In various presentations, papers and books on innovation, entrepreneurship or leadership I have come across an organisational pattern I like to call “Startup then Core”. It is a pattern based on the idea that a new dawning business needs a special kind of leadership and special people, skilled and prepared to innovate in an uncertain world. Those in favour of this pattern also suggests that a mature business with “Execution” as its main mission needs leadership and people aimed to dwell in a more repeatable and secure world.
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A Start-up can appear in many forms. Any form between completely outsourced to an external party to just a few internal persons allowed to put time on future ideas. Sometimes the future work is very systematic with clear objectives, sometimes it is just random exploration. Anyhow, in all cases management have decided to do something about the future and reserve the resources they currently can afford.
Why splitting organisations?
What are the more detailed arguments for splitting an organisations according to the "Startup then Core pattern"? First there seems to be a common belief that mindsets and techniques are completely different when it comes giving birth to a future business. A Startup needs to work with assumptions, hypothesis, experiments and quick turnarounds that does not have any room for the proper business plans needed in a Core Business.
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I have heard many more arguments in favour of the "Start-up then Core pattern" and on the surface it sounds like great approach. When there is a fairly simple model with apparently working tools and famous success stories. Why should it not be the way to go when dealing with the unknown future?
The challenge
The question is what to do with future ideas in the long run? When the "Start-up then Core” pattern is practised the ultimate challenge is always how to scale the ideas.
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These and many more difficult questions arise and management will need to handle them in a unique context, because success of Startups are diverse and rare. These ample difficulties are well known and it is not a surprise that most Startups will not fly. Forbes is one of many sources writing about the fact that 90% of Startups fail and the authors behind Blue Ocean Strategy claim that 90% of all businesses fail within ten years.
Another well known fact is that many prosperous businesses will not keep on flying. A widely used measure is the list of the Fortune 500 companies. A number of articles point out that just 12% of the Fortune 500 companies included in 1955 were still on the list in 2017. Mark J. Perry, who is Professor of economics and finance, calls this phenomenon “creative destruction”. And all signs show it will get worse. In a report in 2016 Innosight writes that half of the S&P 500 companies are expected to be replaced over the next 10 years.
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The friction between new and old
In theory it is very logical that any business should want to take care of both the current, the next and the future business, commonly called the three horizons as it is coined in the book The Alchemy of Growth. I would like to believe that every business leader have the long term sustainable growth as their main mission and in many cases it is what they express. But in practice, I have seen that it so emotionally difficult to, just slightly, give the current business a lower priority. The current business is where the customers are complainng, where the money is coming in and where the employees have their loyalty. As if this was not enough, the current business is also where managers get most of their credit and create opportunities to jump to new positions with even higher pay.
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Let's agree, to prioritise the future over the current business is a delicate challenge. It requires extraordínary leadership to mitigate the friction between new and old. The leadership includes being brave and lean on figures that cannot be proven.
What are the thought leaders saying
Much of the business literature describes how to do innovation and delivers many examples of successful serial entrepreneurs. But hardly any literature gives practical advice about how to continuously develop a business by transforming it into the future over time. Some books like Good to Great, written by Jim Collins, does take a long term perspective but it is mostly about high level principles rather than organisational patterns.
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Given the fact that disruptive businesses come with a steady and increasing flow the most important skill for leaders everywhere must to shape the future. I'm surprised so many leaders of thought and practice promote the "Start-up the Core" pattern. Is it wise and far to just let either a new or an established part of a business die?
A sustainable alternative
Then what is the alternative for executives who feel frustrated over the ability to stay in shape for the future market and want to have at least the same development pace as the competitors. I argue that the "Start-up Then Core" pattern is far too risky. It has worked for some and will work again, but without plenty of luck and an overloaded wallet there are more reliable and deliberate paths. The organisational pattern I promote I like to call "Core and Start-up". The name looks very similar, but the "And" changes everything. "And" is all about integrating new businesses with the current business from start and let the two evolve together step by step. This is a pattern that is "easier to sustain over time" and it is less risky.
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Modern Product Development
What many start-up fans seem to have missed is that modern Product Development, for an established business, has been tailored to handle all sorts of uncertainty. In fact much of the same uncertainty a start-up is facing. There are well proven frameworks and techniques that supports simultaneous development of the current business as well as any future business. It is true, many organisations are still working too bureaucratic and without acceptance of uncertainty. However the absolute majority is trying to adopt new and modern ways of working. The same goes for Operations which I think is more mature than Product Development in general. Continuous improvements, automation and empowering of people have been around for ages. The target is ever increasing volumes, productivity and the superior quality.
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It takes time to develop a pd process. Systems thiking. Invest a smoth process running without firefighting
Many organisations like harley davidson and scania have followed toyota. Investing in a product development flow, getting rid of firefighting and releasing innovation.
The feedback loops
What is the trick with the "Core and Start-up pattern"? How is it possible to make it a long lasting process that successfully will deliver?
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