startup series: lean analytics, innovation, and tilting at windmills

Lean Analytics, Innovation, and

Tilting at WindmillsHive data meetup

August, 2014

@acroll

Thursday, August 14, 14

(http://csinvesting.org/2012/01/06/fortune-500-extinction/)

F500 Life Expectancy

Growth by entering a new business 95

% failCorporate

Strategy Board

99% failClay

Christensen

75 years

15 years

1950 2010...


http://csinvesting.org/2012/01/06/fortune-500-extinction/

http://csinvesting.org/2012/01/06/fortune-500-extinction/

This isn’t about a lack of resources.


http://www.flickr.com/photos/maladjusted/5207565912 Thursday, August 14, 14

Blockbuster had a lot going for it.


Plenty of inventory, of course. But that matters less than...


...market intelligence, customers, existing payment approval, and customer history.


The problem was framing:

Blockbuster thought it was in the video store management business. Netflix realized it was in the entertainment delivery business.


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


Clay Christensen, The Innovator’s Dilemma

Cost

per

MB

$1000

$100

$10

$1

Time

14”

Mainfra

me

8”

Minicom

puter

5.25”

Deskto

p

3.5”

Noteboo

k


Technologies outstrip what the market needs, driven by feedback from the “best” current customer.


$1000

$100

$10

$1

Time

8” 5.25”

High end

customerLow end

customer


The new market has different criteria for success, which are uninteresting to incumbents.


$1000

$100

$10

$1

Time

Storagecapacity

Portability


Sometimes this has unintended consequences


$1000

$100

$10

$1

Time

Smaller disc size means less vibration impact, leading to greater density, increasing storage capacity


Amazon Web Services and the server value network

http://www.theregister.co.uk/2013/04/18/amazon_2_trillion_s3/http://www.saphana.com/community/blogs/blog/2013/04/18/hanalgorithmics--efficiency-by-design-with-sap-hana--part-1


http://www.theregister.co.uk/2013/04/18/amazon_2_trillion_s3/

http://www.theregister.co.uk/2013/04/18/amazon_2_trillion_s3/

http://www.saphana.com/community/blogs/blog/2013/04/18/hanalgorithmics--efficiency-by-design-with-sap-hana--part-1




Amazon Web Services and the server value network

Bare metal equipment

• Density• Heat

• GHz• MIPS

Cloud computing

• Instances• Objects

• Spinup time• Scaleout

Capex, financing, TCO, ROI

Opex, demand, time to result

CIO, enterprise IT CTO, coder, app owner, line of business, startup

Valuecriteria

Money

Buyer


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


$1000

$100

$10

$1

Time

Elastic resources mean we can scale up to huge, and shrink costs when not in use.

Physical servers:MIPS, heat, density, cost per cycle.

Sold to CIOs Cloud computing:Opex cost, time to spin up, scaleout, objects stored

Sold to developers & marketers


YOU ARE HERE


YOU ARE HERE

LOCALMAXIMUMOPTIMIZATION

OF CURRENT METRICS


YOU ARE HERE

GLOBALMAXIMUMINNOVATION

WITH NEWRULES


YOU ARE HERE

SHORT-TERM INVESTORSHATE GOING DOWNHILL


Why now?

First: High rate of change of digital technologies & channels.


http://www.flickr.com/photos/ebolasmallpox/3733059220/

Software is eating the world.




Arbitron and radio data


Times a song in “heavy rotation” is played daily

0

15

30

2007 2012Thursday, August 14, 14

Why now?

Second: It’s no longer about whether you can build it—it’s about whether

anyone will care.


The Attention Economy“What information consumes is rather obvious: it consumes the attention of its recipients.

Hence a wealth of information creates a poverty of attention, and a need to allocate that attention efficiently among the overabundance of information sources that might consume it.”

(Computers, Communications and the Public Interest, pages 40-41, Martin Greenberger, ed., The Johns Hopkins Press, 1971.)Herbert Simon


Lit motors tests the risky partThursday, August 14, 14

Everything to lose:Why big companies need innovation.


Business optimization (five mores)

Product,market,method

innovation

Business model

innovation

You can convince executives of this

because some of it is familiar.

This terrifies them because it eats the current business.

A three-maxima model of enterprise innovation


Three kinds of innovation

Sustain/core(optimizing for more of the same)

Innovate/adjacent(introduce nearby product,

market, or method)

Disrupt/transformative(Fundamentally changing

the business model)

Improve alongcurrent metrics...

...or alterthe rate of improvement

Switch to a newvalue model

Change the businessmodel entirely


Improvement Adjacency RemodelingDo the same,only better.

Explore what’snearby quickly

Try out newbusiness models

Lean approaches apply, but the metrics vary widely.

Sustain/core

Innovate/adjacent

Disrupt/transformative


Sustaining Adjacent DisruptiveNext year’s car Electric car,

same dealerOn-demand, app-based

car service


Sustaining innovation is about more of the same.(says Sergio Zyman)

More things

To more people

For more money

More often

More efficiently Supply chain optimizationPer-transaction cost reduction

Loyal customer base that returnsDemand prediction, notification

Maximum shopping cartPrice skimming/tiering

Highly viral offeringLow incremental order costs

Inventory increaseGifting, wish lists


Adjacent innovation is about changing one part of the model in a way that

alters the value network.


Experiment with product, market, and method.


Product(new “what”)

Market(new “who”)

Method(new “how”)3 kinds of

innovation


Adjacent productto the same market in the same way


Selling the same product to an adjacent market in the same way.

Of P&G’s 38 brands, only 19 were sold in Asia as of 2011Market expansion is seldom selling the same thing to new people. In Asia, P&G needed to

Align pricing with novelty (prestige, mass-tige, over-the-counter)Change consumer expectations (moving from dilutes to concentrates)Adjust positioning and ingredients such as white fungus, ginseng, and the parasitic cordyceps


Selling the same product to the same market in a new way.


(At this point, observant Intrapreneurs should be asking, should P&G be in

the house cleaning business?

And that would be transformative.)


Transformative innovation is about taking a leap, changing more than one dimension simultaneously in search of

a new business model.


Transformative isolation:Skunkworks


If sustaining, incremental innovation produces linear growth, then

disruptive, transformative innovation produces exponential growth.


Transformative incubation: Metlife Infinity


Significant market850K full-time law enforcement officers in the US; 700K state/local; 525K patrol officers130M incident reports/y. 70M new incidents; 200K involve use of forceOnly 31% of local police agencies keep computer files on use-of-force incidents

Strong product benefitsExonerates the officer 96% of the time.47% percent increase in charges and summons (2007)

Patrol officers spend 15-25% of their time writing incident reports, recorded evidence reduces this by 22%, meaning 50m more on patrol

ChallengesNew business model

Pricing unclearSaaS offering

Compliance and governanceUnions, regulation, chain of evidence

Changing the current model (radio is everything)

Transformative incubation: Taser evidence.com


Engine as a serviceThursday, August 14, 14

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


http://www.nasa.gov/images/content/365835main_airplane_noise_qtd2_3024x2016.jpg

http://www.nasa.gov/images/content/365835main_airplane_noise_qtd2_3024x2016.jpg

“Efficiency is tied to analytics. We’ll still look

for new materials, or for the physics of devices, but the

analytics ... is what’s really untapped.”


Intrapreneurs drive innovation in organizations that have already

found product-market fit.


Intrapreneur:Someone working to produce

disruptive change in an organization that has already found a sustainable,

repeatable business model.


Also: a pariah.Successful innovators share certain attributes.

Bad listener: Wilfully ignore feedback from your best customers.

Cannibal: If successful, destroying existing revenue streams.

Job killer: Automation & lower margins are your favorite tools.

Security risk: Advocate of transparency, open data, communities.

Narcissist: Worry constantly about how you’ll get attention.

Slum lord: Sell to those with less money, deviants, and weirdos.


Some things smart Intrapreneurs do differently


Think Lean, and analytically.


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


Don’t sell what you can make. Make what you can sell.

Kevin Costner is a lousy entrepreneur.


The core of Lean is iteration.


Everyone’s idea is the best right?

People love this part!

(but that’s not always a good thing)

This is where things fall apart.

No data, no learning.


Companies that use data-driven analytics instead of intuition have 5%-6% higher productivity and profits than competitors.

Brynjolfsson, Erik, Lorin Hitt, and Heekyung Kim. "Strength in Numbers: How Does Data-Driven Decisionmaking Affect Firm Performance?." Available at SSRN 1819486 (2011).

2011 MIT study of 179 large publicly traded firms


Empathy

Stickiness

Virality

Revenue

Scale

E-commerce SaaS MediaMobile

appUser-gencontent

2-sidedmarket

Interviews; qualitative results; quantitative scoring; surveys

Loyalty, conversion

CAC, shares, reactivation

Transaction, CLV

Affiliates, white-label

Engagement, churn

Inherent virality, CAC

Upselling, CAC, CLV

API, magic #, mktplace

Content, spam

Invites, sharing

Ads, donations

Analytics, user data

Inventory, listings

SEM, sharing

Transactions, commission

Other verticals

(Money from transactions)

Downloads, churn, virality

WoM, app ratings, CAC

CLV, ARPDAU

Spinoffs, publishers

(Money from active users)

Traffic, visits, returns

Content virality, SEM

CPE, affiliate %, eyeballs

Syndication, licenses

(Money from ad clicks)


Better: bit.ly/BigLeanTable


Frame it like a studyProduct creation is almost accidental.Unlike a VC or startup, when the initiative fails the organization still learns.

http://www.flickr.com/photos/creative_tools/8544475139




When in doubt, collect dataFrom tackling the FTA rate to visualizing the criminal justice supply chain.


Use data to create a taste for data

Sitting on Billions of rows of transactional dataDavid Boyle ran 1M online surveysOnce the value was obvious to management, got license to dig.


Don’t just collect data, chase it.


Know what has tobe built in-house

SAP integrationEmployment law


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

Think subversively.




Focus on the desired behavior, not just the information.

http://www.psychologytoday.com/blog/yes/200808/changing-minds-and-changing-towels

26% increase in towel re-use with an appeal to social norms; 33% increase when tied to

the specific room.

Energy Conservation “Nudges” and Environmentalist Ideology: Evidence from a Randomized Residential Electricity

Field Experiment - Costa & Kahn 2011

The effectiveness of energy conservation “nudges” depends on an individual’s political ideology ... Conservatives who learn that their

consumption is less than their neighbors’ “boomerang” whereas liberals reduce their consumption.






Take baby steps.


Netflix


http://www.timefordvd.com/images/Netflix/Netflix_return_envelope_large.jpg

Tesla

http://www.hdwallpapersinn.com/wp-content/uploads/2012/12/600-tesla.jpgThursday, August 14, 14

http://www.hdwallpapersinn.com/wp-content/uploads/2012/12/600-tesla.jpg

http://www.hdwallpapersinn.com/wp-content/uploads/2012/12/600-tesla.jpg

Twitter’s 140-character limit isn’t arbitrary. It’s

constrained by the size

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






Innovation portfolios at big companiesCore Adjacent Transformative

70% 20% 10%

Inve

stm

ent

70%20%10%Retu

rn


“The most important figures that one needs for management are unknown or unknowable, but successful management must nevertheless take account of them.”

Lloyd S. NelsonThursday, August 14, 14

Pic by Twodolla on Flickr. http://www.flickr.com/photos/twodolla/3168857844Thursday, August 14, 14

http://www.flickr.com/photos/twodolla/3168857844

http://www.flickr.com/photos/twodolla/3168857844

ARCHIMEDES HAD TAKEN

BATHS BEFORE.


Once, a leader convinced othersin the absence of data.


Now, a leader knowswhat questions to ask.


solveforinteresting.com/@acrolltiltthewindmill.com/@tiltmillstrataconf.com/@strataconf

Thanks!


http://www.tiltthewindmill.com

http://www.tiltthewindmill.com

startup series: lean analytics, innovation, and tilting at windmills

Data & Analytics

amazon web

business model

innovators

clay christensen

transformative

evidence

cost

lean