In various presentations, papers and books on innovation or leadership I have come across an organisational pattern I like to call “Start-up 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.
The new business is many times referred to as a Start-up and the mature is called the Core Business. The Start-up has very little revenue, few customers and is most often not profitable. The Core Business, on the other hand, is expected to make profit, thus striving to increase revenue and their number of customers.
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.
The challenge
But what to do with the future ideas in the long run? When the "Start-up then Core” pattern is practiced the ultimate challenge is always how to scale the ideas.
- Should the Start-up be incorporated into the Core Business or should it stay as a separate entity?
- Should employees be exchanged or should they all or just a few get a proper competence lift?
- Is it possible to outsource any parts of the business?
- How will customers value the trademark when the new business eventually will take over or compete with the old business?
- Does our infrastructure including supply chain, marketing and sales the proper set up for the business?
These and many more difficult questions arise and management will need to handle them in a unique context, because success of Start-ups are diverse and rare. These ample difficulties are well known and it is not a surprise that most Start-ups will not fly. Forbes is one of many sources writing about the fact that 90% of Start-ups fail.
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.
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 advise 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.
Books like The Lean Startup, perhaps the most well known, and The Innovator's Method, which is taking the start-up methodoligy a step further, asume a new and and old businesses need to be run in totaly different styles. I have many lean start-up fans saying "A core business do work in completely different ways with large and long lasting projects".
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 "Startup 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 any top executive who feels frustrated over the ability to stay in shape for the market and 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 a full wallet there are more reliable and deliberate paths. The organisational pattern I promote I like to call "Start-up And Core". The name looks very similar, but the "And" changes everything. "And" is all about integrating any new business 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.
The "Start-up And Core" pattern is based on the two main processes, Development and Operations, continuously going on in all organisations. Development primarily involves Product Development but also changes of Business Model, Processes and Tools, Mergers and Acquisitions and more. Operations is about running all daily business and interactions with customers of the entire value chain including Marketing, Sales, Production, Delivery and Customer service. Operations also includes supporting functions like Finance, Economy, IT-operations and Human Resources.
Modern Product Development has been tailored to handle all sorts of uncertainty. There are well proven frame works and techniques that supports the development of 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 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.
Toyota has had this model for decades even if ... Lean.. Production System ... Product Development System... Product Development flow and Innovations Customer focus
So from where comes the need to split organisations according to the "Start-up then Core"-pattern? Most likely from the belief that mindset and techniques are completely different when it comes giving birth to a future business. Many would argue; "Look, Google has start-up labs which are working separately on new products. That is the way to go!" What these people forget is Google have mindset of creating new business also it their core. They foster all employees to be innovative and seek the future. This is not the case in most organisations, regardless of industry management has put current customers and cash flow first.
The second best argument for putting the new business under a separate umbrella is control and security. "We must ensure the current business without disturbance. The Start-up has a small fixed budget we could afford to loose. If it fails we will just terminate it. The rest of us will continue normal operations and make sure cash is coming in". Does it sound familiar? When I here managers speaking this language I do understand why an organisations have a hard time being innovative.
I have heard many more arguments in favour of the "Start-up then Core"-pattern and of course it is not easy to prioritize the unknown future. When it happens, initiatives for the future come as scattered sheds not seldom shortly after a new CEO has taken up the position. So what is the trick with the "Start-up and Core"-pattern? How is it possible to make it a long lasting process that successfully will deliver?
First of all short feedback loops and swift change is needed both for the current business and any new business. Top management need to establish behavior and culture supporting short feedback loops and the ability to do swift changes. Failing to do so will ultimately risk the the survival of the organisation. In order to understand what "short" and "swift" are, it is crucial to have metrics in place to guide on the path of improvements.
The feedback should come mainly from Operations to Development. There are other flows of feedback, but Operations acts in the reality and thus gets the real insights of the customers. Since also improvements of the Operations processes are needed
Yes, people and tradition is different. Some people are more keen on changing for the future, others like to improve the current business. But to address this fact by puttinng people in different boxes could be the wrong path. Instead leadership needs to be devided in what, how and process. I have seen many managers sitting on several chairs...
Devops It
Both dev and operations need to improve quckly Never swift and easy to scale up a start-up Establish continuous growth and change instead
I know there are a lot of experts that do not agree. Knowledege on Product Development
My plan is to write a small series of articles regarding the two alternative organisation patterns, "Start-up then Core" or "Start-up and Core". Next topic is innovation.
Emerging ideas..........
Silos..picture of value chains and functional entities
ignite your coworkers passion and energy
Tech driven instead of driven by values and customer need
For a small business without unlimited resources it is more clear how to do it.
The role of suppliers is raises more questions. Are we ready to climb the value pyramid and outsource low end parts to suppliers?
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