Tim Kastelle

Tag: Customer

  • To Get Big, Start Really Small

    To Get Big, Start Really Small

    When you’re starting out with something new, it’s important to understand that your customer is never “everyone.” Even if your eventual potential market is huge, you need to start out by dominating a small niche.

    Google didn’t start out by organising the world’s information.  Google started out as a way to make searching the Stanford Library easier as part of the Stanford Digital Library Project.

    Facebook didn’t start out aiming to connect everyone in the world with cat pictures and artificially manufactured political outrage.  It started out as a way for Harvard students to hook up.

    I ran into more examples today in Carlota Perez’s brilliant book Technological Revolutions and Financial Capital. Perez outlines the dynamics of technological and economic change across five revolutions, and she talks about how new technologies start out by fitting into small parts of the existing economy:

    …they grow restricted to whatever uses fit well in the existing fabric of the economy before their most important uses are even surmised. Railways were first developed to help get coal out of mines; their real significance as the main means of transport of people and goods was difficult to even imagine in a world of canals, turnpikes and horses. Oil refining and the internal combustion engine developed within the steam-engine world of the third revolution, being used mainly for luxury automobiles. Semiconductors, in the form of transistors, served to stretch the market for radios and other basic appliances of the mass-production paradigm by making the portable, before anyone could possibly conceive of a micro-computer.

    We’re currently running a small Lean LaunchPad course at University of Queensland, and listening to the updates on Friday got me thinking about this all over again – all the teams were aiming too broadly.

    This reflects several important issues.  The first is that they are all working on big problems, with big potential impact – so it is natural to aim for the biggest possible market right from the start. Unfortunately, this approach fails.  We need to work on big ideas, with big potential impact, but we have to start out in the smallest possible application.

    The reason for this is that we don’t know in advance how to make genuinely new ideas work.  This is one of the reasons that the flat part of the innovation diffusion curve is flat – it takes time to work out the best value from a new idea, and the best business model to use to realise that value.

    Making a new idea work requires three distinct sets of skills.  First, you need to have the skills of creativity and invention to get the new idea to work in the first place during the invention phase.  Then, you need to use your customer development and problem-solving skills to create a market with the early adopters.  Finally, you need different skills again to make the transition to a business model that will scale with mainstream customers. This is the problem that Geoffrey Moore called Crossing the Chasm – illustrated nicely in this post by Peter Armstrong:

    The three sets of skills don’t always live within one organisation.  In fact, they rarely do.  This is why we often see different companies dominate at different points in the industry lifecycle.  The automobile was first invented by many different people, none of whom are remembered today. Then, as Perez points out, the early adopters were wealthy people, and the first company to figure out how to successfully serve that market was Duryea Motor Wagon Company in the early 1890s.  Fifteen years later, Henry Ford figured out how to make cheap cars that the majority of people could afford.

    We’re seeing the same thing right now with autonomous vehicles.  Someone (who?) invented the idea, and Google (or Uber, or someone else) will end up taking them into the majority.  But they’re already in use right now in mines.  This is where the need is currently most acute, and this is where the technology is being refined.

    Eventually, all new buildings will be constructed using Building Information Modelling (BIM) and the offsite manufacturing of modular components.  But right now, those technologies are only being used in the most challenging settings for construction, like the Leadenhall Building in London.

    Autonomous vehicles and BIM will eventually both be huge.  But today, they are really small – and that’s the only way to eventually win.

  • Having a “Risk Averse Culture” Increases Your Risk

    Having a “Risk Averse Culture” Increases Your Risk

    The Worst Excuse for Avoiding Innovation

    The most common objection I get from when we talk about the necessity of innovation is: “But I can’t innovate, we have a risk-averse culture.”

    I can’t tell you how sick of hearing this I am – it’s a terrible excuse for not trying out new ideas.

    I’m currently running a Lean LaunchPad course with six teams of researchers who are trying to build effective business models to support their scientific work.  During the last set of team presentations, one of the groups got up and said:

    We did some interviews, and everything we thought about our primary market was wrong.

    Think about the risks involved here.  First off, these are scientists, not marketers – so going out and talking to people is a leap.  Second, by working on their business model now, they are taking time away from their work in the lab.  Third, they risk status by getting up in front of their peers and admitting they don’t know what’s going on in the market.

    If you’re risk-averse, you could avoid all of those risks by not doing the program.

    But what is the point of Lean LaunchPad? It is to reduce the overall risk of failure when you send your great new idea out into the world.

    The biggest risk that these scientists face is that their research won’t get results.  The second biggest risk is that they get the results that they want, but they fail to get their ideas to spread so they don’t have the impact on the world that they are hoping for.  Both of those outcomes are lousy, and the risk of both is significant.

    By doing the Lean LaunchPad program, the reduce both of those risks.  They are doing very applied research, so getting feedback from industry makes it more likely that they will get good, usable results.  Furthermore, getting this feedback also makes it more likely that they can turn their good scientific results into commercially successful products that change the world.

    As Ian Frazer often says – there’s no point curing mice. If you’re doing important research, making it real and changing the world have to be your goals. Accepting the short-term risks of making yourself uncomfortable by talking to people in the market, investing time in the business side of your research not just the science, and being embarrassed in front of your peers is absolutely worthwhile if doing so reduces the risks of the larger failures.

    The Default Case is Not “Everything Stays the Same”

    This is the way innovation works – you test out new ideas, and doing so reduces uncertainty.  Testing new ideas is the primary driver of learning.

    You can afford to ignore this source of learning, if your business environment is completely stable.  But for most of us, that isn’t the case.  Consequently, we must innovate, we must try out new ideas in order to address the uncertainty that an unstable environment causes.

    Clayton Christensen, Stephen Kaufman and Willy Shih look at this issue in their article Innovation Killers (link to pdf). They illustrate it with this great diagram:

    When we assess the potential risk of innovating, it is normal to assume that things will continue as they currently are. In a stable environment, it might be safe to assume that taking the ‘do nothing’ option will result in stable returns.  In a dynamic environment, avoiding small-scale short-term risk actually increases your long-term risk.

    Imagine what would have happened if the scientists hadn’t learned that every one of their assumptions about the market was wrong – they would have invested more and more into building the wrong product on top of their research.  If they had avoided the short-term risk of doing the program, they would have dramatically increased the long-term risk of not realising the full impact from their research.

    Learning Reduces Risk

    Finding out that one of your assumptions is wrong early is one of the best possible outcomes you can have. It shows your learning, and that increases your chances of success.  Here are some thoughts from Peter Drucker in his classic book Innovation and Entrepreneurship:

    Entrepreneurship, it is commonly believed, is enormously risky. And indeed, in such highly visible areas of innovation as high tech – microcomputers, for instance, or biogenetics – the casualty rate is high and the chances of success or even of survival seem to be quite low.

    But why should this be so? Entrepreneurs, by definition, shift resources from areas of low productivity and yield to areas of higher productivity and yield. Of course, there is a risk they may not succeed. But if they are even moderately successful, the returns should be more than adequate to offset whatever risk there might be. One should thus expect entrepreneurship to be considerably less risky than optimization. Indeed, nothing could be as risky as optimizing resources in areas where the proper and profitable course is innovation, that is, where the opportunities for innovation already exist. Theoretically, entrepreneurship should be the least risky rather than the most risky course. (emphasis added)

    Why should this be so? Because entrepreneurship and innovation reduce uncertainty, and doing this reduces your overall risk.

    Personally, I’m averse to going completely out of business.  That’s why I try as many small-scale experiments as I possibly can.  In the short-term, it looks as though I’m increasing my risk, but in doing so, I improve my long-term prospects.

    If we say you can’t innovate because our culture is risk-averse, we’re thinking about risk in a completely wrong way.  And that’s awfully risky.

  • Reading This Post Will Change Your Brain!

    Reading This Post Will Change Your Brain!

    Reading this post will change your brain

    I’m not sure if the change will be good or bad, but reading this will change your brain. I’m sure you’ve heard the arguments about the internet – google is making us stupid, and even more alarming – using the internet changes your brain!  That must be bad, right? Well, not necessarily.  The problem with this argument is that everything you do changes your brain.

    Using google changes your brain, eating a donut changes your brain, and yes, reading this post changes your brain. The correct question to ask isn’t “does doing X change my brain?”  but rather “what activities do the changes enable?” Nicholas Carr wrote the original article Is Google Making Us Stupid, and he understands this distinction.  His argument is that the rewiring in our brains caused by internet usage makes it harder for us to concentrate for extended periods, and that we are losing the ability to focus and follow complex arguments. Ironically, his argument is sophisticated enough that a lot of people seem to misconstrue it.

    My actual personal brain!
    My actual personal brain!

    Interactions change us

    So yes, using the internet does change our brain.  It makes it easier for us to do some things, and harder to do others. Personally, I’m not convinced by the evidence people have suggesting that internet use decreases our powers of concentration.  And as for google, well, we’ve been outsourcing complexity to various tools for centuries – I’m not sure how this is all that different.

    It was Plato that argued that writing things down was causing a horrible deterioration in our ability to remember things.

    That might be true, but it also means that the part of our brains that devoted to remembering stuff could now work on other activities – and some of those have turned out to be pretty useful.

    Who do you want your customer to become?

    The idea that interactions change us is the central issue driving Who Do You Want Your Customer to Become? by Michael Schrage.  Seth Godin outlines the implications of this question in his new book The Icarus Deception:

    Everyone you interact with is changed forever. The only questions are: How will they be different? and How different will they be? Author Michael Schrage wants you to ask, “Who do you want your customers to become?” At first this seems like a ridiculous question. Your customers are your customers. Your coworkers are your coworkers. This isn’t true.

    Connection creates change. Unless you are selling a standard commodity, the interactions you have with the market change the market. Zappos turned its customers into people who demand a higher level of service to be satisfied. Amazon turned its customers into people who are restless with online stores that don’t work quite as well or quite as quickly. Henry Ford turned his customers from walkers into drivers.

    When you disappoint someone (or exceed their expectations), that interaction is going to color all the interactions that person has tomorrow and next year. Apple is talked about more than any other company for one simple reason: They have huge aspirations for who they want their customers to become, and they deliver on them.

    … Answering Schrage’s question honestly gives you a chance to describe the change you want to see in the world. Not at the Henry Ford industrial-scale level, of course. No, but even if you connect with six people, you are changing them.

    Changing them how? Whom do you want them to become? I’d like you to become an artist. To make connections that matter. That’s my mission.

    By writing, Godin wants his readers to become artists.  And Schrage himself wants to change how we innovate:

    Significantly, they should become managers and leaders who are justifiably more confident that they are asking the right questions when they look to innovate and create new value in new ways. They should have the courage to take smarter risks and the ability to learn faster because they know they’re committed to treating their customers with empathy and respect. Most importantly, they should become more successful. Why? Because successful innovators know how to ask the right questions and create the most value for themselves and their customers. The Ask of this book is that you become an innovator who gets the best possible return on the innovation investments you make in your customers.

    Who will we become?

    I think that both Schrage and Godin miss an important point though.  Yes, when we send our ideas out into the world, they change the people with whom they interact.

    But sending these ideas out, and seeing how they interact with people changes us as well.

    Asking who you want your customers to become is a great way to clarify your value proposition.  Changing your answer can help you innovate your business model. I think it’s a transformative question, and Schrage’s book is definitely worth reading.

    But we need to pair this with another question – who do we want to be?  If we make our customers stupider, it makes us shallower.  If we make our customers more transactional, we’ll often end up greedier.

    Here’s the change that I’d like to see from our interactions over ideas: that together we figure out how to make work work better.

    For too many people, work is lousy.  Most organisations are mediocre, at best (maybe even 90% of them!)  We need to innovate how we manage, how we deal with our people, and how we deal with customers.

    If my writing this and your reading this helps us take even a small step in that direction, I’d be very happy.

    Reading this post will change your brain. Now let’s change our behaviour.

     

    Enhanced by Zemanta
  • Here’s Why Many Innovation Initiatives Fail

    Here’s Why Many Innovation Initiatives Fail

    Wouldn’t it be great if you could do customer service like Zappos?  Or design like Apple? Or innovation like 3M?

    Who wouldn’t want to be like those firms?

    Well, it’s not so simple.

    Barry Dalton wrote an excellent post called You Can’t Be Zappos (and why would you want to be?) addressing exactly this issue.  His main point is that the entire Zappos business model is built around delivering awesome customer service – and that unless you build your entire business model around this as well, you won’t have Zappos-level service.  And furthermore, Dalton argues that you shouldn’t want to do so – the says:

    So, instead of trying to be like Zappos, how about try this first. Stop. Stop and think about your customers. What problems do they have with your business model? What customer issues are you trying to solve? Then, build a customer experience strategy that addresses that.

    He’s exactly right.

    Zappos is Zappos because they’re built to deliver awesome customer service.  You can’t just bolt Zappos-style customer service onto an existing business model.  To deliver it, your hiring needs to be organised around service, so do your partnerships, your value proposition, your revenue model, and (very importantly!) your cost structure.

    Same deal with delivering design like Apple or innovation like 3M.

    This is why many innovation initiatives fail – they are just bolted onto an existing business model that isn’t built for and can’t accommodate them.

     

    You can’t just tack on 20% time and get the same results with it that 3M and Google do – you need all the supporting systems in place too.  You can’t look at Procter & Gamble’s Connect and Develop and just replicate that – it took P&G about 6 years to get the system in place and operating the way that they wanted it to.

    You can’t add “Innovation” to your company values and then tell the middle managers to go figure out how to do it.

    It’s relatively easy to add any of the innovation tools that you see elsewhere – but making them work is another matter entirely.  Making an innovation initiative work requires a change in behaviour.  This is what makes business model innovation such an effective tool – it’s really hard to duplicate!

    Most of our innovation initiatives fail because organisations add in the tools, but they don’t change the behaviour.  We fail to empower the people that have to make the new ideas work.  We don’t build a culture of experimentation.  We forget to build learning into our build-launch loops, so it’s not an iterative process.

    We fail to really commit to making our organisations more innovative by failing to change the way we manage.

    If you want to buck this trend, and make your innovation initiative successful, you could do a lot worse than following Dalton’s advice.

    Find a genuine problem, then build a business model around solving it.  If you integrate innovation into this, then your odds of success just went up.

    (image from There I Fixed It)

    Related articles
    Enhanced by Zemanta