Organizing innovation at a scaleup with product team horizons
I work as Product Owner at Werkspot, a home services marketplace which started 9 years ago as a small startup in the south of the Netherlands. After a reboot of the company 3.5 years ago and re-location to Amsterdam, the company reached the phase of a scaleup. We still have part of the startup culture, but also have quite a sizeable international operation with 140 employees.
While we have notable success, we also need to stay ahead of the curve as the market of arranging home services online continues to evolve and grow. Especially since the market hasn’t matured yet and we want to grow rapidly to capture this market.
It would be easy to fall into the trap of not looking ahead enough for future growth. I think this ‘scaleup growth trap’ is one of the biggest pitfalls for scaleups. I’ve seen many such cases. While enjoying their success or while struggling to scale up their operation they lost focus on the future. As their market matured and they had churned through most of the customers in the market, growth became hard to sustain.
Thankfully we asked ourselves the question: where would we be in the next 5 years? We concluded that we need to keep being innovative to grow over the next 5 years. And if we aren’t the ones to capture this market, a smaller and more innovative startup might come in and do so instead of us. Even if they would have to battle against our marketplace ‘winner takes it all’ competitive advantage.
Bring back radical innovation by organizing product teams by horizons and users
One of the best theories on how to invest your organization’s resources effectively is the McKinsey 3 horizons model. This model explains how you should invest 70% on strengthening your current core business (exploitation), 20% on further developing new opportunities that emerge, and 10% on creating options for future business (exploration).
We took a slightly different approach: we started investing about 10% of our resources into radical innovation. We organized our Agile product teams into 4 different ones. Each team has a horizon to deliver value: either 3 months, 6 months or a 3 years horizon. As an online product company we have a strong focus on the mid-term 6 months horizon where we are able to add the most value for users. This is reflected by the fact that two of our biggest teams work within the 6 month horizon.
Our core team (3-month horizon) is focused on supporting the operation and handling business critical issues. It is kind of a dev-ops team, but also taking care of architectural improvements to our ecosystem.
Our mid-term efforts (6-month focus) are taken care of by two teams. One is completely focused on delivering value to Service Professionals (our paying customers that execute jobs). The other is focused on delivering value for our Consumers (our users that place jobs on the platform). With this focus the team members and especially the Product Owners can learn everything in depth about one type of user and create a solid product vision for that user. There is so much data to analyse and interviews to do, that this focus is indeed a necessity.
Our innovation team (3-year focus) is focused on validating radical innovations. By not having the pressure to deliver mid-term results, we are able to take more risks and test bigger and more unknown ideas. Enabling us to zoom out of the current business and focus on the bigger picture. It allows us to work on things where previously people would say “that’s not a problem”, while it is a problem for the user or “how could we ever solve that”, fearing a solution would be really far away from our current product.
Ring-fencing the innovation team
To enable us to think out of the box and test things fast we ‘ring-fenced’ the innovation team. Operating as a separate startup within the company.
The most important measure we took is to not include any potential results of the innovation team in the company’s financial forecast. We only forecast the costs, not the revenue. This allows us to really explore radical innovation without facing pressure to deliver mid-term results and giving us the possibility to really pivot to another direction.
The most important measure we took is to not include any potential results of the innovation team in the company’s financial forecast. We only forecast the costs, not the revenue.
To keep our lean startup speed fast, we don’t rely on existing marketing on sales teams. Instead we internally hired two sales members to join our team and focus solely on selling the new product.
Our technology also operates independently. To validate lean MVPs fast we created test products (MVPs) outside our existing codebase. Allowing us to skip our usual code quality standards, like automated testing. Of course only during the initial MVP phase. If we validate a MVP and move towards scaling up the data we also gradually start replacing and integrating our code.
We apply this ‘ring-fencing’ dynamically, as our product evolves and we move from a MVP validation phase into a scaling up phase we look for more integration with the existing business. Allowing us to leverage existing systems and processes, like our billing system and customer support team. At one point the product will be validated and scaled up enough that we will have a hand-over moment to the normal business. Our innovation team moves on to explore and validate the next radical idea. Since we developed the skills within the team to work with a different mind-set and technical approach.
We apply this ‘ring-fencing’ dynamically, as our product evolves and we move from a MVP validation phase into a scaling up phase we look for more integration with the existing business.
Challenges of running an innovation team
For the last couple months I’ve been working as the Product Owner of the Innovation team. I strongly believe in organizing in this way to bring back radical innovation and creating opportunities for future growth in a scaleup (especially since acquisitions aren’t a very viable option for a scaleup). I do have to point out some of the challenges you will face when leading an innovation team.
It’s much easier to invalidate an idea than to validate an idea. Validation requires a lot of data and to get a lot of data you need to automate and scale up a bit. Your management needs to understand validation can take some time. So make sure you have a clear understanding about expected time lines and make sure there is no revenue expected in the financial forecasts. Managing expectations that you will likely fail 19/20 times is also essential and having a plan to still add value when you fail. Like using the lessons you have learned to bring a lot of knowledge to the other product teams and kickstart value adding initiatives with them.
It’s much easier to invalidate an idea then to validate an idea. Validation requires a lot of data and to get a lot of data you need to automate and scale up a bit.
Your team is purely a cost on the Profit&Loss statement and you will be viewed as such. Even if the management is on board, this pressure will keep coming back. Making sure your team is not too big helps to minimize these distracting pressures and forces your team to stay lean in their way of working.
You need a certain type of flexible, hands-on hustlers in your innovation team. It is a good idea to kick off your team with lean startup and MVP workshops before you start building, to prevent the development team to build over-complicated solutions to your stories. You will also need some operational hustlers that will pick up the phone and interview users, so make sure you don’t only have developers in your team.
Running a startup or internal innovation team in a company is maybe one of the most emotionally challenging things you ever will do and can be quite a rollercoaster. It’s like being an entrepreneur: nobody believes in your idea, and you will be told every day that it can’t be done. You have to find the energy to continue, motivate your team, and prove everybody wrong.
It’s like being an entrepreneur: nobody believes in your idea, and you will be told every day that it can’t be done. You have to find the energy to continue on, motivate your team, and prove everybody wrong.