and sometimes tough live feedback
  • Align and train mentors to embrace customer development
  • Go for it!

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The next Lean LaunchPad class Jan 30th – Feb 1st is sold out (there is a wait list here.)  Registration is open for the June 18-20th class here.
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Customer Development in a Diagram

Customer Development in a diagram

Thanks to: Alexis Finch, Sketchnotes / UX Research Consultant @agentfin

The Future of Corporate Innovation and Entrepreneurship

Almost every large company understands it needs to build an organization that deals with the ever-increasing external forces of continuous disruption, the need for continuous innovation, globalization and regulation.

But there is no standard strategy and structure for creating corporate innovation.

We outline the strategy problem in this post and will propose some specific organizational suggestions in follow-on posts.

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I’m sitting at the ranch with Alexander OsterwalderHenry Chesbrough and Andre Marquis listening to them recount their lessons-learned consulting for some of the world’s largest corporations. I offered what I just learned from spending a day at the ranch with the R&D group of a $100 billion corporation along with the insights my Startup Owners Manual co-author Bob Dorf who has several Fortune 100 clients.Osterwalder Chesbrough Marquis

(Full disclosure. I’m recovering from a reading spree of Chandlers Strategy and Structure, Gary Hamel’s The Future of Management and The Other Side of Innovation by Trimble and Govindarajan, Henry Chesbrough’s Open Innovation, as well as The Innovator’s DNA from Dyer, Gregersen and Christensen. So some or most of this post might be that I’ve overdosed on business books for the month.)

Collectively we’re beginning to see a pattern and we want to offer some concrete suggestions about Corporate Management and Innovation strategy and the structural (i.e. organizational) changes corporations need to make.

If we’re right, it will give 21st companies a way to deal with innovation – both sustaining and disruptive – as a normal course of business rather than by exception or crisis. Companies will be organized around Continuous Innovation.

Strategy and Structure in the 21st Century
While companies have existed for the last 400 years, their modern form is less than 150 years old. In the U.S. the growth of railroads, telegraph, meat packers, steel and industrial equipment forced companies to deal with the strategies of how to organize a complex organization. In turn, these new strategies drove the need for companies to be structured around functions (manufacturing, purchasing, sales, etc.)

90 years ago companies faced new strategic pressures as physical distances in the United States limited the reach of day-to-day hands-on management. In addition, firms found themselves now managing diverse product lines. In response, another structural shift in corporate organization occurred. In the 1920’s companies restructured from monolithic functional organizations (sales, marketing, manufacturing, purchasing, etc.) and reorganized into operating divisions (by product, territory, brand, etc.) each with its own profit and loss responsibility. This strategy-to-structure shift from functional organizations to operating divisions was led by DuPont and popularized by General Motors and quickly followed by Standard Oil and Sears.

GM 1925 org chart

General Motors Organization Chart ~1925

In each case, whether it was organizing by functions or organizing by operating divisions, the diagram we drew for management was an organization chart. Invented in 1854 by Daniel McCallum, superintendent of the New York and Erie railroad, the org chart became the organizing tool for how to think about strategy and structure.   It allowed companies to visually show command and control hierarchies – who’s responsible, what they are responsible for and who they manage underneath them, and report to above them.  (The irony is that while the org chart may have been new for companies, the hierarchies it described paralleled military organization and had been around since the Roman Legion.)

While org charts provided the “who” of a business, companies were missing a way to visualize the “how” of a business. In the 1990’s Strategy Maps provided the “How.” Evolved from Balanced Scorecards by Kaplan and Norton, Strategy Maps are a visual representation of an organization’s strategy. Strategy Maps are a tool to translate the strategy into specific actions and objectives to measure the progress of how the strategy gets implemented (but offer no help on how to create new strategies.).

Strategy Maps from Robert Kaplan

Strategy Maps from Robert Kaplan

By the 21st century, organizations still lacked a tool to create and formulate new strategies.  Enter the Business Model Canvas. The canvas describes the rationale of how an organization creates, delivers, and captures value (economic, social, or other forms of value). The canvas ties together the “who and how” and provides the “why”. External to the canvas are the environmental influences (industry forces, market forces, key trends and macro-economic forces.)  With the business model canvas in hand, we can now approach rethinking corporate innovation strategy and structure.

Business Model Canvas

Management Innovation in the 21st Corporation
Existing companies and their operating divisions implement known business models. Using the business model canvas, they can draw how their organization is creating, delivering, and capturing value. A business model for an existing company or division is not filled with hypotheses, it is filled with a series of facts. Operating divisions execute the known business model. Plans and processes are in place, and rules, job specifications, revenue, profit and margin goals have been set. Forecasts can be based on a series of known conditions.

BusinessModel Innovation in existing companies

Inside existing companies and divisions, the business model canvas is used as a tool to implement and continuously improve existing business models incrementally. This might include new products, markets or acquisitions.

A New Strategy for Entrepreneurship in the 21st Corporation

Yet, simply focusing on improving existing business models is not enough anymore. To assure their survival and produce satisfying growth, corporations need to invent new business models. This challenge requires entirely new organizational structures and skills.

This is not unlike the challenges corporations were facing in the 1920′s. Companies then found that their existing strategy and structures (organizations) were inadequate to respond to a changing world. We believe that the solution for companies today is to realize that what they are facing is a strategy and structure problem, common to all companies.

The video below (from Strategyzer.com) emphasizes that companies will need to have an organization that can do two things at the same time:  executing and improving existing models and inventing  - new and disruptive – business models.

We propose that corporations equipped for the challenges of the 21st century think of innovation as a sliding scale between execution and search.

  1. For companies to survive in the 21st century they need to continually create a new set of businesses, by inventing new business models.
  2. Most of these new businesses need to be created outside of the existing business units.
  3. The exact form of the new business models is not known at the beginning. It only emerges after an intense business model design and search activity based on the customer development process.
  4. Companies will have to maintain a portfolio of new business model initiatives, not unlike a venture capital firm, and they will have to accept that maybe only 1 out 10 initiatives might succeed.
  5. To develop this new portfolio, companies need to provide a stable innovation funding mechanism for new business creation, one that is simply thought of as a cost of doing business
  6. Many of the operating divisions can and should provide resources to the new businesses inside the company
  7. We need a new organizational structure to manage the creation of new businesses and to coordinate the sharing of business model resources.
  8. Some of these new businesses might become new resources to the existing operating units in the company or they could grow into becoming the new profit generating business units of the company’s future.

In future blog posts we’ll propose a specific structure for Entrepreneurship and Continuous Innovation in the 21st Corporation.

Lessons Learned

  • Continuous disruption will be the norm for corporations in the 21st century
  • Continuous innovation – in the form of new businesses-  will be the path for long term corporate survival
  • Current corporate organizational models are inadequate for the task
  • We will propose some alternatives

Listen to the post here: Download the Podcast here

Open Source Entrepreneurship

One of the great things about being a retired entrepreneur is that I get to give back to the community that helped me. I assembled this collection of free and almost free tools, class syllabi, presentations, books, lectures, videos in the hope that it can make your path as an entrepreneur or educator easier.

Free:

Startup Tools
If you’re building a startup, the Startup Tools tab on the top of this page has curated links to hundreds of startup resources.  Specific links are:

  • A list of startup tools is here
  • Market research tools to help you figure out the size of the opportunity your startup is pursuing, are here
  • Some of the best advice on founding and running a startup from other smart voices are here

Updates and suggestions for tools I’ve missed are welcomed on the Startup Tools comments page.

The Lean LaunchPad course online
I teach potential founders a hands-on, experiential class called the Lean LaunchPad at Berkeley, Stanford, Columbia and Caltech. The class teaches the three basic skills all entrepreneurs need to know:

  • business model design
  • customer development
  • agile engineering

For my  Innovation Corps class for the National Science Foundation it made sense to record the lectures and put them on-line. In my regular classes I now “flip” the classroom and have my students watch these online lectures as homework and we use the class time for discussion.

The free on-line class, hosted at Udacity is here.

Class Syllabi, My Lecture Slides and Student Presentations
The Slides/Video tab on the top of this page has all the open source course material for my classes.  Specific links are:

  • Educators Training Guide is here (part of the Educators Course  - described in the Educators section below.)
  • Course for Educators is here
  • Teachable moments videos for the Lean Launchpad class here
  • How do Customer Discovery videos here and here
  • Sample Lean LaunchPad Lecture slides and suggested syllabus here
  • Syllabi for all my classes are here
  • Secret Notes for Instructors here
  • Latest presentations posted click here
  • Stanford presentations, lectures and syllabus here
  • Berkeley presentations, lectures and syllabus here
  • Columbia 5-day presentations, lectures and syllabus here
  • Caltech 5-day presentations, lectures and syllabus here
  • Some general customer development slides click here

The Entreprenuers Checklist
The good folks at Udemy have taken a few of my lectures at Stanford and put them together in a series online.

The free on-line lectures, hosted at Udemy are here.

Online Guide to How to Build a Startup: The Lean LaunchPad
Startupplays.com, publisher of online entrepreneurs processes guides, drew from my Udacity course and The Startup Owner’s Manual to create a free step-by-step guide to understanding your customers and creating your value proposition. Called “How to Build a Startup: The Lean LaunchPad,” it walks you through the Business Model Canvas and an overview of the customer development process.

Find it here.

Videos
The Slides/Video tab on the top of this page has a number of my talks on entrepreneurship, customer development and startup, some short, some long, and a few interesting.

Find them here.

Recommended Reading
The Books for startups tab on the top of this page is my recommended reading list. These books have influenced my thinking. There’s a short synopsis of why I like each book.

Updates and suggestions for books that I’ve missed are welcomed on the books comment page.

Visitors Guide to Silicon Valley
The Guide tab on the top of this page? I got tired watching dignitaries fly into Silicon Valley, visit Google, Facebook, Apple, and Stanford and then say they understand startups and entrepreneurship.

So for the rest of us I put together this Visitors Guide to Silicon Valley.

Updates and suggestions for places to see that I’ve missed are welcomed on the Guide comments page.

Secret History of Silicon Valley
What began as a hobby of mine – research in the intersection of my military, intelligence and Silicon Valley careers combined with my interest in the history of Silicon Valley and technology entrepreneurship – ended up in this video and PowerPoint presentation. I first gave the Secret History of Silicon Valley presentation as an invited talk at Google, then at the Computer History Museum.

When I gave the talk to audience of CIA staffers they asked how I came up with the talk, so I wrote a series of posts as the back-story that can be found here.

I still love giving this talk to people who lived it and people curious about it.

Almost Free:

Startup Weekend Next
Startup Weekend Next is a three-week version of the Lean LaunchPad class with hands-on instructors and mentors – offered in hundreds of cities around the world.

  • The class is organized, led and delivered by Startup Weekend, the global non-profit that teaches entrepreneurs how to launch a startup in 54 hours.
  • TechStars and Startup America are partnering to provide mentors in the U.S.

They don’t ask for equity and charge just enough to cover the costs of pizza and the room rental.

Sign up here.

The Lean LaunchPad Educators Course
Hosted by NCIIAStanford University and U.C. Berkeley, Jerry Engel and I teach a course for educators interested in learning how to update and revise their entrepreneurship curriculum for the 21st century as well as learning how to teach the Lean LaunchPad class.

The Lean LaunchPad Educators Training Guide here is part of this course.

Next class is Jan 30th. Click here for more information.

The Startup Owner’s Manual
The Startup Owners Manual written with Bob Dorf, has become the step-by-step reference manual for anyone even thinking about a startup. Each section offers detailed guidance and how-to’s, helping you make your way through the Customer Development process using MVP’s and Pivots as you search for a Business Model.

Last month we added a Kindle version, reorganized to make it easier to follow on a tablet and incorporating hundreds of links to websites, blog posts, and presentations.

The Founder’s Workbook
Zoomstra, the publisher of online workbooks offers The Founders Workbook to help you track and monitor your progress through every step of the Customer Development process. It takes the static 57 checklists from The Startup Owner’s Manual and makes them dynamic and accessible by putting them online as an interactive checklist. Use it to keep your team on track and ensure you have completed each critical task as you search for a scalable business model.

Click here for more information.

The Four Steps to The Epiphany
The Four Steps to the Epiphany has been described as the book that launched the Lean Startup movement. The book is still relevant today as when it was written. The last two chapters deal with scale and management of growing startups.

Now get out of the building and make something happen!

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