Counting down our top ten list of discovery driven planning misses, Part 1May 30, 2022
Through Valize, Ron Boire and I have been working with clients to use the tools we have developed to bring Discovery Driven Planning / Discovery Driven Growth to life. Although we’ve got years of experience doing this, and over 100,000,000 hits when you search on the term, it’s still pretty jarring to take on a project with a company only to find the same mistakes popping up over and over. As a public service, therefore, we share our current top 10.
#10: Succumb to corporate pressure to allocate half the budget and meet an unreasonable deadline to launch your idea. You’re doomed before you start.
This is one of the great paradoxes of allocating resources to new and therefore highly uncertain things. They often take a long time to gestate, and the funding for the earliest stages is best managed with multi-source, small budgets for tinkering around, as Safi Bahcall points out in his excellent book Loonshots. But when you are ready to take the project to market, a corporate commitment needs to be made. And that is often where things go terribly wrong.
For starters, you might well have an ambitious plan for future growth that is reasonable, but you aren’t providing sufficient resources in the initial years to capture that growth down the road. As Alex Van Putten and I wrote about this some years back, a growth gap can easily sneak up on you.
Further, as Geoffrey Moore has succinctly argued, the problem of “Horizon 2” (following the McKinsey 3-horizon model) is that the programs are big enough to need real resources and commitment, but uncertain enough that predicting a valid ROI is still a bit of a wild card.
While I have no insider knowledge about this, I’d be willing to bet that the stunning 2019 write off of the value of Kraft-Heinz core brands was a victim of this issue. Cost-cutting, not innovation, was the dominant philosophy of its private equity owner. Funds for highly uncertain long-term bets that might have to extend beyond the desired Private Equity exit timeframe are very hard to come by.
Indeed, the Wall Street Journal reported at the time that “the food giant backed by Brazilian private-equity firm 3G Capital and Warren Buffett’s Berkshire Hathaway announced an avalanche of bad news Thursday, sending shares down 27% in Friday trading. The company missed earnings estimates, issued weak guidance for 2019, slashed its dividend, took a $15 billion write-down on the value of some of its most famous brands and told investors that the Securities and Exchange Commission is investigating its accounting practices. Critics have long contended that 3G’s cost-cutting went too far and came at the expense of growth. They were right.”
#9: Create a project team before you even know what skills will be critical to the success of the venture. Instead, design the concept first, then back into what skills you’ll need.
So you want to launch an innovation?? Cool – let’s see who should be on the project team. Well, Vichu just rolled off his last project, so he’s available. Jenny wants to take on a stretch role as part of her own growth plan, so I think she’d be happy to volunteer. Barry is still tied up with that big joint venture integration, but he could probably spare a day or so a week….
And so it goes. The most common rubrics I observe for staffing innovation programs go something like this: Who is available (guess what, people, there is often a reason why they are available). Who do I know? (which assumes you know anyone in the project space that you are trying to target). Who volunteers? There is often a reason why they’d like to get into a seemingly non-performance driven area.
Instead, consider what critical skills you need on the project, and what kinds of leadership would make the most sense for its design and stage of development.
Further, you don’t want to staff up a whole project team before you have some validation of the project you want to build! Ron and I are literally working with a project group that wants to launch something in the digital space (that’s good) but are talking about step 1 being to hire a developer! (Noooooooo, wait till you know what the specifications are that the developer will be building!).
#8: Having a hackathon or boot camp and feeling that this obligates you to develop those ideas further even when the numbers suggest that it might not be the most attractive date at the party.
I’ll go back in corporate history for this one. I was working with a large chemical company whose CEO had called an all-hands to encourage his leaders to generate top-line growth. Among the ideas (in one of those “I want you swinging for the fences” speeches American CEO’s especially love to give) was to move into new categories that were closer to end customers. The company at the time was pretty solidly in B2B markets.
I was hired to train a bunch of leaders who were part of the program the discovery driven growth methodology. As part of that, I was asked whether I could use one of their proposals as the teaching case for the seminar. I said, “sure, do that all the time.” So I got the case. The idea was to forward-integrate into the apparel business. Leaving aside the issue that it’s a terrible business, structurally, I set out to analyze it using the discovery driven growth framework. What I found was that to achieve year 5 plan numbers for the business (you know, the numbers right there in the spreadsheet that quantifies fantasy at the back of the plan), they would have to sell one out of every six garments sold in a department store in the United States of America! Not realistic.
We came to that conclusion during the seminar, pretty clearly. But… the businesses had been touted as a huge bold move, the CEO felt he couldn’t stop it because it would undermine his message about new territory, the venture leader had left a very senior role and felt he’d be fired if the thing came to an end… and so they launched it.
It lasted about 6 months and consumed a river of red ink. And worst of all, the message the CEO had tried to send about being unafraid to do bold new things was completely lost.
Just because you start something doesn’t mean you have to take it all the way to market.
#7 Approving and funding a venture that, even if wildly successful, isn’t going to lead to material growth for the mothership.
Both Geoffrey Moore and Alberto Savoia are united on this one. For a large company to take on the risk and effort of doing something transformational, the prize has to be worthwhile. As Alberto puts it, “lions don’t hunt mice. It isn’t that they don’t have the capability or the talent to hunt mice, its just that its not worth the energy.”
When Ron and I work with a company we will often do a portfolio assessment of what people are actually working on (and we have very cool new software that makes it easy-peasy – recording of demo here). And what you typically find is a total mess. Projects that were a pet bunny some CEO wanted 3 CEO’s ago. Projects that are absolutely critical to the firm’s mission and next generation business that, um, nobody is actually working on. Projects that no longer look as promising as they once did that are just dragging on because no one wants to muster the political will to stop them. And projects that, even if they do succeed, are unlikely to deliver the growth numbers that will make a difference to the corporate parent at all.
Again, I have no insider knowledge about this, but I suspect this was what eventually led to the shuttering of Drinkworks, a Keurig-Anheuser Busch joint venture that basically suggested we want coffee from a pod in the morning and cocktails in a pod for the evening. You can check out my take on Drinkworks here. See, the combined revenue of Keurig and Anheuser Busch last year was $27.21 billion.
As I said in that “Thought Spark” Article:
Let’s say that the Drinkworks initiative, to be material to the two parent firms, has to generate an increment of 5 percent to their top lines. That translates into $1.36 billion. If we assume that 50% of that amount has to come from machines sales every year, at $299 per machine, that implies sales of 2.3 million machines each year. If we further assume that the other half of revenue has to come from pod sales, at a price of $17.99 for a 4-pack, that means sales of 37.8 million packs, again, every year.
A November 2021 article reported that the “cocktail platform” was selling 250,000 cocktails a month as of that time. That means 62,500 4-packs a month, or 750,000 per year. For the platform to deliver to my hypothetical targets, they would have had to see a glide path that could increase sales 30-40 fold!
Part of the problem here is that innovation success follows a wildly skewed pareto distribution. You have to assess dozens, maybe hundreds, of ideas before you get the ones that meet criteria for blockbuster growth. So you have to be happy to winnow down a large number to a much smaller consideration set.
#6: Give the project to a bunch of enthusiastic volunteers who have never been trained in the disciplines of value creation
You would never hand your quality program over to the intern. You would never rely on a junior associate to make sure you were appropriately handling legal risks. It wouldn’t occur to you to put mission-critical operational infrastructure under the control of the marketing department. And yet, when it comes to innovation, we frequently hand projects over to complete amateurs and expect them to know how to do it.
Like any skill, managing innovation has a set of disciplines that need to be practiced and learned. You can’t read a book and know how to do it. You can’t read a set of IKEA-like construction manuals and Voila! Innovation emerges. And yet, all too often, Ron and I end up working with people who are great people but have always been in the operating groups that are the lifeblood of the core business.
The good news is that we have a huge body of work that is unpacking what innovation requires from leaders.
Go-to innovation resources
Some go-to resources I like are Curt Carlson’s book and blog on the innovation practices they developed at SRI International, which took an organization that was on its knees financially and turned it into a reliable engine for creating billion-dollars businesses. Alex Osterwalder’s books and articles introduce innovation ideas in a user-friendly and accessible way. Our friends at Innov8rs have pulled together an incredible collection of resources and a big community of innovation professionals grappling with similar issues. Gina O’Connor, now a professor at Babson, has published a series of in-depth books on radical innovation and what it takes. I’ve mentioned Safi Bahcall’s book already – he publishes a ton of great stuff on his web site. Martin Reeves and Jack Fulller’s book on the Imagination Machine will give you actionable ideas on how to get new ideas. The consulting firm Innosight has a wealth of materials on how you can do this for real. In Europe, we work with the Strategy Tools community, who have done a lot of very smart things to bring innovation to life. The Innovation Roundtable has offered great in-person and on line events. And I could go on.
At Valize, we’ve also developed a series of accessible online courses that teach many of these concepts. You can find out about them at the LearningHub.
Ron and I also work with companies as advisors. Our clients tell us that it can save a huge amount of time and money spent to have a little experienced guidance with their growth plans. You can contact us at [email protected] if that sounds as if it might be helpful.
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