Points of View - Inner
Leveraging Disruptive Thinking from Startups
What is it about startups that make their way of doing business disruptive? They often do not have a fully developed business model, can lack a recognized brand and are limited in access to financing. However, successful startups seek out creative ways to survive and become adept at challenging the norm to run efficiently. Established companies can leverage this disruptive thinking to enhance their existing business models.
In our previous point of view, Emerging Companies Points of Inflection, we define seven company stages of growth and corresponding operational objectives: Ideation, Funding, Start-up, Product Development, Go-to-Market, Scale and Established. In the startup through go-to-market stages, companies have low cost infrastructure needs, are establishing the business and revenue plan, and are seeking to make products that customers will buy. Even as companies become established, achieving operational excellence is a priority
While established companies are often less nimble than startups, they can still apply lessons learned from startups to keep their organizations ahead of competitors. This point of view presents four ideas from successful startups that all companies can leverage: Bootstrapping, Iteration, Benchmarking, and Business Model Flexibility.
Bootstrapping – Stretching and Optimizing Resources
Companies in the startup stage are skilled at bootstrapping to stretch resources. Typically, startups operate with limited budgets and become adept at analyzing expenditures in order to prioritize spending. While external funding, such as venture capital, may be attainable, the investment is usually contingent upon growth-based milestones and is typically distributed to the startup over a set period of time.
Bootstrapping – doing more with less – should not be limited to startups. Any project team with a large contingency budget should continuously challenge its members to explore ways to reduce costs and work more efficiently. A bootstrap mindset, where the primary lever is value creation, will focus efforts to be independently successful with creative efficiency. Large projects may have a payback period many years out. When evaluating projects for efficiencies, ask your team what they would do to help the project today.
In addition to introducing our framework for stretching and optimizing resources, the Creative Efficiencies Methodology, an example project will be described that implemented this approach successfully.
Creative Efficiencies Methodology
Our Creative Efficiencies Methodology has five phases: Research/Analyze, Design, Choose, Implement, and Learn. Figure 1 outlines the framework for the Creative Efficiencies Methodology.
Creative Efficiencies Approach in Action
Global Sportswear Manufacturer and Retailer– A global company has recently decided to implement SAP functionality that will replace their current tools used for supply and demand planning. The project team consisted of a project manager, various work stream leads, and representatives from the IT and business departments. The anticipated scope of this release was to have a completed and functional tool within 16 months at a price of $83 million. Design changes slowly started chipping away at the budget. The project manager applied this methodology to challenge the team to reduce costs and crowd sourced ideas on how to run the project more efficiently. Using this approach, the team developed ways to run a leaner project by leveraging underutilized dedicated resources and eliminating administrative tasks without deteriorating quality. This resulted in a 10% cost reduction for the project.
The Research and Analyze phase focuses on validated ideation. In this phase, encourage team members to walk through all aspects of a process to search out inefficiencies. Conduct interviews with team members to gain insights and review each activity to determine its value. For example, you may ask, “can this step be eliminated without impacting quality?” This phase uses systematic analysis to explore ideas using value analysis and reviewing forecasts versus trends.
In the Design phase, the goal is to plan how to execute each opportunity. It is important to get alignment from all stakeholders and define a communications strategy for rollout. Incorporate feedback you may have from stakeholders and focus on changing activities that are “nice to haves.” Before choosing which ideas to move forward with, review each opportunity’s impact on future activities like growth to ensure you are not eliminating something that may result in a deterioration of value. Select the powerful ideas that have an attractive value profile and are aligned with the organization’s strategy.
The Implement phase focuses on the rollout of the selected opportunity. Direct the progress of activities to ensure the implementation is tracking per plan and raise any risks as implementation progresses. Finally, assess the solution to validate whether the opportunity resulted in the desired outcome.
After implementation, it is important to document and review lessons learned. Gather the team to discuss successes and weaknesses of the bootstrapping approach and solution, to reinforce value realized or the need to pivot. Finally, establish a cadence for continuous review to add structure to the methodology and continue to challenge the team to hunt for improvement opportunities.
Figure 1: Creative Efficiencies Framework.
Iteration – Build, Measure, Learn
Startups often use an iterative model of learning to validate objectives, progress, and vision amid uncertainty and fuzzy requirements. Successful startups focus on building a business that will endure by creating something the customer wants and will pay for. The customer feedback loop, as outlined in Figure 2, is a fundamental activity that helps startups learn, check and adjust. Feedback can be measured in many different ways, including focus groups, surveys, customer journey maps, and experiments. The feedback loop results in a continual iterative improvement process.
An important takeaway from how startups leverage continuous learning and improvement is the speed of information. It is important to move through the feedback loop as quickly as possible to avoid paralysis by analysis. A team could easily get stuck in the phase of designing the perfect hypothesis or gathering customer responses. As with any process, it is important to execute, learn the “why”, and adjust based on these learnings.
The Build, Measure, Learn methodology can be applied to any corporate initiative or project, e.g. product development, internal improvement or marketing launch. Similar disruptive processes are used as best practices in project management already. Continuous improvement or plan-do-check-act is the basis for quality improvement as defined by Edward Deming and Walter Shewart. Even if your organization has a well-developed product, this approach can be beneficial to capture ever-changing preferences in the internal or external customer base.
The Build, Measure, Learn Approach in Action – Leveraging the Customer Feedback Loop
A startup technology company recently released a new product and was looking to solve key strategic questions regarding the release, such as how are customers interacting with the application? The organization validated its product by testing the existing customer experience hypotheses. A customer journey map provided insight on the actions, thoughts, and feelings of a customer through six stages in application discovery and exploration: past experience, awareness, engagement, purchase, anticipation, and reflection. The results validated the company’s hypothesis and revealed areas to enhance the user interface and workflow.
Customer satisfaction requires ongoing understanding and evaluation of requirements to improve efficiency, effectiveness and flexibility to meet customer expectations2. For example, one hypothesis to test is: “the product satisfies the real customer needs,” which is similar to the validated learning method that our startup example used.
Figure 2: Customer Feedback Loop
Benchmarking and Finding Comparables
What are my peers doing and how are they measuring progress?
The goal of benchmarking is to identify successful strategies used by other companies of comparable size, type, or regional location. Benchmarking with comparables is an art, not a science. Each company or project is different and there is rarely one comparable that is perfect. Startups routinely use comparables, from determining pre-IPO valuations to how quickly they should be acquiring customers compared to similar companies in the space. The results of a comparables analysis are meaningful if the metrics and set of comparables are carefully selected, even when a new company is a pioneer in its industry.
Comparables analysis can be valuable for a company or project of any size. An important takeaway from the startup world is that you need to find a comparable that makes sense for your product or your company’s growth stage. Moreover, seeking out a varied set of comparables provides invaluable insight into how effectively your organization is performing compared to other industries. Before a benchmark is selected, leadership should ensure alignment by providing supporting justification with the “why”. Benchmarking is a rigorous process that is not static and should be constantly revisited as the product or company changes and matures.
Possible Components: The following components are samples of the measures to be considered/reflected.
- Employee utilization
- Customer acquisition costs
- Customer churn
- Transaction Costs or costs per order
- Systems development activities (backlogs, maintenance, project management)
- Customer satisfaction
- Skills management
Ways to Analyze: Several different approaches may be needed depending on the information available and the “appetite” of the team to perform comprehensive analyses. Possible sources of information include:
- Annual reports such as the Form 10-K for public companies as required by the SEC
- Research tools such as Capital IQ
- Data collection companies such as Nielsen
- Customer feedback from focus groups or surveys
- Marketing representatives
The Benchmarking Approach in Action
An early stage technology company had received three rounds of venture capital funding. The company was constantly under pressure to measure itself against comparable companies that were both in the pre- and post-IPO stages. Comparable customer acquisition costs and other metrics were critical to the board to prove how effectively growth milestones were being reached. Developing a vetted set of comparables became a priority for identifying and tracking how well the organization was doing relative to incumbents in the marketplace. As a startup, it did not have comparables within the same industry profile and it looked outside of its industry to find appropriate ones.
A large healthcare organization was initiating a strategic project to improve a hospital system’s supply chain. The project team looked both internally and externally for comparable benchmarks, including variation in supply utilization. They asked not only how is each hospital/department doing compared to each other, but also how are similar hospitals doing.
Flexible Business Model
In general, startups have greater flexibility in their business models. As startup organizations navigate their way through venture capital advisors, customer preferences, user experiences, and competitors in the industry, they are constantly changing their focus to capitalize on their strengths and maximize market penetration and product effectiveness. When faced with a challenge, or discovering that one approach does not work, startups can make changes and adjustments to fix their issues quickly. This type of flexibility can be more challenging at established companies. However, leveraging the flexible mindset, large companies can make changes that will benefit their business.
Figure 3 demonstrates that business model flexibility relies on four key aspects: Responsiveness, Differentiation, Efficiency, and Impact.
Figure 3: Aspects of Business Model Flexibility
Responsiveness – Anticipating and responding to customer needs as well as market and industry changes. Companies cannot operate on cruise control; industry competition is too fierce and the market is too fast-paced.
Differentiation – Converting customer needs into products and services that the customer wants and competitors imitate. When the market is flooded with similar offerings, consider how your organization can distinguish itself – where is the value add for your customer?
Efficiency – Lean processes and operations for producing products and services at a low cost to ensure profit and support growth. Companies are always seeking more streamlined operations; flexibility in the business model can reveal efficiencies.
Impact – Determining the magnitude of desired change in products, services and operations. Changing business models can require a large commitment from an organization. It is important to assess the amount of change your organization can handle; even small changes can yield large benefits.
Business Model Flexibility in Action
YouTube – After 10 years in business, YouTube announced that it is changing its advertising business model to allow users to pay a monthly fee in exchange for ad-free viewing. Faced with evidence of the success of other subscription entertainment models, such as Hulu Plus, Pandora Radio, Netflix, and Spotify, YouTube saw an opportunity to change its business. While YouTube ads generate billions of dollars each year, there is increasing proof that customers are willing to pay for an ad-free experience. By creating a new paid offering, YouTube will generate a new source of revenue and keep its business in tune with customer preferences.
A cloud-based enterprise suite for the insurance industry had significantly increased its customer base over the last few years. The company realized that a significant portion of its software developers’ time was spent updating and maintaining existing customer systems. Developers were unable to accept new projects due to this workload. The company shifted its product maintenance business model from in-house to customer-led. The leadership team developed a training program for customers to become certified in operating and updating the software. Even though its previous business model was well established, the company realized it could take on more customer projects if its engineers spent less time in product maintenance and it trained its customers to do basic updates.
These approaches enable an organization to facilitate change by disrupting normal processes from a variety of perspectives. Through the above examples, we have explored how startups and mature organizations may share the essence of some best practices, including continuous improvements and benchmarking comparables. There are lessons learned from a small, nimble company that can be applied to large, complex organization, including the importance of speed in the feedback loop and when to seek out comparables outside of your industry profile. In time, all companies will face disruptive innovations and startups that enter the marketplace and challenge business models. Shifting the business model in an established organization takes commitment, but results will justify the effort. Application of these methodologies is within reach of any project or organization willing to commit to change.
About the Authors
Krista Manka is a Management Consultant at Kenny & Company and has more than six years of experience in consulting, software and startups. Krista has led teams to optimize business processes, mitigate risks, forecast and reduce costs, and manage stakeholder communications. Krista holds a BS in Commerce from the McIntire School of Commerce at the University of Virginia and an MBA from the Darden School of Business at the University of Virginia. Krista can be reached at www.michaelskenny.com.
Erin Palermo is a Management Consultant at Kenny & Company and has over six years consulting experience. Erin has led projects relating to process improvement and optimization, business strategy, and training program development and implementation. Erin holds a Bachelor of Science in Industrial Engineering and Operations Research from the University of California, Berkeley. Erin can be reached at www.michaelskenny.com.
About Kenny & Company
Kenny & Company is a management consulting firm offering Strategy, Operations and Technology services to our clients.
We exist because we love to do the work. After management consulting for 20+ years at some of the largest consulting companies globally, our partners realized that when it comes to consulting, bigger doesn’t always mean better. Instead, we’ve created a place where our ideas and opinions are grounded in experience, analysis and facts, leading to real problem solving and real solutions – a truly collaborative experience with our clients making their business our business.
We focus on getting the work done and prefer to let our work speak for itself. When we do speak, we don’t talk about ourselves, but rather about what we do for our clients. We’re proud of the strong character our entire team brings, the high intensity in which we thrive, and above all, doing great work.
- Project Management for Supply Chain Planning. Kenny & Company. http://michaelskenny.com/case-studies/project-management-supply-chain-planning/
- A Guide to the Project Management Body of Knowledge (PMBOK Guide), Fifth Edition. 5th ed. Newtown Square, Pa.: Project Management Institute, 2013.
- Startup Strategy Challenge. Kenny & Company. http://michaelskenny.com/case-studies/startup-strategy-challenge/.
- Koch, James. “Benchmarking.” Encyclopedia of Business, 2nd ed. 28 April 2015.
- Start-up Strategic Review and Funding Approach. Kenny & Company. http://michaelskenny.com/case-studies/start-up-strategic-review-and-funding-approach/.
- Outpatient Specialty Clinic Operational Analysis. Kenny & Company. http://michaelskenny.com/case-studies/outpatientclinicalops/.
- “IBM Study Finds Business Model Flexibility Is the Key to Success in the Automotive Industry.” IBM. 13 July 2006. Web. 10 April 2015.
- Associated Press. “YouTube to give viewers option of watching ad-free for a monthly fee.” US News and World Report. 8 April 2015.
- Training Solution for an Enterprise Software Company. Kenny & Company. http://michaelskenny.com/case-studies/trainingsolution/.
- Agarwal, Anupam, et al. “Cutting Sales Costs Not Revenues.” McKinsey Quarterly. March 2009. Web. 10 April 2015.
- “Bootstrapping”. Entrepreneur. Entrepreneur Media Inc, 2015. Web. 10 April 2015.
- Cheng, Mark. “When Lean Startup Meets Design Thinking.” Virgin. 22 July 2014. Web. 10 April 2015.
This article was first published on www.michaelskenny.com on March 10, 2015. The views and opinions expressed in this article are provided by Kenny & Company to provide general business information on a particular topic and do not constitute professional advice with respect to your business.