“If the rate of change on the outside exceeds the rate of change on the inside, the end is near.”
— Jack Welch
History really does repeat itself. When you look at business history, you will find a reoccurring theme that sheds light on the pivotal role that the startup studio has played in enabling companies to reach unparalleled heights. The biggest case study: Apple and Xerox.
In 1970, Xerox founded the Palo Alto Research Company (PARC) a startup studio where they hired the smartest, most skilled individuals. The PARC team had assembled many groundbreaking innovations such as a graphic user interface, bit mapping and WYSIWYG editor. But Xerox led an unsuccessful bid to utilise the billions of dollars locked within its products. It was only until the young Steve Jobs who in 1979 saw the PARC computer-mouse prototype and realised that, with a bit of modifying, he could integrate it within the desktop computer. Today, Apple is the most valuable company in the world, worth $2 trillion.
Whilst Apple was lucky to set eyes on PARC's invention, the rest of us can be reassured that innovation does not have to serendipitous, but like PARC, if we adopt a process that creates the right culture, to blaze new paths, we too can create products that change the world.
What is a startup studio?
Startup studios are entities that employ the lean startup methodology, with the goal of creating novel ideas that can disrupt or complement the overall company. They can function in many different ways. They can operate autonomously or set up internally, staffed with existing employees.
Defining the objective
When an innovation studio lacks a goal, it makes them susceptible to innovation theatre, which is to act like you’re innovative to give the impression, when you’re really not.
At 3drops, we believe that successful startup studios is one that connects to a strategic imperative, rather than just creating a cool space for holding whiteboard brainstorm sessions. Before launching a startup studio, companies should ask the following:
- What’s the mission of the studio e.g. To increase revenue? To create new products? To disrupt?
- What will be its relationship to the parent company?
- What roles will you hire for?
- What are the main challenges the studio is addressing?
- How will performance be measured?
- How new products will be integrated?
- What is the cost for running the studio?
Creating a process
The secret sauce of a startup studio is hidden, it happens below the surface. It’s the operating model, the way of working that makes the difference. Inserting people from different departments of the business into a new space and hoping things will automatically work itself out will lead to an uncertain outcome. Instead, teams need to rely on a specific process for innovation and product delivery.
At 3drops, our objective is to ship 3 companies a year that unlock new growth for companies. We do this by relying on a process that embraces strict constraints. We operate with a limited fixed budget and a 3-month time block. This setting keeps the project grounded in reality and almost guarantees an achievable outcome. Whilst we can appreciate a grand vision, we prefer to focus on shipping version 1.0 that can then be built upon.
A lot of innovation studios fail because they adopt a moon shot approach instead of an iterative one. With 10 years of experience, we've found that big ideas rarely work, and teams inevitably burn out with little to show. Instead, we've refined our process to fast tracking innovation and not delay it. How? We innovate in the open with a narrow product focus rather than embark on a long product journey behind closed doors.
One key component of our process is sprints. In just one week, the team would uncover unmet needs, develop a shared understanding of the problem, and create different solutions. We then inspect each concept, take the best solution and merge them together to create one whole. After this, the team goes into execution mode, where we prototype the product. This means a big no to new ideas, which keeps the process fast.
Two things that make a startup studio successful is its process and its people. Finding the right people is always a challenge. The ideal candidates are risk-seekers, questioners and accept failure as part of the job. Organisations looking for these passionate explorers will find pro's and con's in looking both internally and externally. Whilst internal employees may have more empathy for the customer, they also may struggle to look at problems from a new perspective. An external team member may bring a fresh vantage point and skills, but recruiting these types of people may prove strenuous.
To alleviate this friction, 3drops has invested in building a private network of talented designers and developers who can fulfil the necessary roles and are assembled on a project by project basis.
Hiring the right people is the responsibility of the studio manager, not the company. The manager should perform a careful curation so that the complementary talents can create synergy at work. Having a multidisciplinary team is what makes things tick.
Establishing a budget
Depending on the makeup of the organisation and it's financial health, the budget will either be loosely or tightly connected to achieving an ROI. The parent company can appoint a team who evaluates ideas and allocates funds accordingly. Alternatively, if the startup studio is connected to a particular department, the funding may come from that group’s budget.
Enterprises thrive when business conditions are certain and their objectives are clear. While traditional metrics can measure the performance of existing business models, they are less capable of accurately quantifying progress at a startup studio, where the work is sometimes less clear, longer-term, or more conceptual.
Therefore, a startup studio should compile a set of metrics relevant to the innovation efforts and process. With this focus on measuring process, these metrics help the studio assess their innovation productivity, which may also bolster the support of executives. The studio is judged on its own merit, not that of a larger organisation.
Executives are quick to look at the revenue generated by new products, an output metric. But by enforcing a new set of metrics around innovation such as deliverability and products shipped, the conversation can shift from focusing solely on numbers to focusing on the operation of the startup studio.
Startup studios are the stepping stones for digital transformation at a large organisation. By launching one product at a time, executives get front row seats in witnessing effective teams at work. Processes are then borrowed and turned into frameworks at the larger organisation, frameworks are then used to guide teams in other departments with decision making. Change starts to emerge at the fundamental level, improving the company’s cultural DNA, where newly adopted methodologies help the enterprise as a whole run like an innovation studio.