Moonshots are a myth: Why companies serious about growth should position capital into a large volume of small bets, anchored in new customer problems

Bionic
Bionic
Jul 2 · 8 min read

Article originally on LinkedIn

Photo by Hello I’m Nik 🇬🇧 on Unsplash

Executives are trained to think of growth in a very particular way. Eager to satisfy shareholders, they are often conservative and cautious with their investments. They down-select from many potential growth opportunities to one or two consensus-driven plans. Once they’re convinced that the plan they will buy will work, they pour capital and attention into these expected “winners.”

The irony is that this approach is actually much riskier than the alternative, which is to build a portfolio of bets that you can validate (or invalidate) quickly and inexpensively. Moonshots devour so many resources and have so much riding on them that they become too big to fail. They’re kept artificially alive at ballooning financial and staffing costs. They’re driven by vanity metrics, which leads to success theater. But as is true for many moonshots, everyone knows that, at some point, they aren’t going to work. They become the walking dead. (At Bionic, we call them zombies.)

Rather than committing to an expensive, untested moonshot, leaders should approach growth like building a ladder to the moon. Learn about an opportunity in steps, and build in the ability to capture learnings out of order. In other words, work out one piece of the model two “rungs” from now, even while you work out how to build the next rung. (SpaceX is a great example of this approach.)

Ladder rungs are cheaper than catapults, and the cost of failures is much easier to absorb. In this model, the future is learned, not taught. Discovered, not planned. Bought, not sold.

My new book, New to Big, introduces this always-on model for growth for organizations of all sizes: borrowing from the world of entrepreneurship and venture capital to develop portfolios of startups, staging investment along the way as the startups validate the customer need, their solution to that need, and the business model that will sustain the venture. It’s the anti-moonshot. And it creates a permanent growth capability that we call the New to Bigmachine, which works in concert with the scaled enterprise, or the Big to Bigger machine.

The future is discovered, not planned

The future technologies, trends, and markets are not yet known, and they are changing far too fast for a traditional business-planning approach. The future looks nothing like the past, and relying on old expertise, old data, and old insights will only ensure expensive failure. So instead of sinking large amounts of capital into a select few new ventures, often called rack-and-stack planning, companies need to embrace the power of portfolios — placing dozens of small bets, using the tools of discovery and validation to reveal which ones will succeed. Angel and venture capitalists do this innately, and large enterprises can and should adopt their playbook. This is fundamentally about learning velocity, and whoever learns the fastest wins.

When you invest in a variety of startups, you lower the chance of being surprised by major changes in your sector. You know what the market is doing because your portfolio of bets is revealing that commercial truth as they discover it. They’re like labs that experiment on your behalf. That’s a competitive advantage. Startups are solutions to new customer problems, and they serve as the sensors to know when you are “right and on time” to ride the wave of a new customer trend, technology adoption curve, or regulatory shift. But how do you know which startups to fund? How do you identify which trends or technologies to pay attention to? Here’s a hint: The answers are not inside your building.

Most enterprises overvalue their own knowledge, expertise, and insight and undervalue the experiences, trends, and secrets that exist outside their walls. Yet the majority of startup success stories are driven by forces outside the entrepreneurs’ control. VCs understand this. We regularly ask VCs what percentage of their successes are due to market timing, luck, fate…whatever you want to call it. Their answers are always sky-high. “I think that being in the right place at the right time is sort of 99 percent of everything,” says Albert Wenger, managing partner at Union Square Ventures. Right, and on time.

VCs know that the real drivers behind their huge wins are external — changing regulations, the diminishing cost of a technology, consumer trends. It’s not about them; it’s about something outside of them, something happening on its own timeline and out of their control. This means looking at the world from the inside out is a terrible strategy for creating something new. You have to turn outside in. Outside in means asking, “What outside forces are happening to us? How is the landscape changing? What new enablers allow us to solve this customer problem exponentially better than it’s being solved now? And how can we leverage our organization’s unique capabilities, our ‘proprietary gifts,’ to capture and leverage this force?” As leaders, we need to be keenly aware of new and emerging market forces so we can develop extraordinary ideas internally and release them at the ideal moment. We need to see potential and position capital to jump on that potential when the time comes.

This reinforces the uncomfortable truth: You can’t plan your way to the future. You must discover it.

Escaping the event horizon of Day Three

Unfortunately, discovery alone will not solve your growth problems. Because your real friction is not an ideas problem or even a money problem; it’s a leadership mindset problem. Many enterprise leaders have fundamentally lost the incentive and skill to discover and create growth as a permanent growth capability.

In Jeff Bezos’s annual letter to Amazon shareholders over the past 20 years, he’s continually reinforced the importance of a “Day One” mind-set and cautioned against becoming a “Day Two” organization. Why? Because, as a founder, he understands how critical it is that the entire organization, starting with him, preserves its entrepreneurial mindset. That fear of complacency, of losing speed, grit, an appetite for risk as culture scales, is what makes the company more like a scaled startup than a lumbering enterprise (and Wall Street has rewarded Amazon for it).

On Day One, the hunger, passion, ability to adapt, and sheer energy are as strong as they will ever be, because that is what is required to survive. When you lose that core energy, you lose the ability to grow. Day Two is about stasis and irrelevance. Day Three is a long and excruciating decline. In many cases, this may be your grand challenge as a CEO: to restore the “Day One” growth culture.

Startup founders get much of the attention these days, and a handful of successes like Jeff Bezos from Amazon, Sara Blakely from Spanx, and Elon Musk of Tesla/SpaceX offer the dramatic narrative and singular personality-driven visions that fuel the media machine. It can be tempting to look at founders with a mix of disbelief and awe (perhaps mixed with a touch of defensiveness and valuation envy) and insist that they get to play by a different set of rules. And, as a leader of a large, existing organization, you aren’t a founder. It’s true.

You can, however, be a refounder.

Refounders are leaders who, despite not having created their companies from scratch, adopt the Day One mind-sets and models of founders. Microsoft’s Satya Nadella is an excellent example of a refounder: when he took over the CEO role in 2014, he immediately began refocusing the entire enterprise on growth-centric endeavors.

“If you don’t jump on the new,” he proclaimed, “you don’t survive.”

Through it all, Nadella has emphasized the importance of a growth mindset: long-term thinking; utilizing a test-and-learn approach; and obsessing over customer problems, needs, and outcomes. He’s also given the company permission to learn from its failures, most notably with the Windows phone. “If you are going to have a risk-taking culture, you can’t really look at every failure as a failure. You’ve got to be able to look at the failure as a learning opportunity,” he told Business Insider in 2017.

A Day Three mindset is what leads CEOs to think they can cost-cut their way to growth. (The recent results from Kraft Heinz prove otherwise.) A Day Two mindset refuses to consider any opportunity that might disrupt the cash cows. A Day One mindset knows cash cows are for a limited time only and recognizes it needs to pursue growth from any direction, even if that requires disrupting yourself.

A permanent growth capability

At Bionic, we created the Growth Operating System to function like a smaller, New to Big machine that runs in tandem alongside the gargantuan Big to Bigger machine. This is important: The Growth OS feeds the primary enterprise, but it doesn’t replace it. Instead, this (metaphorical) operating system leverages the mind-sets, mechanics, and tools of the startup ecosystem to ignite growth revolutions inside enterprises.

Whenever we meet CEOs who are considering how they can build New to Big, they always fear they don’t have the right entrepreneurial talent in their rank-and-file. Yet whenever we meet an employee in the trenches who is excited about discovering new customer problems and creating radically new solutions, they worry their leadership will never give them permission to do this kind of work. In reality, most companies have the right talent — both at the top and in the trenches — but they need permission to work differently. Leadership needs to become ambidextrous as both an operator and a creator. And everyone involved must face the commercial truth when it comes to funding or killing bets in the portfolio.

The competitive advantages that big companies have over startups are experience and scale. When C-level execs at a Fortune 500 company pick up on a trend or identify a ripe new customer need, they’ve already got the means to pursue and accelerate. They have customers, distribution, supply chain, and a trustworthy brand already lined up. They can therefore make or break fringe ideas and experimental products. The competitive advantages that startups have over big companies are greater speed and a lower cost of learning. A decision that takes Unilever six months to solidify via committee discussions and executive sign-offs could take Brandless six days.

The Growth OS combines the best of both worlds. It takes the agility and creativity of startups and weaves them with the expertise and clout of corporate legacy. Following our blueprint, established companies can recapture their growth skills. They already know how to grow from Big to Bigger. What we teach is a new and necessary skill set: how to foster growth from New to Big.

Startups won the first round of disruption as the Fortune 500 outsourced growth and innovation to the Valley. We believe enterprises can win round two. Why? Because they have some not-so-secret weapons in the battle for growth: loyal customers, massive distribution channels, manufacturing capabilities, scaling systems, and the brand equity that startups and venture capitalists can only dream of. You can accelerate a customer adoption curve that start-ups could never handle. You are in a position to not only see and meet the future, but to make the future happen sooner.

Learn more at NewtoBig.com, and follow me to make sure you never miss an article.

onbionic

At Bionic, we seed + launch startups that discover and solve new customer problems for the world’s most competitive companies.

Bionic

Written by

Bionic

At Bionic, we seed + launch startups that discover and solve new customer problems for the world’s most competitive companies.

onbionic

onbionic

At Bionic, we seed + launch startups that discover and solve new customer problems for the world’s most competitive companies.