Invited to write the prologue of a book, Steve Blank, father of the Lean Startup, reflects on the need to disrupt established companies
Do you think startups are difficult? Try innovating within a large company where 99% of the company is executing the current business model, while you try to figure out and build what comes next.
Charles O'Reilly and Michael Tushman coined the term “ambidextrous organization” to describe how some companies achieve this process of simultaneous execution and innovation. Your book Lead and Disrupt Describe how others can learn to do it.
I had the honor of writing the prologue to its second edition. Here it is in its entirety.
What you have in your hands is a revolutionary document. It answers the questions of why some companies make a bright arc like a shooting star and then fade away while others continue to thrive. Why are some companies able to reinvent themselves while others, which were market leaders, are destroyed?
Are some CEOs better than others? Are your people smarter? Do they have better sales, marketing or product development groups?
The short answer is no. Winners begin by realizing that, in a world of continued disruption, they have only a few years to develop new capabilities or be pushed to the brink. And they also recognize that simply exploiting their existing assets, capabilities and business models is insufficient for long-term survival. So they prepare for future markets by exploring new companies.
This radical idea of companies continuing to execute and exploit their existing business model while at the same time exploring and creating new products, businesses, and business models is what O'Reilly and Tushman call ambidexterity. Although simple at first glance, the concept is revolutionary in its ability to transform a company. This book not only explains “why this happens,” but more importantly, gives you the tools for “what to do about it.”
In the 20th century, finding the successful formula for repeatable startup success was still a black art. The idea of exploitation versus exploration was fundamental in my work building lean methodology for startups.
The key was realizing that startups are not simply smaller versions of large companies, which run/exploit known business models, and whose customers, problems and necessary product features are all “known.” By contrast, startups operate in “search/explore” mode, seeking a repeatable and profitable business model.
Pursuing a business model requires very different rules, roadmaps, skill sets, tools and culture to minimize risk and optimize chances of success.
Recognizing the anomaly was only the first step. There were no standard tools, methods or guides for startups. So we built our tools to enable founders to quickly translate their vision into hypotheses and then into validated facts.
These tools—customer development, agile engineering, and business model design—became lean methodology for startups, a rigorous approach to testing hypotheses and building prototypes and, based on data and evidence, adjusting or pivoting toward a variant of the original hypothesis. Today, Lean is the de facto method for creating new companies.
Fast forward two decades and many companies have adopted these tools and methods to address disruption. However, after seeing how innovators in large companies try to use the lean startup methodology, I am ashamed to say that it has mostly become independent innovation activities (corporate incubators, accelerators, etc.) that give rise to an “innovation theater”, with nice coffee mugs and posters, but with little impact on the results.
In this book, O'Reilly and Tushman succinctly explain why these tools succeed in startups but fail in large companies. Most of the R&D budgets of established companies go to maintaining the innovations that support existing products and operating divisions, as well as the processes and procedures, rigorous measurements and controls that accompany them. These formalized structures, necessary to manage execution/exploitation, actually strangle disruptive innovation before it can begin.
Companies built around exploitation emphasize efficiency, productivity, and reducing variance, while exploration requires seeking, discovering, and accepting risk and failure. To achieve both at the same time – to be an ambidextrous company – you not only need different organizations for each function, but also different business models, competencies, systems, processes, incentives and cultures. In short, it requires a different way of not only managing a company, but also organizing it.
This is a really important idea.
To truly succeed at ambidexterity, companies must master the new skills of ideation, incubation, and scaling. Companies first generate new ideas through ideation: the last twenty years have seen an explosion of corporate venture capital, open innovation, and employee engagement through hackathons and incubators.
A smaller number of companies have become experts at the next step – incubation -, rigorously testing new business concepts, using the lean start-up methods of Customer Development, Agile Engineering and Business Model design. However, relatively few have successfully scaled internal startups to allow them to stay ahead of disruption.
It is this discipline of scaling, of actually building substantial and profitable new businesses, that is critical to the success of highly innovative startups. Only when companies can scale do they truly win. Magnification is the key to ambidexterity.
Recognizing the need for ambidexterity and building an ambidextrous organization are tests of business leadership.
In the end, exploitation pays your salary while exploration pays your pension. Companies that survive do both.
This book will do for companies what Lean methodology did for start-ups: give their leaders the essential playbook to transform their organizations to meet the future.
