Has your company achieved such a big value breakthrough in such a big market that you are on a growth rocket ship? As you zoom up towards the stars, have you figured out how to steadily add to your value, widening your advantage over all competitors? Or have you found a way to shut these competitors out entirely, freeing you to dominate your market for many years? If so, you don’t need to read this book.
All others should keep reading.
Seventy-five percent of all VC-backed startups fail to return investor capital.¹ Of all small businesses launched in the United States, half are gone within five years.² And the odds of iconic success are witheringly small. Of all the 31 million businesses in the US, just 159 went public in 2019.
Even for the VC-backed startups that show initial promise, far too many bump against a growth ceiling they can’t crack through. A disappointing exit follows. For the few that do become large public enterprises, many falter. If the past predicts the future, fully half the companies on the S&P 500 list today won’t be there in ten years.
The failure to create customer-defined value exacts a staggering toll. For the entrepreneur who has poured blood, sweat and tears into a multi-year dream, it shatters joy. For the investor, the direct financial loss pales in comparison to the loss in self-confidence and, too often, an imperiled career. For employees, job dislocation and disillusionment may follow. And then there is the customer — still stuck with a problem your company couldn’t solve. Failure to innovate hurts everyone.
If we are to make progress in attacking failure and underperformance, we must address the problem in all its variations:
- Perhaps you can’t create value in the first place, so you fail
- Or you discover a value improvement, but can’t turn it into a decisive breakthrough — so you sputter along and cap out
- Or you discover a value breakthrough, but it’s in a small market — so you cap out
- Or you discover a value breakthrough in a large market, but can’t effectively extend and optimize that value — so you cap out
- Or you discover a value breakthrough in a large market and continue to optimize that value, but you can’t build a competitive moat — so competitors rise, arbitraging away your profits, and you cap out
This is our puzzle. Can we devise a better model for innovation — one that more effectively overcomes these problems? In other words, can we show companies how to more effectively enter a large market within which they achieve a significant value breakthrough (to avoid failure); then optimize that value and gain sustainable competitive advantage (so that they don’t cap out)?
That’s the purpose of this book: to share a new innovation model. We have all heard that to build a great company, you must find market / product fit. But that alone is not enough. Great companies discover fit between four domains: Market, Product, Model and Team. That’s the Four-Way Fit. And they must do so time and again as they scale.
The Four-Way Fit model is made up of a framework and a method. The Four-Way Fit framework defines the domains that matter most in creating, optimizing and sustaining value — the domains within which hypotheses must be created. The Four-Way Fit method organizes company building into its natural phases and stages. Then, by leveraging the framework, it guides teams as to how to progress from stage to stage. To see the power of this framework and method, consider the story of Netflix.
The Netflix Story
As of this writing in May 2020, Netflix boasts 180 million paid subscriptions worldwide — including 69 million in the US. It is a motion picture powerhouse and a darling of Wall Street. But it wasn’t always that way.
Immerse and Ideate
In the summer of 1997, fresh off the sale of his company Pure Atria for $700M in one of the biggest tech exits up to that time, Reed Hastings started Netflix with friend Marc Randolph. Hastings was an engineer by training. Rudolph had been co-founder and head of marketing at a computer mail order startup.
At the time, the internet was rising and entrepreneurs were staking out land grabs. With Hastings’ technical acumen Rudolph’s understanding of mail order businesses, they sought a large category into which they could sell products online. They were inspired by a fledgling company named Amazon. First they considered VHS tape sales and rentals, but eventually concluded they were too expensive to stock and too delicate to ship. Next, they tried DVDs. To test the concept, they sent a DVD via the mail to Hastings’ home in Santa Cruz. When it arrived undamaged, they decided to pursue the concept. They would sell and rent DVDs online.
Minimum Viable Concept
At the time, annual video sales and rentals were $16B. The market was dominated by Blockbuster. They focused on DVDs, to be made available to order online with postal service delivery. They copied the Blockbuster business model: pay-per rent, with late fees for rentals. DVDs would be sold at a flat price. Hastings put $2.5M into the company to get it started. Soon he had hired thirty employees. It was a bold move. They brought together a team that possessed the competencies they needed to test this concept — people in product and engineering, marketing and in warehousing and distribution.
Initial Product Release
They stocked up, and soon the netflix.com website was offering for sale or rental all 925 titles that were available in DVD format at that time. At first, the company struggled to gain traction. DVD sales lagged. Soon the company decided to abandon sales and double down on rentals.
Minimum Viable Product
At the time, DVD players were expensive. Home penetration wasn’t yet high. Furthermore, sending DVDs through the mail was slower than walking into a Blockbuster store to rent. Since Netflix had copied Blockbuster’s business model, there was little to differentiate it — except selection. The DVD selection Netflix offered was superior to most Blockbuster stores. The company began to build a small following.
Minimum Viable Repeatability
In 1999, Netflix introduced an alternative to the charge-per-rental model. Now consumers could choose a monthly subscription in lieu of a per-rental charge. This differentiated Netflix from Blockbuster. For Blockbuster, late fees were a critical component of its business model, so it made no changes to its own pricing in response. In early 2000, Netflix abandoned the charge-per-rental model entirely. Now consumers could purchase a monthly subscription, at a flat price, without due dates, late fees, shipping and handling fees, or per-title rental fees. It soon became clear that the elimination of late fees had become a powerful source of competitive advantage vs. Blockbuster.
Minimum Viable Traction
By 2000 Netflix boasted 300,000 subscribers, but was still losing a lot of money. It proposed a sale to Blockbuster for $50M, but Blockbuster turned Netflix down. After 9/11, when subscriptions slumped, Hastings was forced to lay off a third of his 120 employees. It was a painful time.
Minimum Viable Scaling
But soon the cost of DVD players began to fall. By Thanksgiving 2002, they were selling for $200, and consumer adoption rose significantly. Netflix grew in parallel, with subscriptions rising sharply in early 2002. By 2005, Netflix had 35,000 titles available, had 2.5M subscribers and was shipping out 1 million DVDs a month.
Minimum Viable Expansion
As successful as the DVD subscription business had become, Hastings eyed the rise in internet bandwidths and knew that video on demand would soon become possible. Instead of having to wait a few days for DVDs the consumer would be able to order up a movie in ten seconds. Hastings knew that if he could tie together all the dependencies (gaining access to the digital rights of content producers and solving the technical problems of distribution), it would be a game changer.
But this was not just an organic extension of the existing service. It was new in every respect. In a sense, at least as it pertained to streaming, Hastings was starting over. He would have to choose his path. How would he gain digital rights? What would be the business model? Would he build his own Netflix set top box for the TV set, or place his fate in the hands of other manufacturers?
To pursue the vision, Hastings realized he needed to create a whole new team — completely separated from the core business. The capabilities required to build a world class video subscription service were completely different from those that he had needed to build an online DVD subscription service. Project Griffin was launched, initially with a vision to build a set top box. But at the last minute Hastings realized that if he participated on the hardware side he would alienate all other hardware players. So he abandoned that plan, becoming Switzerland and pursuing partnerships with the various device manufacturers. It proved to be a pivotal decision.
To make video on demand work, he now had two key product dependencies: with content producers like Disney and MGM Grand, and with consumer device manufacturers like Apple, Sony and Samsung. Netflix succeeded in establishing those relationships. Eventually, once Netflix became embedded into the value propositions of these content producers and device manufacturers, these dependencies became secure and sustaining — delivering Netflix another brick in its rising competitive moat.
Organization design decisions were also key during this time. Since the competencies and objectives were different, the technical team that worked to create video on demand was completely separate from the technical team that maintained the DVD business. Video on demand would inevitably rise at the expense of the DVD business. Hastings dealt with that reality by keeping the teams separate.
Minimum Viable IPO Path and IPO
Netflix went public in 2002 and posted its first profit in 2003 on revenues of $262M. Video on demand came to market in 2007, initially offered for free alongside DVD rentals. In 2011, it announced separate pricing for DVDs and video on demand, requiring that consumers pay for both if they wanted both. Consumers initially rebelled against the move, but the company weathered the storm and significantly increased profitability.
Around this time the company came out with its now-famous Netflix Culture Deck, defining what Netflix looks for in its employees. In it, the company committed to seeking, hiring and retaining only top tier, high-accountability talent — people they called 10Xers. As was said in the deck, “the only antidote to the rising complexity of scale is to increase the density of 10Xers in our company.”
Hot Public Company
Then Netflix made a change to its business model that sharply increased its profitability. Content is king. The big movie producers owned the digital rights, so they had lots of leverage. The resulting revenue share agreements cut into profits. It was clear to Hastings that with the rise of alternative channels for streaming video distribution, that leverage would inevitably grow — costing the company competitive advantage and threatening profits further. So in 2012 Netflix made another bold move. It began to produce its own content via Netflix Originals. The strategy was validated with the launch of the House of Cards series in 2013, which became a huge hit. Since then, the percentage of content that has been produced by Netflix has steadily grown. This business model shift transformed their profit margins and remains a major source of sustainable competitive advantage.
Today, Netflix is a dominant player in a hot, worldwide streaming video marketplace. It is also one of the world’s largest and most successful movie producers. As of this writing, its market capitalization is $191B.
In retrospect, we can see that at every stage, the Netflix top team made tough choices that set the arc of the company’s future. Time and again, these decisions emerged in four domains: Market, Product, Model and Team. Each stage was different, presenting its own unique riddle. To crack that riddle, leaders at Netflix needed to think things through holistically, and then test all their assumptions — adjusting as they went along. The leaders at Netflix certainly made their share of mistakes. But they caught them quickly and adjusted. And that made all the difference.
What can Netflix teach us about innovation? What did they do that others failed to do? Winners think holistically. At every stage on the journey of company-building, they figure out what it will take to get to the next stage. Then they think through issues in the four domains that matter. They come up with a set of integrated claims and proceed iteratively, testing and verifying them before accelerating their investments. That is the essence of the Four-Way Fit model. Separate innovation into its two dimensions — its framework and its method. Consider the riddle each stage presents, and apply the framework and method to make it to the next stage.
To be worth its salt, any new innovation model must significantly increase the odds your company will survive, thrive and advance towards iconic success as a global enterprise. That is the standard against which the Four-Way Fit model, put forward in this book, must be judged.
The Four-Way Fit Framework
The purpose of an innovation framework is to clarify the domains and subdomains that matter most in the creation, optimization and sustainability of value. Once you clarify the performance outcomes you must achieve to move from your current stage to the next, the framework helps you organize the comprehensive set of claims that, if true, will get you there.
Our Four-Way Fit framework can be expressed in two views: the canvas and the spreadsheet. The canvas presents a high-level abstraction of the domains and subdomains that matter. The spreadsheet presents a more detailed level of abstraction. The canvas is used during the “discovery of a value breakthrough” phase of company-building. It is a valuable tool to help you think through your most fundamental claims. The spreadsheet comes into play once these fundamental claims are proven and your initial value breakthrough has been achieved. This is the “value optimization and sustainable advantage” phase of company-building.
Here is the canvas view of this Four-Way Fit framework (the Market subdomains are shown in green, the Product subdomains in orange, the Model subdomains in blue and the Team subdomains in teal):
At every stage on the journey of company building, it’s the job of the top team to develop claims within these domains and subdomains. Whether you know it or not, you are doing this already. The claims you come up with may not be formally defined. You may call them strategies, causing you to act on them before you test them. But if you’re running a company, you are encountering issues and coming up with plans in all of these domains.
The great contribution of the lean startup model was to bring the scientific method into the innovation process. Lean startup luminaries such as Steve Blank (author of Four Steps to the Epiphany) and Eric Ries (author of Lean Startup) were the first to argue that hypotheses should be formally stated and systematically tested. Hypotheses must be specific and measurable; for each hypothesis you must identify the key performance indicators that will be measured to verify it.
The Four-Way Fit framework makes new contributions to innovation by elevating two domains underrepresented in the lean startup framework: Model (business model) and Team. Then, at the subdomain level, it does the same — highlighting such subdomains as market viability, product dependencies, unit economics, cash flow, competitive moat and team competencies — subdomains not adequately addressed in the lean startup framework. By filling these gaps, the Four-Way Fit framework replaces previous frameworks with one that is comprehensive — addressing all the domains and subdomains that matter in innovation.
The Four-Way Fit Method
If an innovation framework is static, clarifying which domains and subdomains matter, a method is dynamic. It addresses when to build your set of claims (leveraging the framework), and then how to test, iterate and verify them so as to progress from stage to stage on the journey of company building.
As with the lean startup method, the Four-Way Fit method celebrates validated learning. By continuously testing and iterating on your claims, you advance in small steps down a narrowing path towards customer-defined value. This earns you the right to move on to the next company-building stage. This focus on continuous experimentation and validated learning is the seminal contribution of the lean startup method. It aligns with agile software development methods. Through small-batch development executed in sprints, following a build / measure / learn cycle, product feature hypotheses can be verified one at a time. Slowly but surely, you build customer-defined value.
In his book Lean Startup, Ries rightly argues that a company must prove two essential hypotheses: first a value hypothesis, then a growth hypothesis. Similarly, in the Four-Way Fit method, company building progresses in two broad phases: discovery of a value breakthrough; followed by value optimization and the building of sustainable advantage.
However, the Four-Way Fit method makes three new and important contributions to innovation science:
- The two phases of company building (discovery of a value breakthrough and value optimization and sustainable advantage) are so different from each other, they require fundamentally different approaches to claim creation, testing and verification
- Within these phases reside distinct stages — each of which presents a unique set of attributes and exit criteria. These stage-to-stage differences are important for leaders to appreciate. At the outset of each new stage a top team must stare down what it will take to exit the current stage and progress to the next.
- The process of progressing through a stage requires that top teams oscillate between a “heads up” motion (the mountaintop view) and a “heads down” motion (the forest view). Both are important.
Phases and Stages
In the beginning, discovery of a value breakthrough is all that matters. This phase of company-building — Phase I — plays out in four stages. Later, as a company scales and progresses past the minimum viable product stage, it earns its way into the value optimization and sustainable competitive advantage phase (Phase II). Eventually, both phases may operate simultaneously in a company — the discovery phase for new product initiatives, and the value optimization / sustainable advantage phase for the core product. This usually begins in the Minimum Viable Expansion stage. Like this:
This stage-by-stage company-building journey looks linear. But of course it’s rarely a uni-directional stroll down a yellow brick road. The reality is more like hopscotch. Just one flawed assumption can force a company backwards from its current stage to the previous one. A significant market shift, such as the rise of a new competitor, can send it all the way back to the beginning. Few make it all the way. Whether by choice or utter failure, the overwhelming majority of companies exit before reaching public company status.
Heads Up / Heads Down
Different from the lean startup method, the Four-Way Fit method places great importance on the “heads up” motion. Teams must think things through, considering all four domains and their fourteen underlying subdomains. If you don’t think everything through in an integrated way, you end up with internal inconsistencies and incomplete planning. By thinking through all of the domains and subdomains, you end up with a set of claims that is comprehensive, integrated and internally consistent. This is a significant difference from the lean startup method. The latter does not focus on, and in fact is distrustful of, this “heads up” motion.
In the Four-Way Fit method, every stage begins with this “heads up” motion. (The only exception is the first stage, “Immerse / Ideate”, wherein it occurs at the end — for reasons I’ll describe later). Your team starts by clarifying what must be achieved so as to progress from the current stage to the next. Then you must define a set of testable claims within the domains and subdomains that, if true, would get you there. This set, if proven true, earns you passage to the next stage — but only if these claims are verified. After you come up with your claims, you must rank each by its impact on business outcomes, and then by the team’s certitude it is accurate. The highest-impact claims with the lowest levels of certitude are those to be tested first. Claims with high levels of certitude can be considered settled assumptions; these can be counted on and invested in.
With the “heads up” motion completed, you can then move into the “heads down” motion. Here, your team tests claims through evidence-gathering and experimentation. The goal is to discover a flawed claim as early as possible, so as to reduce waste. Whenever a flawed claim is discovered, you must replace it. This brings you back to the “heads up” motion, because when you replace a claim you have to reconfirm that all other claims in the set still hang together — that they remain comprehensive, integrated and internally consistent.
By oscillating back and forth between the “heads up” and the “heads down” motion, you slowly but surely narrow in on truth — which allows you, eventually, to progress to the next stage. Then you must do it all over again. That, in a nutshell, is the Four-Way Fit method.
Why a New Framework and Method?
Steve Blank and Eric Ries deserve great credit for the lean startup model they sparked. A generation of investors and entrepreneurs has embraced the scientific method as a critical success factor in discovering customer-defined value and in scaling a company. Concepts such as “rapid experimentation”, “minimum viable product”, “KPIs”, “innovation accounting” and “actionable metrics” have entered the everyday lexicon. Agile practices such as scrum and Kanban have taken hold. Lean practices have, without question, led to continuous product improvement in a way that saves both time and money. This has accrued to the benefit of many customers, entrepreneurs and investors. The world of innovation owes them a deep debt of gratitude.
To do the job innovation demands, their work is absolutely necessary — but not sufficient. The time has come for a new, more comprehensive model, made up of a framework and a method, that fills the gaps left by that of the lean startup model.
Lean Startup vs. Four-Way Fit: Framework
At a high level, the lean startup model’s greatest gap is in its framework. This is undoubtedly because its focus is on method (not framework). The method for defining and testing claims is, for lean advocates, way more important than creating precise definitions of the domains for which claims are required. But that’s a problem. If you don’t know where you’re going, any road will get you there. Leading lean advocates don’t separate “framework” from “method” — but they should. And when you conduct the necessary surgery to do so, what you end up with is a framework that lacks coherence and completeness.
The lean startup framework is incoherent in the sense that after the surgery we end up with as many framework variations as we have luminaries. In his book Four Steps to the Epiphany, Blank stipulates six domains of interest (market type, customer, product, channel and pricing, demand creation and competitor). But then he encourages entrepreneurs to use Alexander Osterwalder’s business model canvas (with its nine domains — some of which overlap with his six, some of which don’t). In his book Lean Startup, Ries notes that a company must begin with a vision and a high-level strategy — but then he doesn’t define what should be in it (except to say that the two things that matter are value and growth). In fact, he implores entrepreneurs not to spend too much time on strategy, for fear they would devise an elaborate construct that proves flawed at the starting gate. However, Ries’ leading disciple, Ash Maurya, advances the lean canvas (with its nine domains).
All of these different schemas present varying levels of abstraction and exhibit significant conceptual divergence. The net result (for those seeking one straightforward lean startup framework) is incoherence.
The framework is also incomplete. Once again, this is due to the lean startup model’s bias towards method over framework. Within the domains of Market and Product, key subdomains such as market viability and product dependencies are not adequately addressed. Within the domain of Model (business model), there is no revealed understanding of unit economics, nor its impact on product and customer acquisition method, nor any reference to cash flow implications nor the importance of building sustainable competitive advantage. And as to the vital domain of Team, it is addressed almost not at all. These are big gaps.
These gaps aren’t just a theoretical problem. They can lead entrepreneurs astray. If an entrepreneur is encouraged to be distrustful of excessive upfront planning, she might rush claims creation, leading to internal inconsistencies and fuzzy logic. She might focus on too small a market, or pick one with insufficient disruption to create meaningful openings. She might fail to build a competitive moat, leading to rising competitive threat. Or she might fail to adequately ponder the competencies, roles, structure, teams, objectives and decision methods the upcoming stage of company building requires.
The Four-Way Fit framework addresses these gaps. It is comprehensive and logically organized. It provides clear guidance for entrepreneurs as to how to develop properly defined, integrated claims.
Lean Startup vs. Four-Way Fit: Method
The lean startup method teaches entrepreneurs the importance of validated learning, with its rapid live product experimentation. It promotes the build / measure / learn cycle, which drives continuous iteration and aligns with agile methods and continuous delivery. This is significant and important. But it exhibits two gaps. First, it doesn’t adequately expose the different demands presented by the different phases and stages of company building. And second, it exhibits an excessive aversion to upfront planning — what I call the “heads up” motion.
The first gap pertains to the two phases, and their different requirements.
In Phase I, the “discovery of a value breakthrough” phase, the Four-Way Fit method calls for deep immersion in the customer’s world. The first stage in this phase is called the “Immerse / Ideate” stage — for a reason. Entrepreneurs must find visionary customers and immerse deeply in their worlds — often for years — until the gaping problems and screaming needs of customers are thoroughly understood, and solution options have emerged that visionary customers resonate with. Without taking the time to deeply immerse, there is great risk you will miss the most important things. At this stage, learning must be anthropological. You must employ human factors analysis — leveraging human observation and anecdotal evidence. With less than a handful of customers, data is scant. Design thinking is much more applicable at this stage than lean thinking.
Of course, once a pulse is found, you can move towards development of a minimum viable product and your first customers will sign on. At that point, lean thinking does indeed kick in. But to get to that point requires that you understand the problem, which requires immersion. In Four Steps to the Epiphany, Blank calls for entrepreneurs to “get out of the office”. Ries echoes this call in Lean Startup. This is a woefully insufficient standard. You must do much more than just get out of the office and talk to customers. To build a great company you must live together with them, immersing in their world.
Once MVP is proven and a company begins to scale, lean thinking steadily rises in relevance. Through lean startup methods, value can be continuously optimized. That’s especially true in Phase II: the “value optimization and sustainable advantage” phase. Value is optimized via lean methods.
But even here, in this second phase, it’s not enough just to optimize value. Teams must also focus on building a sustainable value advantage. This happens at the intersection of the product and the business model. It requires strategic thinking more than lean thinking. As the example of Netflix shows (such as with the shift to its new subscription pricing model without late fees, and the launch of Network Originals to gain bargaining power over content producers and improve profitability), the pathways to sustainable advantage often open up in big strategic leaps, not in small steps.
The second gap pertains to the merits of upfront planning.
The lean startup method emerged as a reaction to the business plan method. In this latter method, teams were told to think everything through up front, build a comprehensive business plan and then blindly execute it. This discredited method, along with its software development twin the waterfall method, was and is hopelessly flawed. This explains why, for lean advocates, upfront planning is viewed with such distrust. But in their distrust, lean advocates throw the baby out with the bath water. It is based on two flawed assumptions. The first is that thinking through a comprehensive, integrated and internally consistent set of claims within Market, Product, Model and Team will waste time. The second is that the result will be a strategy that creates a rigid, non-negotiable contract. Neither of these assumptions is accurate.
As to the first flaw, the conceiving of a comprehensive, integrated and internally consistent set of claims within the four domains doesn’t take much time. What takes time — and it’s unavoidable — is immersing and ideating enough within the marketplace, and inside the world of visionary customers, to be able to conceive of credible claims in the first place. That use of time is not wasteful. In fact, it’s the most efficient possible use of time, in the sense that it occurs while the team is still very small. The more you can learn while little or no money is being spent, the better. The lessons learned at this stage become invaluable time-savers as the company moves to later stages of company building. As the saying goes, it is far better to crawl, then walk, then run — than it is to run and crawl back again.
As to the second flaw, it’s simply not true that an upfront plan must become a rigid contract. In the Four-Way Fit method, it doesn’t. It results in a set of claims that are, in effect, a proto-strategy. As its claims are tested and data streams in, some are found to be faulty. The proto-strategy is adjusted and adjusted again, until it is verified. Only then do these claims become settled assumptions, coming together into a strategy that propels the team on to the next stage.
By articulating the unique requirements of the phases and stages of company building, the Four-Way Fit method provides more precise guidance as to how entrepreneurs can proceed from any given stage to the next. The “heads up” motion brings teams to the mountaintop — where they can think through all critical success factors that must be addressed to move to the next stage. The “heads down” motion follows — leading the team on its march through the valley’s forest.
This shift to holistic thinking, light upfront planning and continuous plan updates, as proposed in the Four-Way Fit method, parallels the shift that has emerged in the agile movement. Initially, agile advocates swung the pendulum far away from upfront planning. This was in reaction to the waterfall method of software development. In recent years the Disciplined Agile Delivery (DAD) method has emerged, bringing the pendulum back to the middle. As DAD has done in software development, so the Four-Way Fit method does with innovation. It brings renewed focus to upfront planning, while recognizing that the plan must continuously evolve as data streams in.
Organization of the Book
Part 1: The Four-Way Fit Framework
- Introduction to the Framework
- Market Claims
- Product Claims
- Model Claims
- Team Claims
Part 2: The Four-Way Fit Method
- Introduction to the Method
- The “Heads Up” Motion in Phase I
- The “Heads Down” Motion in Phase I
- The “Heads Up” Motion in Phase II
- The “Heads Down” Motion in Phase II
Part 3: Applying the Method, Stage by Stage
- Immerse / Ideate
- Minimum Viable Concept
- Initial Product Release
- Minimum Viable Product
- Minimum Viable Repeatability
- Minimum Viable Traction
- Minimum Viable Scaling
- Minimum Viable Expansion
- Minimum Viable IPO Path
- Hot Public Company
For all I’ve done in my career, nothing has given me more joy than what I do today. I’m a coach. A tech company CEO coach, to be precise. And it is the best job in the world.
It all began in 2013. I had just stepped off the roller coaster ride of my own startup, Digital Air Strike. Despite my background as a senior Fortune 500 executive (the most recent in a series of senior leadership roles up to that point), my startup founder experience had been bumpy. Multiple times along the scaling path, I had found myself humbled. Too often as choices arose, with resources dwindling and the stakes high, clarity eluded me. Time and again, it seemed only in retrospect that the patterns emerged. As I exited my startup experience, I realized I had learned a hard lesson.
Founding and building a startup is a world apart from running a big company. In a startup, you start with nothing. You must earn your right to exist by creating value. This isn’t easy. You make a ton of mistakes early on. It’s unavoidable. That’s because you don’t know what you don’t know. Every inch of progress is hard won. There’s a riddle hidden inside every stage, and to move on to the next stage, you must solve it.
As I exited my startup it hit me that through trial and error, I had learned a lot about these riddles. And so I resolved to share my lessons with other tech startup CEOs. But before I started my new life as a CEO coach, I committed myself to excel at it. I would not be one of those coaches who simply sucks from the straw of her or his own experience. Like a surgeon, I was too conscious of the impact of my advice. To be a teacher of the applied science of company building, I would also be its student. And the only way I could conceive to do this was to become an author. Writing teaches the writer as much as it does the reader. Since that day when I first started my advisory company CEO Quest, in the summer of 2013, I have invested over six thousand hours into book writing. It’s been hard, but worth it — because it has made me a better coach.
My first book was Scaling the Revenue Engine. Then came People Design, then Funding & Exits, and then In The Loop (on systems thinking and systems design). You are now reading the fifth and final book in the series. I can’t say that I planned it this way, but I now realize it is good that this book is my last. Innovation — the art of creating and sustaining customer-defined value far in excess of what competitors can offer — is, by far, the most important aspect of company building. And it’s hard to get it right. Every other aspect of your company can be average. But if you boast a great product and business model (and you operate in a big market) your company will still be worth a ton of money. The opposite will never be true. No amount of operational excellence will ever overcome a flawed market / product / model combination. As the saying goes, you can’t put lipstick on a pig.
This market / product / model combination is very important. And of course the only way these first three can come together is with the right team. Team is the fourth piece of the puzzle. Your job is to fit them all together. But how do you arrive at this Four-Way Fit? That’s the purpose of this book. Simply stated, it requires a new model — made up of a framework and a method. The old ones simply aren’t up to the job. After forty-five years in business, seven years in CEO coaching, six thousand hours of writing, four published books and a lot of thinking, I’m ready to share that model with you.
In the past seven years since starting CEO Quest, I have been privileged to coach a series of impressive entrepreneurs. CEOs like Ashik Ahmed at Deputy, Ashish Thusoo at Qubole, Victor Ho at FiveStars, Satish Natarajan at DispatchTrack, Geoff Nudd at WellSky, Mark Brewer at Lightbend, Manu Smadja at MPower Financing, Mark Gilbreath at LiquidSpace, Jonathan Cobb at Ayla, Matt Miller at Embroker, Ken Ruggiero at Goal Solutions, Nelson Chu at Cadence, Noam Wolf at MarketMan, Andrew Tan at FeedMob, Alex Ford at Lexipol and many more have taught me more about innovation than I’d have ever learned on my own. I am grateful to them.
Special thanks goes out to Dr. Christina Fuhr, the digital strategy expert who dedicated significant time to a vigorous edit of the introductory chapters (within which the book’s essence is first presented). She challenged me to roll out the concepts brick by brick in a much more logical and sequential manner than I had done in my first draft. Due to her excellent feedback, I thought more rigorously about everything.
I also owe a debt of gratitude to three early mentors who first nurtured an innovation mindset in me. The first was Tom Culligan, an innovator in his own right who made a big bet on me early in my career. He has remained a lifelong mentor and friend. Later, he recruited me to join him to work at a newspaper that, for its time, was one of the most innovative in the world. In those days, in the mid-nineties, newspapers were profit powerhouses. Joel Kramer, our publisher, and Jim Diaz, the SVP for the advertiser business unit, saw the rising threat of the Internet. They entrusted in me the responsibility to lead five verticals that drove about forty percent of our revenues. They let me implement a radical new cross-functional team structure to lead these five verticals, and then gave me the freedom to unleash a wave of new product innovation inside these teams. The work we did in those heady years was thrilling at the time, and remains for me a career highlight. Thanks to their trust, I drew many lessons from these early experiences.
I also thank Jason Green, managing director at Emergence Capital, and Jason Pressman, Managing Director at Shasta Ventures — my two favorite investors — for their wisdom and guidance during my years as co-founder and CEO of Digital Air Strike (initially called ResponseLogix). That six year journey was the hardest six years of my working life, but it was deeply formative. Some important lessons on innovation came from my mistakes, but many more came from the mistake-avoiding inputs of Jason and Jason.
Thanks too to SC Moatti, CEO of Products that Count and Managing Director of Mighty Capital. SC is a world class product management expert. Her insights into customer centric design are extraordinary, and influenced this book. I appreciate her generosity in sharing these insights with me and with other members of the CEO Quest community.
And finally, I extend my appreciation to Steve Blank, who wrote Four Steps to the Epiphany; and Eric Ries, who wrote Lean Startup. In the world of innovation theory, these authors paved the way. My book simply builds on the foundation they created.
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- Gage, Deborah. “The Venture Capital Secret: 3 Out of 4 Start-Ups Fail.” The Wall Street Journal. September 2020.
- “Do economic or industry factors affect business survival?” Bureau of Labor Statistics, Business Employment Dynamics. June 2012.