Strategyzer Webinar w/ Steve Blank: Startups vs Big Corporations - Who Will Win The Disruption War?

Sam.

All right, let's get started. Welcome everybody to another Strategy as a Strat chat session. Good morning, good afternoon, or good evening wherever you are in the world. Today's topic we're going to focus on startups versus big companies. Who will win the disruption war. As always, I'm your moderator, Kavi Gupta. I manage content and community at Strategizer. Your host today is our ever present and consistent co founder of Strategizer, Alex Osterwalder, also co author of bestselling books Business Model Generation and Value Proposition Design. Our guest today is Steve Blank, collaborator and friend of Strategizer, renowned thinker and professor, of course, as most of the audience has now been already chiming in during the chat about Lean Startup and customer discovery. And of course our good friend Henk, who will be illustrating the conversation today. If at any point you want to share comments or feedback or questions on what you're seeing and hearing in this webinar, as I said, you can put it into the chat box. You can also tweet us rategizer and use the hashtag strachat. I also encourage you to Visit the blog blog.stragizer.com to check out more content and topics and on what we're talking about today, but also other elements of business model generation, value proposition design, as well as the other books that we're working on. I also do want to point out that our next book, the Invincible Company, is in the works. You may have seen it in newsletters, let alone on the blog. Again, it's about how game changers and visionaries continuously reinvent business models. It's the hands on book and it will contain several practical and essential tools, including the Business Portfolio Map, Innovation Metrics, the Culture Map, and a series of illustrated business model mechanics. The book is in the works. It is coming out in 2019. If you've been following along to the blog, you've probably seen some updates. If not, I encourage you to go check it out@blog.stragizer.com to stay updated on what we're doing and what's happening. In the meantime, I'm going to pass the reins over to Hank, our illustrator. In the meantime, Alex, if you can share why today's topic is so important for this webinar session.

Yeah. First, want to welcome. Well, thanks Kevin. I want to welcome Steve Blank to our session today. It's always exciting to have Steve Blank on our little show because Steve has a very long startup career, advises a lot of startups, invest in a lot of startups, but also works, you know, pretty strong on the corporate side. Then you've been talking to a lot of large institutions around the world. So I think this is a really exciting thing. The topic, you know, the war between startups and large corporations around disruption, I think is a pretty timely one in particular. Steve, you've written a couple of things around the topic. I think you have some pretty strong thinking. Who would you say has a head start these days in this corruption war between startups and large corporations?

Well, certainly startups, that's their business 100% of the time.

That's a very quick answer. What do they have that large corporations don't have today that equip them better in this disruption war? Because it's number one, their goal. But what, what gives them kind of the strength to do this compared to large corporations? We could say corporations have money, they have technology, they have patents, but they seem to be pretty weak in this already, let's say decade ongoing battle between the two groups.

Yeah, in fact, it's a great question, Alexander. It's one I've been thinking about and much like you running into in the last couple years, until I realized it's probably worth visualizing three columns. One that says startups, another that says companies, and another a third that says government agencies because they're all different, and then a set of rows about the distinctions between all three. And let's just start with percentage of company focused on innovation. Well, that's kind of fun because in a startup, at least in the first year or two before you find product market fit, it's 100%. In a company, one could argue somewhere between 0 and 10%. The rest of the company is focused on execution, as it should be. Nothing wrong with that. But they have already found product market fit in their dim and passed, and now they're basically harvesting that by building repeatable and scalable processes. And in government agencies, depends on the agency, but almost zero, because again, the agency is kind of bounded by law and most new things are done by, in the United States, contractors. The second row is what can each organization actually do? Want to start up on day one? You could do anything, including some actually start with the premise of let's break the law, because if we succeed, there's a huge market at the other end, meaning billions or hundreds of billions of dollars. And by that I mean Airbnb, Tesla, Uber, Juul. Name the disruptive startup that actually on day one, if you look at it in a corporation, if you would have proposed some of those Ideas. The legal counsel, chief counsel would have been in your CEO's office going, well, let me explain to you the jail time that we're all going to face if we do this. And in a government agency, as I said, you can't do any of that. You're going to only do what the law prescribes that your agency could do. And we could go on and on. But I think the biggest mistake companies make is the whole idea of Lean started when we realized that startups are not smaller versions of large companies. I think innovators inside large companies need to understand is that your company is not a larger version of a startup. It's bound by different constraints than early stage ventures. And I'll give you the by the way, one more, Alexander. The last one is that in the 20th century, startups were bound by capital. They had maybe a couple million dollars. A well funded startup might have $20 million. Today. Some startups have more capital in large rounds than corporations have for their entire RD budget. Hundreds of millions of dollars, in some cases billions. Unheard of. It's absurd. In the 20th century, a startup was viewed as an ankle biter to a large corporation and today they're peer competitors. The world's kind of changed completely.

So it seems that there are a lot of things working against large corporations. One is that startups are focused on creating a new growth engine. That's their goal and often it's disrupting an established player. And number two, they're extremely well funded now, so they can go a lot faster. And we've seen with Reid Hoffman writing about blitzscaling, startups actually go really fast. Is there anything large corporations can do or is that just the normal life cycle of corporations that, okay, you get big, you focus on execution and you know, there's a point where the life cycle ends and you should be replaced by new players. Is that inevitable or can something be done?

No, you know, it's not inevitable. I mean, there is a number one. It is interesting, as I think you've inferred and implied, is that there is a natural life cycle to a company. But in the 20th century, I think Deloitte and McKinsey and others have kind of looked at this and said the average life cycle of a public company was about 50 years. Nowadays it's closer to 15 for a public company. Whoa. That means something's happening to them. It's not that CEOs have gotten stupider, it's that the environment has changed, yet companies don't have the tools and methodologies and skill sets to respond to that. But there is a cookbook to kind of think about. One is that companies can actually figure out how to incentivize external resources to focus on disruption partnerships. Apple and the App Store in the government world. NASA basically gave money to SpaceX and Blue Origin to build rockets for them. Number one is incentivizing external resources. Number two is you could acquire external innovators. The best example is Google buying Android. The risk here is a mismatch of culture and process. And incentives almost always strangle the newly acquired innovation culture unless you're really careful about how you manage disruptive acquisitions. The third is way to handle disruptive innovators if you're a large company is to rapidly copy those innovators but use your business model to dominate. For example, Microsoft copied Netscape's web browser but used its dominance of an operating system distribution channel to win. Or Google didn't come up with pay per click, it copied Overture's model and used its dominance in search to sell ads. The risk here for a large company is that if you copy without understanding deeply the customer problem, you could end up with solutions that kind of missed the target because you didn't quite understand what you were solving. And the fourth one is, and this is the hardest is innovate better than the disruptors. And that's extremely difficult for large companies because as we found and I think you've been writing about Alexander, it's more of a culture process problem as it is a technology problem, as startups are born betting it all and large organizations are executing and protecting the legacy. But successful examples are Apple and the iPhone, Amazon and web services, etc. Does that help?

Oh, absolutely. Let me drill in on one of the topics that you mentioned, because I'm hearing that quite a bit from corporations around the world now as they're saying, oh, let's collaborate with startups. But you were already mentioning some of the challenges with that. The big corporation often strangling the young corporation with all the energy. Have you seen this model work where startups and more established players can successfully collaborate and something can come out of that? And if yes, what would kind of the guidelines be to make such a thing actually work? I do think both players have something positive to bring to the table.

Yeah, this goes all the way back to culture and leadership in a large company. One of the things I remind people is large companies are run like they're large companies. They have now handbooks of process and financial metrics and culture all built in, focused around Execution. It's not that they hate innovation, but in fact they recognize something that sometimes the innovators don't, that the light bills today are being paid by the people who are just turning the crank. The problem is that, and this has been written about for 75 years, is that companies need to become ambidextrous. And this was a term coined about 50 years ago or 25 years ago. That is they need to be able to chew gum and walk at the same time. They need to be able to execute, but also have an innovation culture in parallel. Not as a substitute, but in parallel. In the 20th century this was a nice to have. In the 21st century this is like a requirement. The problem still remains and why our life cycles of corporations are so short is that companies are almost always run by what I call Horizon 1 executors, CEOs who are great at playing golf and understand sales and understand numbers and you know, managing to Wall street and managing process and managing whatever. And this innovation stuff is, yeah, they might actually know the words, but they never came up through that culture. But that is what they are competing with. Think about it. In the 20th century, you know, a competitor or large corporation were their near peers or peers. Now they're dealing with disruptors who in the old days would have required years to come up with some technology disruption. Now disruptors could actually take off the shelf components and commodity components and come up with disruptions of business models. That's what's a little scary. What was your question?

I like the conversation with you. We always go in the right direction, even if we might go left and right. I want to drill into what you said about culture at the ambidextrous organization. So this is the big challenge for corporations today to create that innovation culture that startups actually have in terms of incentives today, also the financing. So maybe the question that could be interesting in this context of the ambidextrous organization and creating that innovation kind of space, cultural space and metric space. What can large corporations learn from Silicon Valley and other startup hubs around the world that they don't have today in their innovation culture? In the ambidextrous organization on the innovation.

Side, it's a great question. And there are two things I see repeatedly, maybe three, and stop me when this gets off track again, number one is if you want to do something disruptive, it can't sit, it cannot, absolutely cannot sit inside an existing operating division or functional organization. That is, I want to distinguish between incremental innovation, horizon one, or adjacent innovation horizon two, as McKinsey would have labeled it. But if you truly want a disruptive stuff, at least cannot start inside. Why? Because we've seen it all the time. Oh, the company runs into a crunch near the end of a quarter, let's take those people off or gee, they're only working 20% on time and oh no, we really don't have the budget for this or so if you're really not committed to this, you shouldn't do it at all. Just do Horizon one and two. Innovation. That's number one. Number two though, the core area of this is that if we just put these people in an internal incubator or accelerator, we're also going to fail because what we've done is created innovation theater. What we haven't created is what we call an innovation pipeline, an end to end process that really is the ambidextrous part. What is the equivalent to a, let's say a process driven stage gate driven engineering process that takes a year to get a product out versus a fast track, operate at speed and urgency and deliver MVPs that are just good enough process that actually gets things out the door. Right now we seem to confuse innovation with a look at this neat demo like a startup, but forgetting we need to connect it to delivery. How does this get to a customer? And typically innovation teams kind of don't want to have those political battles on day one. And I'll suggest if you're not having those hard conversations of what an end to end pipeline looks like for innovation delivery, then again, welcome to the posters and coffee cups and nice T shirts and maybe you get a couple lanyards for your badges, but you ain't going to be delivering anything that's going to move revenue or the top or bottom line. So that's my answer. I guess number one is get disruptive innovation out of execution organizations. But it should not be like theater. It should be a delivery organization, not a demo organization.

I like that point because you're mentioning this aspect that a lot of corporations often cough. Maybe copy the part of the startup world that is the least impactful. One of the things that I know.

You have a couple of really good.

Stories about is the attitude to failure in Silicon Valley in the startup world and how that differs from the attitude regarding failure in established companies. Can you elaborate a little bit on that?

This is part of the culture. Again, another reason why you want to pull these groups out of any execution group that is pull innovation out of those groups. If you think about it, in a Large corporation, we have job descriptions, we have job specs, and in fact, all of you who are in a large corporation, you should pull out your business card and take a look at it. The title on your business card is actually a virtual hot link to a page or two of a detailed job specification. And in a large company, that job specification comes from HR that says this job has been done before. We know what you know, what the requirements are, we know what you need to do day to day, and we know how to measure you. And so if you screw that up, it was a known function that other people have done well. So failure in a large corporation for the execution part actually is failure. You screwed up and we might want to fire you for that. But in a startup, a startup is quite different. There is no job spec. All we have on day one is a series of untested hypotheses. We're just effing guessing on day one. And so we tend to think in a startup that failure is not failure. Failure is actually learning and discovery. We're doing hypothesis testing, we're taking every part of the business model canvas that you've built and basically said, let's run experiments here. And you know what, just like in the lab, we're going to get some data, derive some insight, and either do one of three things to that hypothesis, we're going to validate it, invalidate it, or modify it based on the data. And so that's a very different mindset than the execution mindset in the rest of the company. And not understanding that distinction is. I mean, the first time I remember I went into unnamed large companies, set up one of these groups, and the CFO came in and said, well, where are your first year okrs and KPIs? And he kind of went, we're still trying to figure out what planet we're on. And so you need a different set of measurement tools and you need a different culture. Understanding that one group is doing execution of the business model and the other group is searching for a business model.

One thing I'd like to drill on is when we talk about failure, I remember you mentioned in the past once that in Silicon Valley, failure is seen as experience, which is quite the contrary of what we have in large organizations.

There was one great question I wanted to go back. I'm reading the comments stream. Someone asked, why can't an incubator be part of the innovation pipeline? And I just want to point out the incubator is part of your innovation pipeline. It is the kind of center of it. But unless you have the connective tissue all the way from sourcing innovation to delivering it outside the building, whether it's an incubator or a pipeline, if it doesn't have that goes into and goes out to, you really haven't built anything productive. You've done the fun and it's like eating the filling out of the cupcake without eating the rest of the cake.

Does that make sense, that connectivity again? Yeah. The fact that we have a lot of activity.

Right, Right. Don't confuse motion with action. Remember, in a company, the goal is to deliver stuff that people want to buy or use or engage or something. The goal is not for you to demo a lot of cool stuff. And unfortunately, a good chunk of corporate innovation has taken my work and your work and considered it. Let's have a lot of fun. With all due respect, that's not the goal. The goal is to deliver stuff with speed and urgency that people want and need and that gets delivered on time when they need it. That's very different from gee, I'm the head of an accelerator. That is, if you ask a lot of heads of accelerator, what do you do? Delivery and customers and revenue don't seem to be part of that. And that's what I just have a hard time getting. No wonder why most people roll their eyes now when you tell them what you do. Once you connect it to delivery and our job is to getting stuff out the door or integrating stuff into a new division and getting people to grab it out of our hands, that's when you got something interesting.

I want to go to one aspect that I think is interesting here. Talking about these activities, how they're connected, but also that innovation and entrepreneurship is more and more profession is not just business as usual. It's not something, hey, Friday afternoon, spend a little bit time on innovation as if it wasn't a serious activity or function like finance, marketing, etc. One of the things that startup hubs like the Valley or the Bay Area or London and Berlin have in common is that many of the entrepreneurs who succeed, they don't actually succeed the first time. They've been in three startups, they've seen things that work that don't work. They understand this process of innovation from end to end. So to a certain extent they understand this innovation pipeline because they've done it a couple of times. Is that something you see as well? Because you're very deeply into an entrepreneurship education and you know, you're the father of modern entrepreneurship education. That idea of, you know, entrepreneurship Being something you can learn, does that make sense? Because often people think, oh no, it's all about the creative genius. Oh, you know, it's, it's, it's guys like Elon Musk or whatever. It's more like a inspiration from the top, from heaven rather than actually a profession that you can learn over time.

So obviously all I'm going to share here is my opinion. But you know, I was for your audience. I was a practitioner for two decades. I did eight startups and now I've been an educator for almost as long. And so here's what I've seen is entrepreneurship and startups for founders are a calling, not a job. It's a calling like being an artist. If you're not called to being an entrepreneur, you shouldn't be anywhere near a startup or an internal innovation group. And there was one comment I saw that says, well, it should be fun, you know, you're in the wrong job. Join the circus. Entrepreneurship for real, outside of the womb of a corporation is a miserable job. It's actually the world's best calling. It's much like being an artist. Being an artist most of the time is not fun. You're doing it because it's your passion. You're driven to do this. And that distinction between let's have fun, of course we're going to have fun, but we're having fun because we're engaged with our passion. This is a passion driven business. It is not a job spec. And let me separate out the early stage team from the later stage. Almost every successful startup has at least two people. Very rarely is it embodied in one. And that's the entrepreneur paired with an innovator. The innovator might be the Steve Wozniak who came up with the Apple ii. But there would have not been an Apple without the entrepreneur who was Steve Jobs, who could create a reality distortion field and remove money from people's wallets before he had anything and convince investors that he was going to change the world. And he did. Or Bill Gates versus Paul Allen. Paul Allen actually wrote Ms. Dos or bought it and made it work. Bill Gates was the one who turned Microsoft into the company. It became the distribution channel and was the business strategist. Elon Musk doesn't build rocket engines or cars. At Tesla it's JB Straubel who you never hear about, who came up with the entire battery architecture. But there would be no Tesla without Elon Musk. And so for every great startup, you see that pairing almost from the beginning. Innovator and entrepreneur. In a large corporation, you have plenty of innovators. They're in R and D, or they might have a business insight. It doesn't only have to be a technology insight, but in a large corporation, the entrepreneur is someone who knows how to passionately get something across the finish line. You see it in every large corporation. There are stories of heroics about how someone, against all odds, made something happen and it's now our biggest product line or whatever. But in the past, we kept telling these stories of what I call heroic innovation without realizing that maybe we should actually build a repeatable process internal to companies rather than making these stories all one off. Which is why we came up with an innovation pipeline process which says let's start with sourcing and get a whole ton of internal and external ideas into the company. And then let's do problem curation of figuring out, well, do these match any problems that potential customers might have and might want to buy? Then let's prioritize the things we have in our pipeline, either by product line or by horizon 1, 2 and 3. And then let's do hypothesis testing and solution testing. And that is the, the kind of Lean and I core and incubator part. And then some of it might actually require later integration. And then the last part about a pipeline, which most people kind of ignore, which is why this stuff dies, is how do we integrate this into our existing channels or engineering organizations or functional things to get it out the door, or if it's unique enough, is how do we get internal funding to stand it up as a unique division or sales channel. That's an end to end process, but it's driven by people with passion. If your goal is to have fun, truly it's not the right place. If your goal is you're passionately committed to kind of get stuff out of the building and see your idea turn into something used by thousands or millions of people, then you're the right person heading up the right group. Sorry, but I've just seen hundreds of people, maybe thousands now get confused because entrepreneurship is now this thing to do. It's kind of like artists. We teach art appreciation to everybody now because we realize that it's great to have kids early in their lives self identify that painting or sculpture or writing is a potential career. And for the rest of us, it teaches us these other things that we should be exposed to. And so we could appreciate this stuff. But not everybody should or could become an artist. But some go to Juilliard or calarts and whatever because they're going to follow their passion. That's how I think about entrepreneurs and entrepreneurship. And if you're managing such people, you need to understand the distinction between passion driven entrepreneurs and innovators.

Sorry, yeah, no, this is excellent. I'd like to come back to that question. You touched on it, but maybe we can go into that again. There was a question in the group, what's the difference between innovation and entrepreneurship? So maybe you can just repeat kind of that message because I think you have a very strong message there because, you know, the distinction is not always clear to people.

Right. So again, this is my glossary or distinctions. You could come up with your own, but the word always gets kind of confused is what is the difference? And to me, an innovator is someone who has some insight about creating something that never existed before, making something that exists much better. Again, in the Silicon Valley, we tend to think of it as a technology innovation, but it could be an innovation about a channel opportunity or pricing or something that is unique. But most innovators, I'm not going to say all of them, but most innovators, certainly on the technical side, the people I run into are not the same people who you would say can get out and like raise $100 million on that idea. Maybe if the AI space or something hot or inside a company, figure out how to convince your sales channel to do something different or to convince the CEO and the board to kind of build this new factory that takes a different character. Those are just entrepreneurs are the people who know how to make stuff happen against all odds. That's not the same as an innovator. As I said, it could be the same person, but looking for it in the same person makes that Venn diagram very small. I mean, they do exist, but they're very rare. It's the combination of the two that's like hypergolic. That is they, they catch fire when they just touch each other. And the examples I used, again, Gates and Allen, Musk and Straubel, you know, Wozniak and Jobs are all kind of canonical examples of, of those innovators and entrepreneurs and what happens when they get together.

So today, a lot of the disruptions to go back to, kind of the theme of today's webinar, come from entrepreneurs and startups. And you were mentioning this drive and passion and going the extra length. Is it even imaginable that we have corporate entrepreneurs inside companies on a salary that get to the same kind of results? It's an interesting question that I discussed with A couple of people. Could we have a different type of entrepreneur? Because obviously doing this with venture money or doing it on a salary is very different. Can those two exist? Or is this something that can only happen really outside of the large corporation world?

Well, it certainly could exist inside of a large company, but in a different way. You know, let's go back to. We've been talking about all the negative things that, gee, companies are at a disadvantage, et cetera. But companies are also at a huge advantage when they figure out how to embrace innovation in both strategy and tactical ops and getting a pipeline going. You know, somebody mentioned today's strategy blog post. I don't know if your readers read it, but it was an observation about Spotify, who decided that all of a sudden they've been looking at the world a little incorrectly, that they shouldn't just be aggregating music because the kind of. The record companies or record labels kind of have a lock on distribution and they basically have to pay a tax every year that maybe their additional business model should be monetizing podcasts. That both of them are audio. And nowadays on mobile devices, people listen to podcasts as much or more than they listen to music. And Spotify's insight is, well, wait a minute, it's just bits. Except one doesn't have a gatekeeper. Why don't we kind of try to become the dominant player in monetizing podcasts and we could use our same tools and technology to do that. You know, those are. That's an amazing example of a large company using its internal resources to just kind of pivot to an adjacent market and say, we already own, like tens of millions of users who are paying us for music. Why don't we just get them over the podcast again? Apple, using its existing channel, there was nothing similar between buying a phone and buying a computer. But they had this massive channel. They had brand loyalty. I mean, you go through the list of things they had, but it was a major pivot for a company. But they were able to use their resources in a way that their manufacturing resources, supply chain resources. I see large companies having advantages, but they need to take advantage of the advantages. And this goes back to leadership. If leadership is just interested in fending off, at least in the United States, activist investors spending money on stock buybacks, which I think should be a criminal activity, and execution, and spent at least 10% of their brain power on figuring about innovation companies would last much longer.

I like that idea of turning that into a criminal activity. The share buyback remains.

I want to Hand over very quickly.

To Kavi to see if there are any questions from the audience that stand out. Kavi, anything you would want to highlight?

I do want to pick on just ending of what Steve, what you just said there. One of the questions that came through was how real is it or how realistic is it to create the role of the intrapreneur inside of a large corporation to boost innovation culture, innovation practices? Because what you just mentioned talks about internal resources being used to make new business units, new business ideas into real businesses. But labeling it as an intrapreneur is something that I don't think we've seen enough of. Does that make it more tangible, more possible?

You know, I think the. I think there's a difference between giving things labels and building teams. And maybe we need to give them labels to do that. But I want to focus on what the point of the label is. The point of the label is to understand that. Almost every great product or service, whether it's in a startup or not, starts with step one, is there an innovator? Period? Is there an innovation again, technology, business insight, something? Step two, is there an entrepreneur paired with that innovator who wants to take that idea and expose it to the world? That's step two. Step three is, is there a process that's built end to end that helps either startups or companies deliver that product or service? And in doing so, in a company, if we need to kind of give it a name, sure. But I think what we really need to do first is kind of define the process. And for those of you interested on my blog, I've kind of written about this innovation pipeline. It's been in HBR as well. I'm not flogging the pipeline, but I just want to point out is if you don't have, if you don't agree with the processes, starting with titles and job specs seems a little backwards. Start with a process of what you want to accomplish. Who do you need to accomplish it? And yes, if my company needs an official spec on these people, fine, but I think you've already lost if you need a job spec for that. You want to get the most passionate, committed people into this. This should not be. I'm assigned to an innovation group with the title it should be. I'm fighting to get into an innovation group because holy cow, this is the most exciting thing I think I could do with my time in this company.

So I find that really interesting because one of the comments that comes to quite a bit in this chat is the idea of large companies always being late to the party. Do you feel that the historic companies of the past that created much of the successful businesses that we see today, let's say the Henry Fords, et cetera, never really laid down that process to be adjustable or adaptable as times change.

So one of the things that it's worth thinking about is that some of the most innovative large, not all, but some of the most innovative large companies are still run by their founders, that is the ones capable of literally pivoting or creating radical new businesses. Amazon, Apple, when Jobs was Alive, Netflix, Tesla, SpaceX. And maybe they're just the most visible, they're all run by their founders. There are obviously large corporations who are equally innovative, W.L. gore for example, and others who are multi generational companies who are still being innovative. But they built that into their culture. This goes back to leadership culture, fighting against pure 100% execution process. So it's possible to do that, but it starts with leadership, it starts with culture and then process flows down. As I said, this was important in the 20th century, it's survival in the 21st. It's just becoming increasingly obvious that life cycles in most industries are compressing and they're compressing from multiple directions.

I'd like to go back quickly to the entrepreneur topic. So as you pointed out, it's really about culture and processes to kind of enable people with the right passion to explore ideas and to bring them to the next level. So one of the things I often like to say is that it's not a people problem that most established organizations, when they have a couple thousand, 10,0001-000002-00000 employees, it's very likely that they have the innovation talent. There's really mainly putting those processes and organizational structures in place. Would you agree with that or do you think corporations have to work more on that innovation talent that we see coming out of the startup hubs of the world.

Well, it depends on, interestingly enough, on physical location. Now if you're a large company in Silicon Valley, there's a lot of opportunity elsewhere and you could very easily build, you could very easily beat the innovators outside and entrepreneurs into leaving. For a lot of people in large corporations, it's kind of maybe the only choice and ends up to be a very frustrating career because as I said, if you're an entrepreneur, it ends up to be against all odds fight, when in fact it should have been a built in process. But to answer your question, I've met as many and it just always kept surprising me until I Realized my mental model was just simply wrong. There are more innovators and entrepreneurs in large corporations than there are in the sum of all startups in the world. They've just made different career choices, but they are there. What they lack is a process that allows them to innovate and execute at the same time. Allows the company to, to innovate and execute at the same time. Companies beat out of these people the experimentation and risk taking mindset in a startup that's like the going in coin to join in a large company. It's like, well that's nice, now get back to work. Turn the crank. So eventually you could beat that out of people, but in fact we need to do, I think completely the opposite. It's just that we have not had a physical place. Physical place and a place that could actually diagram out where did these creative people go inside your company to pull this off? Who owns this and what's the goal in delivering stuff and where's it resourced? If the answer is if you can't draw that in your company, well then you're going to have a bunch of frustrated people who, you know, might leave or just might not be contributing to any percentage of what they're capable of.

So it brings us back to the ambidextrous organization, right? So we need to create that space physical, mental and also incentive wise so entrepreneurs can actually emerge. One of the things, you know, related to that space, the ambidextrous organization that you've written about a little bit is that's the space where the so called H3 innovations kind of emerge right from the, from the Horizon model of McKinsey. But you wrote about how this, you know, traditional H1, H2, H3 Horizon model by McKinsey doesn't apply the same way they thought about it back then when they created it. Can you elaborate a little bit on this? Because it's, it's very closely related to this topic of disruption.

Well, say the last part again, Alexander.

I'm sorry, it's, you know, when we talk about disruption, typically large corporations think about H3 as, okay, those are the growth things that we're going to do and they have a certain time horizon there. Now you were writing about how this doesn't apply anymore in the same way.

Well, so number one, there still is disruptive ideas that just require years to build. I want to build a semiconductor fab. You know, the laws of physics and construction say it's going to take a couple years or I want to build something physical or there are lots of things that do require time. But the key idea now is that there are startups and your competitors who've realized you could build disruptive ideas with existing components of just reconfiguring a business model. Uber did not require a ton of new technology. I mean, there was technology to build, but they did not require stuff they realized. Internet drivers, new business model. Airbnb certainly did not require a whole set of new invention. Yes, it required software to manage all that stuff, but it was a business model innovation. And by the way, those innovations on day one, those types of Horizon three innovations look to large corporations like minimum viable products. You go, that's buggy, unfinished. It doesn't have all the features, but it's disruptive. Or the scooters out there, oh, they're leaving all the scooters around and cities hate them. Yes, but they're now billion dollar market cap opportunities. Because good enough and disruptive is very different from, gee, I got 100,000 customers, I can't ship this thing. It didn't pass the QA and the policy meeting and the, and the strategy committee and the whatever where meanwhile other people are just throwing stuff out and in fact refactoring it when it finds and if it finds product market fit in the field. Those are very different strategies. And again, it makes companies incredibly nervous. The problem is that the people who are implementing those disruptive strategies, building disruption out of Horizon 1 existing tools, are not the incumbents, they're the attackers. They have nothing to lose. They have no legacy to support, they have no infrastructure to support. More importantly, they have no customers or brand to worry about. Legal say you can't do that.

Our brand.

Well, I don't know how many times I've heard that. Well, lots of ways to get around that. But the minute you start having that conversation, you already realized that this company doesn't have a fast track innovation pipeline where the focus is speed and urgency and rapid delivery. Does that answer your question?

Absolutely. One of the things I'd like to go into is entrepreneurship education. Entrepreneurs on the startup side, but also on the corporate side. So after your entrepreneurial career, having done it yourself, you've been now almost for as much time you've educated entrepreneurs starting in the Bay Area, and then you kind of changed entrepreneurship education around the world. What would you say were the key things that you started to understand after, you know, two decades of entrepreneurship education? What are the most important things that we need to teach entrepreneurs either in the startup world or in the corporate.

World as corporate entrepreneurs so when I started teaching at first Berkeley and the business school and Stanford and the engineering school and now Columbia University in New York as well, the capstone class for innovation entrepreneurship in every university, not just these, that is the top class you could take was how to write a business plan. And you know, if you've been a practitioner, you know, no business plan survives first contact with customers. Yet we were teaching that that was how you built the startup and that you wrote the plan and there was the five year forecast. And back then they all said $100 million in year five and the corporations the same thing. And yet that's not how the world worked, that's how academia worked. But most of that was being taught by people who actually never did it. And again the schools I mentioned were smart enough to start hiring adjuncts, that is people who've actually done it as a complement to the world class academic faculty they had. And my insight was that we were teaching the wrong stuff. It's not that we don't need a plan, don't get me wrong, of course you need in a company an operating plan and a startup ultimately a business plan. But we were doing plan, we were writing plans without actually doing any planning. There is no possible way that sitting in your office you could pre compute customer needs and desires. I mean just computationally impossible. And so I came up with this line, there are no facts in the building, so get the hell outside. And that became one of the core parts of customer discovery and customer development. And so the classes that have now kind of been adopted are, number one, they're team based. Most startups are not run by one person for the rest of their lives. There's a team. Two is they're experiential, G students get out of the building and talk to customers and regulators and partners, etc. And three is they're built around hypothesis testing of your business model canvas. Well, you think these are the customers? Well, let's run some experiments to find out. You think These are the 10 features they're going to want for the value prop? Let's build minimum viable products every week in the class and go test that. And in the classes I teach that have now been adopted by the National Science Foundation, National Institute of health in the US portions of the US government, these teams talk to over 100, sometimes 150 customers in 10 weeks. And they build a minimum viable product every week. Every week. And I figured if students could do that, well, they're taking a full course load. Gee, this could be the core of what we call that innovation pipeline inside of a company. Again, surround that with innovation sourcing and prioritization and problem curation and then actually figuring out how to integrate this stuff with the rest of the organization. But we've seen this work well. And these classes are called, when they're taught for the government, they're called I Core for Innovation Core. And when they're taught in universities, they're called the Molina Launchpad.

So one of the things that you're pointing to is that this is experiential. You learn through experience. You have to do this to get better at this. And one of the frustrating things I've seen in corporations that we get teams, we accompany them for one project, then they go back to the execution engine and we get a new team. So it's almost like working constantly with amateurs, not because people are not smart, but they haven't accumulated enough experience with this kind of process, which is very different from the execution process. Is that something you see as well in other corporations, that we don't really have professional innovators or entrepreneurs? Because this hasn't yet emerged enough on the radar of senior leaders to say, no, we need to invest a lot more in these types of people so they can become professional entrepreneurs. Professional innovators inside corporations, yeah.

Again, though, I would maybe quibble with the word professional. I think maybe the word successful might be a better shot. That is, we want to build a category of successful innovators and entrepreneurs that are not afraid to experiment and learn and discover. This goes back to this culture of failure. We have a special word for failed entrepreneur in Silicon Valley. You know what that is?

The experience.

Experience, right. Try that in a large corporation in Silicon Valley, if you've had an honest failure, when you have coffee with your friend right after the failure, first thing they ask you is, so what's your next startup? In some companies it's like, have you updated your resume? Is the thing that gets asked. And so we need to make sure that we have a culture that supports successful innovation and entrepreneurship. And by successful, it's not just did you deliver something at speed and urgency, is that did you rapidly gather enough evidence to kill it? And by the way, that's the other problem inside of companies is what I see a lot is zombie projects that never die because there are no internal metrics and there is no kind of kudos to being able to shut down your own projects because you're afraid you'll never get another chance at it. When you have again this ambidextrous Organization where the culture and pipeline process is very different from the stage, gate and execution process. You will build up a cadre of successful and creative innovators and entrepreneurs that flock to that part of the organization. Again in a company, though, with the goal of turning stuff out that matters at speed. And by the way, I just want to go back to that. This pipeline I'm describing for Horizon 3 can also be implemented inside the Horizon 1 and 2 organizations. It just has very different focus inside those organizations. Inside those functional or P and L organizations, these pipelines become very tactical and very focused on incremental revenue gains for quarterly stuff. But it's the same process, just different culture, different focus. One's a tactical pipeline, the other is a strategic pipeline.

So we were kind of distinguishing between startups and large established corporations.

Alex, if I could, somebody just asked a great question I want to get to for a second. It says. Oh, for sure, yeah, go ahead. Entrepreneurs move between startups and big companies. Or are they not the same people? I think that was an excellent question. And I'm going to say this not as a. Please don't take this as a pejorative. In a large company, if you think you're doing a startup, you're wrong. You're doing a type of innovation, but you're still in a place where the lights aren't going to go out if you don't succeed. And you're still going to be able to pay your mortgage and put your kids through school if your idea fails. And by the way, when the toilets stop up and your best engineer quits, somebody's going to unstop that toilet for you or you'll get another engineer. A startup is basically, you know, like a year and a half of terror. There's a gun to your head, which is burn rate. And that if you don't like fine product market fit or you don't raise the next round, you're out of business. And so in a company that kind.

Of.

That sword over your head doesn't exist. And I'll contend it changes the nature and motivation of and certainly the amount of risk you're willing to take because the alternative is staring you in the face. And again, I'm not suggesting one is better than the other. I'm just trying to comment that as much as you try to emulate that in a large company, it just doesn't exist. Does that. I just wanted to.

Excellent. No, that's perfect. I want to wrap up with the last question. We were kind of distinguishing between startups and Large corporations, but the big part of the economy around the world are small and medium sized companies. So how can small and medium sized companies deal with this topic?

Well, Alexander, I just think that the work you've done with the business model canvas is just fundamental and foundational to anything from people running a corner grocery store to a small business to anything else. And this addition of customer development and agile engineering on top of it, the sum of the three, which we call lean. Everybody should be at least thinking this through. Whether you have a separate group or whatever is like who are our customers? How do we know what's the right product market fit and should be running these exercises continually. I just think the tool set that you've started and we've added to, it's just invaluable for any size business and starting to think about growth and just being able to stay alive for the next couple years. Whether it's to feed the family or whether it's to become a public company. It's the same tool set. It's just the scale. The other thing to note, by the way, is if you are a small business, you need to be careful about the types of stories and literature and whatever you read. Because a lot of that stuff and blogs and stuff I write about and hacker news, these are people who are focused on venture funding. And when you get venture capital outside that allows different recruiting and scale versus small businesses, be careful that you're not trying to compare apples and oranges.

I will actually end with this comment that you made about the tool set.

Right.

We've been inspired together with you by your work. You've integrated our work and we both know there are a lot of this tool set.

Right? Yes. I stole your work.

I remember that was a fun moment meeting at the Stanford cafeteria. But I'd really invite everybody who's listening to go further in terms of reading all of this stuff out there and asking how do these pieces fit together? Rita McGrath's work, Roger Martin's work, and how these things together actually give us the toolbox as a startup or as a corporation of how to innovate a bit more creatively. I'm going to hand over to Kavi to wrap it up and I already want to thank Steve for this wonderful chat. The hour always flies. I have questions for another 10 hours, but I guess that will be for the next time we meet in the Bay Area.

Thank you, Steve. Thank you, Alex. Steve, I do want to ask you one last question. On a scale of 1 to 10, one being terribly unoptimistic to 10 being fantastically optimistic. Where do you rate yourself in seeing these many different types of experiments turning into more consistently large organizations that can really realize the potential of the types of businesses they're trying to run?

I'm sorry, cavi optimistic on what?

On the ability of all these different types of experiments that are taking place that you're seeing in the conversation that we've had in terms of startups and types of disruptors and innovators, how optimistic are you that they can actually become consistently large businesses over time as opposed to, let's say, the handful of very large corporations that we see today, like the Amazons, the Facebooks, that have made some go at it?

Well, I think this is back to Schumpeter and creative destruction. I mean, I think at least in a capitalist system, as long as we have capital pouring in and liquidity for new things on the other side, there will always be an engine of creative destruction. And that in a positive sense, I think we're going to continue to see that. So the answer is yes. As long as that system's still in place, I'm optimistic.

Awesome. Thank you very much, Steve. Alex, thank you very much for hosting. Hank, thank you very much for illustrating and keeping the visual facilitation going to everybody else who is listening or watching still. We will provide a recording of this session within 24 hours straight to your inbox. We'll also point you to a few different links about today's conversation as well. From there, I think I'm going to sign out good night for those of you who are on my side of the world. Good morning and good evening to those of you who are on the other side of the world. Thank you very much for joining us today. Bye.