Author Archives: Steve Blank

About Steve Blank

Steve Blank is an Adjunct Professor at Stanford and Senior Fellow for Innovation at Columbia University. He has been described as the Father of Modern Entrepreneurship, credited with launching the Lean Startup movement that changed how startups are built; how entrepreneurship is taught; how science is commercialized, and how companies and the government innovate.

Startups Must Be Where Their Customers Are

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Startups Must Be Where Their Customers Are

GUEST POST from Steve Blank

“A CEO running a B-to-B startup needs to live in the city where their business is – or else they’ll never scale.”

I was having breakfast with Erin, an ex-student, just off a red-eye flight from New York. She’s built a 65-person startup selling enterprise software to the financial services industry. Erin had previously worked in New York for one of those companies and had a stellar reputation in the industry. As one would expect, with banks and hedge funds as customers, the majority were based in the New York metropolitan area.

Where Are Your Biggest Business Deals?

Looking a bit bleary-eyed, Erin explained, “Customers love our product, and I think we’ve found product/market fit. I personally sold the first big deals and hired the VP of sales who’s building the sales team in our New York office. They’re growing the number of accounts and the deal size, but it feels like we’re incrementally growing a small business, not heading for exponential growth. I know the opportunity is much bigger, but I can’t put my finger on what’s wrong.”

Erin continued, “My investors are starting to get impatient. They’re comparing us to another startup in our space that’s growing much faster. My VP of Sales and I are running as fast as we can, but I’ve been around long enough to know I might be the ex-CEO if we can’t scale.”

While Erin’s main sales office is in New York, next to her major prospects and customers, Erin’s company was headquartered in Silicon Valley, down the street from where we were having breakfast. During the Covid pandemic, most of her engineering team worked remotely. Her inside sales team (Sales Development and Business Development reps) used email, phone, social media and Zoom for prospecting and generating leads. At the same time, her account executives were able to use Zoom for sales calls and close and grow business virtually.

There’s a Pattern Here

Over breakfast, I listened to Erin describe what at first seemed like a series of disconnected events.

First, a new competitor started up. Initially, she wasn’t concerned as the competitor’s product had only a subset of the features that Erin’s company did. However, the competitor’s headquarters was based in New York, and their VP of Sales and CEO were now meeting face-to-face with customers, most of whom had returned to their offices. While Erin’s New York-based account execs were selling to the middle tier management of organizations, the CEO of her competitor had developed relationships with the exec staff of potential customers. She lamented, “We’ve lost a couple of deals because we were selling at the wrong level.”

Second, Erin’s VP of sales had just bought a condo in Miami to be next to her aging parents, so she was commuting to NY four days a week and managing the sales force from Miami when she wasn’t in New York. Erin sighed, “She’s as exhausted as I am flying up and down the East Coast.”

Third, Erin’s account execs were running into the typical organizational speedbumps and roadblocks that closing big deals often encounter. However, solving them via email, Zoom and once-a-month fly-in meetings wasn’t the same as the NY account execs being able to say, “Hey, our VP of Sales and CEO are just down the street. Can we all grab a quick coffee and talk this over?” Issues that could have been solved casually and quickly ballooned into ones that took more work and sometimes a plane trip for her VP of Sales or Erin to solve.

By the time we had finished breakfast it was clear to me that Erin was the one putting obstacles in front of her path to scale. Here’s what I observed and suggested.

Keep Your Eye on The Prize

While Erin had sold the first deals herself, she needed to consider whether each deal happened because as CEO, she could call on the company’s engineers to pivot the product. Were the account execs in New York trying to execute a sales model that wasn’t yet repeatable and scalable without the founder’s intervention? Had a repeatable and scalable sales process truly been validated? Or did each sale require a heroic effort?

Next, setting up their New York office without Erin or her VP of Sales physically living in New York might have worked during Covid but was now holding her company back. At this phase of her company the goal of the office shouldn’t be to add new accounts incrementally – but should be how to scale – repeatably. Hiring account execs in an office in New York let Erin believe that she had a tested, validated, and repeatable sales playbook that could rapidly scale the business. The reality was that without her and the VP of Sales living and breathing the business in New York, they were trying to scale a startup remotely.

Her early customers told Erin that her company had built a series of truly disruptive financial service products. But now, the company was in a different phase – it needed to build and grow the business exponentially. And in this phase, her focus as a CEO needed to change – from searching for product/market fit to driving exponential growth.

Driving Exponential Growth

Exponential Growth Requires Relentless Execution

Because most of her company’s customers were concentrated in a single city, Erin and her VP of Sales needed to be there – not visiting in a hotel room. I suggested that:

  • Erin had to quickly decide if she wanted to be the one to scale the business. If not, her investors were going to find someone who could.

  • If so, she needed to realize that she had missed an important transition in her company. In a high-dollar B-to-B business, building and scaling sales can’t be done remotely. And she was losing ground every day. Her New York office needed a footprint larger than she was. It needed business development and marketing people rapidly creating demand.

  • Her VP of Sales might be wonderful, but with the all the travel the company is only getting her half-time. Erin needs a full-time head of sales in New York. Time to have a difficult conversation.

  • Because she was behind, Erin needed to rent an apartment in New York for a year, and spend the next six months there and at least two weeks a month after that. Her goal was to:
    1. Validate that there was a repeatable sales process. It not, build one
    2. Build a New York office that could create a sales and marketing footprint without her presence. Only then could she cut back her time in the City.

  • Finally, she needed to consider that if her customers were primarily in New York and the engineers were working remotely, why weren’t the company headquarters in New York?

I Hate New York

As we dug into these issues, I was pretty surprised to hear her say, “I spent a big part of my career in New York. I thought coming out to Stanford and the West Coast meant I could leave the bureaucracy of large companies and that culture behind. Covid let me do that for a few years. I guess now I’m just avoiding jumping back into an environment I thought I had left.”

We lingered over coffee as I suggested it was time for her to take stock of what’s next. She had something rare – a services company that provided real value with products that early customers loved. Her staff didn’t think they were joining a small business, neither did her investors. If she wasn’t prepared to build something to its potential, what was her next move?

Lessons Learned

  • For a startup, the next step after finding product/market fit is finding a repeatable and scalable sales process

  • This requires a transition to the relentless execution of creating demand and exponentially growing sales

  • If your customers are concentrated in a city or region, you need to be where your customers are

  • The CEO needs to lead this growth focus

  • And then hand it off to a team equally capable and committed

The full article originally appeared on Steve Blank’s blog

Image credits: Pixabay, Steve Blank

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A Startup’s Guide to Marketing Communications

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A Startup's Guide to Marketing Communications

GUEST POST from Steve Blank

I was having coffee with the CEO of a new startup, listening to her puzzle through how to communicate to potential customers. She was an academic on leave from Stanford now selling SAAS software to large companies, but was being inundated with marketing communications advice. “My engineers say our website is old school, and we need to be on Facebook, Twitter and Instagram, my VP of Sales says we’re wasting our marketing dollars not targeting the right people and my board keeps giving me their opinions of how we should describe our product and company. How do I sort out what to do?”

She winced as I reminded her that she had gone through the National Science Foundation Innovation Corps. “Painful and invaluable” was her reply. I reminded her that all the Lean tools she learned in class–Customer Discovery, business model and value proposition canvases– contained her answer.

Here’s how.
—-

Define the Mission of Marketing Communications

Companies often confuse communications tactics (“What should my webpage look like or should I be using Facebook/Instagram/Twitter?”) with a strategy. A communications strategy answers the question, “Why are we doing these activities?” For example, our goal could be:

  1. Create demand for our products and drive it into our sales channel
  2. Create awareness of our company and brand for potential customers
  3. Create awareness for fundraising (VC, angels, corporate partners)
  4. Create awareness for potential acquirers of our company

(Marketing communications is a subset of the Marketing department’s mission. Read the post about mission and intent here.)

Audience(s), Message, Media, Messenger

Once you figure out why you’re creating a communications strategy then you can figure out how to use it. The “how” requires just four steps:

  1. Understand your audience(s)
  2. Craft the message for that specific audience
  3. Select the media you want the message to be read/seen/heard on
  4. Select the messenger you want to carry your message

Audiences Message Media Messenger Steve Blank

Step 1: Who’s the Audience(s)?

An audience means – who specifically you want your messages to reach. Is it all the people on earth? Everyone in San Francisco? Potential customers such as gamers who like to play specific types of games? Or people inside companies with a specific title, like product or program managers, CIOs, etc? Venture Capitalists who may want to invest? Other companies that may want to acquire you?

What’s confusing is that often there are multiple audiences you want to communicate with. So, refer to your strategy: Are you trying to reach potential customers or potential investors and acquirers? These are very different audiences, each requires its own messages, media and messengers.

If you’re selling a product to a company, for example, is the audience the user of the product? Her boss? The person who has the budget? The CEO?

How do you figure out who the audience is? It turns out that if you’ve been doing customer discovery and using the value proposition canvas, you know a lot about each customer/ beneficiary. The first step is to put all those value proposition canvases on the wall to remind you that these are the people you need to reach.

Steve Blank Value Prop ExamplesHow do you figure out which of these customers/beneficiaries is most important? Who’s the least important? If you’ve been out talking to customers, you will have an idea of who’s involved in the buying process. Who’s the user of product? The recommender? The decision maker? The saboteur? As you map out what you learned about the role each of these customers plays in the buying process, marketing communications and sales can decide which one of the customers/beneficiaries is the primary audience of your messages. (And they can decide if there any secondary audiences you should reach.) Often there are multiple people in a sales process worth influencing.

If you’re trying to reach potential acquirers or investors, the customer discovery process is the same. Spend time building value proposition canvases for these audiences.

Step 2: What’s the Message?

Messages are what you delivering to the audience(s) you’ve selected. Messages answer three questions:

  1. Why should the audience care?
  2. What are you offering?
  3. What’s the call to action?

Your customers have already told you how to craft the first part of your message. The answer to “Why should your audience care?” comes directly from the pains and gains on the right side of the value proposition canvas.

And the answer to the second question “What are you offering?” comes from the left side of the value proposition canvas. It’s not just the product feature list, but the pain relievers and gain creators.

Once you get your audience to read your message, then what? What’s the call to action? Do you want them to download a demo, schedule a sales call, visit a physical store location or a website, download an app, click for more information, give you their email address, etc.? Your message needs to include a specific call to action.

Other things to keep in mind about messages:

Message Context

A message that is brilliant today and gets the press writing about you and customers begging to buy your product could have been met with blank stares two years ago and may be obsolete next year. In crafting your messages, remember that all messages operate in a context that may have an expiration date. Netbooks, 3DTVs, online classes disrupting higher ed, all had their moment in time. Make sure your context is current and revisit your messages periodically to see if they still work.

Sticky Messages

Messages also need to be memorable – “sticky.” Why? Because the more memorable the message, the greater its ability to create change. Not only do we want people to change their buying behavior, we also want them to change how they think. (This is often a tough concept for engineering founders who believe that if we just tell customers about the features that make their product faster, cheaper, etc. they’ll win.)

Consider that if you were told you were going to pay for cold, dead fish wrapped in seaweed you might not be too hungry. But when we call it sushi people line up.

The same goes for a hamburger. You may eat a lot of them, but if McDonald’s message was “dead cow, slaughtered by the millions, butchered by minimum wage earners, then ground into patties, frozen into solid blocks, and reheated when you order them,” instead of “You deserve a break today,” sales might be a tad lower.

Product versus Company Messages

There is a difference between detailed product messages versus messages about your company. At times, you may have to communicate what the company stands for before a customer is ready to listen to you talk about product messages. For example, to outflank a competitor who had faster products, Intel moved the conversation about microprocessors away from speed and technology to create a valued brand. They created the “Intel Inside” campaign.

Apple was trying to resurrect a then-dying company by reminding people what Apple stood for with their “Think Different” ad campaign:

Both Apple and Intel were selling complicated technology but did so by simplifying the message so it had broad emotional appeal. Both Intel Inside and Think Different became sticky corporate messages.

Step 3: Media

Media means the type of communications media each audience member reads/listens to/watches. Is could be print (newspapers/magazine), Internet (website, podcasts, etc.), broadcast (TV, radio, etc.) or social media (Facebook, Twitter, etc.). In customer discovery, you asked prospects how they get information about new companies and new products. (If not, get back out and do so!) The media your prospective customers told you they use ought to be on top of your target media.

The online media your company controls (your corporate website, company Facebook page, Twitter, Instagram, etc.) should be the first place you experiment finding your audience(s) and message.

Typically, you pick several media to reach each audience. It’s likely that each audience reads different media (potential customers read something very different than potential investors.) You’ll need a media strategy – a plan that describes the mix of media and how you will use it. This plan should include the category of media; print, internet, broadcast and then identify specific sites, blogs, magazine, etc.

Step 4: Messengers

Messengers are the well-placed and highly leveraged individuals who have influence over your audience(s). Messengers convey and amplify your message to your audience through the media you’ve chosen.

There are four types of messengers: reporters, experts, evangelists and connectors. (Each audience will have its own unique set of messengers.)

1. Reporters are paid by specific media to write about news. Which reporters you should talk to comes from discovering which media your audience has said they read. Your goal is to identify who are the reporters in the media your audience reads and what they write about, and to figure out why they should write about you. (Wrong answer – because we have a new product. Very wrong answer – because my CEO wants to be on the cover of publication X or Y.)

2. Experts know your industry or product in detail, and others rely on them for their opinions. Experts may be industry analysts in private research firms (Gartner, NPD, AMR), Wall Street research analysts (Morgan Stanley, Goldman Sachs), consultants who provide advice for your industry or bloggers with wide followings. Experts may even be potential customers who run user groups that other potential customers turn to for advice.

(Today some reporters are experts – product reviewers in the Tech Section of the Wall Street Journal, or the Technology section of the New York Times (or its product review site Wirecutter)).

3. Evangelists are unabashed cheerleaders and salespeople for your product and, if you are creating a new market, for your company vision. They tell everyone how great the product is and about the unlimited potential of your product and market. While nominally carrying less credibility than experts, evangelists have two advantages: typically, they are paying customers, and they are incredibly enthusiastic about what they say. (Evangelists are not customers who will give a reference. A customer reference is something you have to twist arms to get; an evangelist is someone you can’t get off the phone.)

4. Connectors are individuals who seem to know everyone. Each industry has a few. They may be bloggers who expound on the general state of your industry and write magazine or newspaper columns. They may be individuals who organize and hold conferences where the key industry thought leaders gather. Often, they themselves are the thought leaders.

Founders ask me all the time whether they should hire a PR agency. I tell them, “The question isn’t if. The question is when?” Influencing the messengers is what great public relations firms know how to do. They may have their own language describing who the messengers are (e.g., “influencers”) and how they manage them (e.g. “information chain”), but once you’ve done a first pass of the audience > message > media > messenger, a competent PR firm can add tremendous value.

Customer Discovery Never Stops

Understanding your audience(s) is important for not just startups, but for companies already selling products. It helps you stay current with customers, get ideas for other needs to fill and to create new products. In addition, the audience > message > media > messenger cycle seamlessly moves this learning into getting, keeping and growing customers. Today, Marketing Automation tools (customer analytics, SEO, and Customer Relationship Management (CRM) platforms) generate customer behavior history about what messages worked on which media. These tools generate data that companies use to feed AdTech tools (demand-side platforms, ad exchanges and networks) to automate selling and buying of online ads.

Communications as a Force Multiplier

  • Smart CEOs treat communications as a force multiplier for sales, a tool to dramatically increase valuation and the vehicle to get acquirers lined up at the door. Not so successful CEOs treat it as tactic that can be handed to others.

  • Hiring a PR agency too early is a sign that the CEO is treating this as someone else’s problem. In a startup, the first pass of understanding Audience, Message, Media, Messenger can only be done with the founders/CEO engaged.

  • Getting publicity for a product that does not yet exist is how startups get noticed. But don’t fall victim to your own reality distortion field and hype a product that can never be made (think of Tesla versus Theranos.)

  • Figuring out who the possible audiences are, what messages to send, and what media to use, feels overwhelming at first. The temptation is to try to reach all the audiences with a single message and a single media. That’s a going out of business strategy. Use Customer Discovery, and your customers will teach you who they are, what to say to them and how to reach them.

Lessons Learned

  • Marketing Communications = Audience, Message, Media, Messenger
  • Use the Value Proposition Canvas to understand who your audience(s) are
  • Craft messages to match what your audience has already told you
  • Pick the media they said they read
  • Find the right messengers to amplify your message

The full article originally appeared on Steve Blank’s blog

Image credits: Pixabay, Steve Blank

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An Innovation Action Plan for the New CTO

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Finding and Growing Innovation Islands Inside a Large Company

An Innovation Action Plan for the New CTO

GUEST POST from Steve Blank

How does a newly hired Chief Technology Officer (CTO) find and grow the islands of innovation inside a large company?

How not to waste your first six months as a new CTO thinking you’re making progress when the status quo is working to keep you at bay?

I just had coffee with Anthony, a friend who was just hired as the Chief Technology Officer (CTO) of a large company (30,000+ people.) He previously cofounded several enterprise software startups, and his previous job was building a new innovation organization from scratch inside another large company. But this is the first time he was the CTO of a company this size.

Good News and Bad

His good news was that his new company provides essential services and regardless of how much they stumbled they were going to be in business for a long time. But the bad news was that the company wasn’t keeping up with new technologies and new competitors who were moving faster. And the fact that they were an essential service made the internal cultural obstacles for change and innovation that much harder.

We both laughed when he shared that the senior execs told him that all the existing processes and policies were working just fine. It was clear that at least two of the four divisions didn’t really want him there. Some groups think he’s going to muck with their empires. Some of the groups are dysfunctional. Some are, as he said, “world-class people and organizations for a world that no longer exists.”

So, the question we were pondering was, how do you quickly infiltrate a large, complex company of that size? How do you put wins on the board and get a coalition working? Perhaps by getting people to agree to common problems and strategies? And/or finding the existing organizational islands of innovation that were already delivering and help them scale?

The Journey Begins

In his first week the exec staff had pointed him to the existing corporate incubator. Anthony had long come to the same conclusion I had, that highly visible corporate incubators do a good job of shaping culture and getting great press, but most often their biggest products were demos that never get deployed to the field. Anthony concluded that the incubator in his new company was no exception. Successful organizations recognize that innovation isn’t a single activity (incubators, accelerators, hackathons); it is a strategically organized end-to-end process from idea to deployment.

In addition, he was already discovering that almost every division and function was building groups for innovation, incubation and technology scouting. Yet no one had a single road map for who was doing what across the enterprise. And more importantly it wasn’t clear which, if any, of those groups were actually continuously delivering products and services at high speed. His first job was to build a map of all those activities.

Innovation Heroes are Not Repeatable or Scalable

Over coffee Anthony offered that in a company this size he knew he would find “innovation heroes” – the individuals others in the company point to who single-handedly fought the system and got a new product, project or service delivered (see article here.) But if that was all his company had, his work was going to be much tougher than he thought, as innovation heroics as the sole source of deployment of new capabilities are a sign of a dysfunctional organization.

Anthony believed one of his roles as CTO was to:

  • Map and evaluate all the innovation, incubation and technology scouting activities
  • Help the company understand they need innovation and execution to occur simultaneously. (This is the concept of an ambidextrous organization (see this HBR article).)
  • Educate the company that innovation and execution have different processes, people, and culture. They need each other – and need to respect and depend on each other
  • Create an innovation pipeline – from problem to deployment – and get it adopted at scale

Anthony was hoping that somewhere three, four or five levels down the organization were the real centers of innovation, where existing departments/groups – not individuals – were already accelerating mission/delivering innovative products/services at high speed. His challenge was to find these islands of innovation and who was running them and understand if/how they:

  • Leveraged existing company competencies and assets
  • Understand if/how they co-opted/bypassed existing processes and procedures
  • Had a continuous customer discovery to create products that customers need and want
  • Figured out how to deliver with speed and urgency
  • And if they somehow had made this a repeatable process

If these groups existed, his job as CTO was to take their learning and:

  • Figure out what barriers the innovation groups were running into and help build innovation processes in parallel to those for execution
  • Use their work to create a common language and tools for innovation around rapid acceleration of existing mission and delivery
  • Make permanent delivering products and services at speed with a written innovation doctrine and policy
  • Instrument the process with metrics and diagnostics

Get Out of the Office

So, with another cup of coffee the question we were trying to answer was, how does a newly hired CTO find the real islands of innovation in a company his size?

A first place to start was with the innovation heroes/rebels. They often know where all the innovation bodies were buried. But Anthony’s insight was he needed to get out of his 8th floor office and spend time where his company’s products and services were being developed and delivered.

It was likely that most innovative groups were not simply talking about innovation, but were the ones who rapidly delivering innovative solutions to customer’s needs.

One Last Thing

As we were finishing my coffee Anthony said, “I’m going to let a few of the execs know I’m not out for turf because I only intend to be here for a few years.” I almost spit out the rest of my coffee. I asked how many years the division C-level staff has been at the company. “Some of them for decades” he replied. I pointed out that in a large organization saying you’re just “visiting” will set you up for failure, as the executives who have made the company their career will simply wait you out.

As he left, he looked at a bit more concerned than we started. “Looks like I have my work cut out for me.”

Lessons Learned

  1. Large companies often have divisions and functions with innovation, incubation and technology scouting all operating independently with no common language or tools

  2. Innovation heroics as the sole source of deployment of new capabilities are a sign of a dysfunctional organization

  3. Innovation isn’t a single activity (incubators, accelerators, hackathons); it is a strategically organized end-to-end process from idea to deployment

  4. Somewhere three, four or five levels down the organization are the real centers of innovation – accelerating mission/delivering innovative products/services at high speed

  5. The CTO’s job is to:
    • create a common process, language and tools for innovation
    • make them permanent with a written innovation doctrine and policy

  6. And don’t ever tell anyone you’re a “short timer”

This article originally appeared in Fast Company

Image credit: Unsplash

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Innovation Lessons from Ukraine and China for the DoD

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Ukraine Satellite Image from Capella Space

GUEST POST from Steve Blank

Portions of this post previously appeared in ‘War On the Rocks’

Looking at a satellite image of Ukraine online I realized it was from Capella Space – one of our Hacking for Defense student teams who now has seven satellites in orbit.

National Security is Now Dependent on Commercial Technology

They’re not the only startup in this fight. An entire wave of new startups and scaleups are providing satellite imagery and analysis, satellite communications, and unmanned aerial vehicles supporting the struggle.

For decades, satellites that took detailed pictures of Earth were only available to governments and the high-resolution images were classified. Today, commercial companies have their own satellites providing unclassified imagery. The government buys and distributes commercial images from startups to supplement their own and shares them with Ukraine as part of a broader intelligence-sharing arrangement that the head of Defense Intelligence Agency described as “revolutionary.” By the end of the decade, there will be 1000 commercial satellites for every U.S. government satellite in orbit.

At the onset of the war in Ukraine, Russia launched a cyber-attack on Viasat’s KA-SAT satellite, which supplies Internet across Europe, including to Ukraine. In response, to a (tweeted) request from Ukraine’s vice prime minister, Elon Musk’s Starlink satellite company shipped thousands of their satellite dishes and got Ukraine back on the Internet. Other startups are providing portable cell towers – “backpackable” and fixed. When these connect via satellite link, they can provide phone service and WIFI capability. Another startup is providing a resilient, mesh local area network for secure tactical communications supporting ground units.

Drone technology was initially only available to national governments and militaries but is now democratized to low price points and available as internet purchases. In Ukraine, drones from startups are being used as automated delivery vehicles for resupply, and for tactical reconnaissance to discover where threats are. When combined with commercial satellite imagery, this enables pinpoint accuracy to deliver maximum kinetic impact in stopping opposing forces.

Equipment from large military contractors and other countries is also part of the effort. However, the equipment listed above is available commercially off-the-shelf, at dramatically cheaper prices than what’s offered by the large existing defense contractors, and developed and delivered in a fraction of the time. The Ukraine conflict is demonstrating the changing character of war such that low-cost emerging commercial technology is extremely effective when deployed against a larger 20th-century industrialized force that Russia is fielding.

While we should celebrate the organizations that have created and fielded these systems, the battle for the Ukraine illustrates much larger issues in the Department of Defense.

For the first time ever our national security is inexorably intertwined with commercial technology (drones, AI, machine learning, autonomy, biotech, cyber, semiconductors, quantum, high-performance computing, commercial access to space, et al.) And as we’re seeing on the Ukrainian battlefield they are changing the balance of power.

The DoD’s traditional suppliers of defense tools, technologies, and weapons – the prime contractors and federal labs – are no longer the leaders in these next-generation technologies – drones, AI, machine learning, semiconductors, quantum, autonomy, biotech, cyber, quantum, high performance computing, et al. They know this and know that weapons that can be built at a fraction of the cost and upgraded via software will destroy their existing business models.

Venture capital and startups have spent 50 years institutionalizing the rapid delivery of disruptive innovation. In the U.S., private investors spent $300 billion last year to fund new ventures that can move with the speed and urgency that the DoD now requires. Meanwhile China has been engaged in a Civil/Military Fusion program since 2015 to harness these disruptive commercial technologies for its national security needs.

China – Civil/Military Fusion

Every year the Secretary of Defense has to issue a formal report to Congress: Military and Security Developments Involving the People’s Republic of China. Six pages of this year’s report describe how China is combining its military-civilian sectors as a national effort for the PRC to develop a “world-class” military and become a world leader in science and technology. A key part of Beijing’s strategy includes developing and acquiring advanced dual-use technology. It’s worth thinking about what this means – China is not just using its traditional military contractors to build its defense ecosystem; they’re mobilizing their entire economy – commercial plus military suppliers. And we’re not.

DoD’s Civil/Military Orphan-Child – the Defense Innovation Unit

In 2015, before China started its Civil/Military effort, then-Secretary of Defense Ash Carter, saw the need for the DoD to understand, embrace and acquire commercial technology. To do so he started the Defense Innovation Unit (DIU). With offices in Silicon Valley, Austin, Boston, Chicago and Washington, DC, this is the one DoD organization with the staffing and mandate to match commercial startups or scaleups to pressing national security problems. DIU bridges the divide between DOD requirements and the commercial technology needed to address them with speed and urgency. It accelerates the connection of commercial technology to the military. Just as importantly, DIU helps the Department of Defense learn how to innovate at the same speed as tech-driven companies.

Many of the startups providing Ukraine satellite imagery and analysis, satellite communications, and unmanned aerial vehicles were found by the Defense Innovation Unit (DIU). Given that DIU is the Department of Defense’s most successful organization in developing and acquiring advanced dual-use technology, one would expect the department to scale the Defense Innovation Unit by a factor of ten. (Two years ago, the House Armed Services Committee in its Future of Defense Task Force report recommended exactly that—a 10X increase in budget.) The threats are too imminent and stakes too high not to do so.

So what happened?

Congress cut their budget by 20%.

And their well-regarded director just resigned in frustration because the Department is not resourcing DIU nor moving fast enough or broadly enough in adopting commercial technology.

Why? The Defense Ecosystem is at a turning point. Defense innovation threatens entrenched interests. Given that the Pentagon budget is essentially fixed, creating new vendors and new national champions of the next generation of defense technologies becomes a zero-sum game.

The Defense Innovation Unit (DIU) had no advocates in its chain of command willing to go to bat for it, let alone scale it.

The Department of Defense has world-class people and organization for a world that no longer exists

The Pentagon’s relationship with startups and commercial companies, already an arms-length one, is hindered by a profound lack of understanding about how the commercial innovation ecosystem works and its failure of imagination about what venture and private equity funded innovation could offer. In the last few years new venture capital and private equity firms have raised money to invest in dual-use startups. New startups focused on national security have sprung up and they and their investors have been banging on the closed doors of the defense department.

If we want to keep pace with our adversaries, we need to stop acting like we can compete with one hand tied behind our back. We need a radical reinvention of our civil/military innovation relationship. This would use Department of Defense funding, private capital, dual-use startups, existing prime contractors and federal labs in a new configuration that could look like this:

Create a new defense ecosystem encompassing startups, and mid-sized companies at the bleeding edge, prime contractors as integrators of advanced technology, federally funded R&D centers refocused on areas not covered by commercial tech (nuclear and hypersonics). Make it permanent by creating an innovation doctrine/policy.

Reorganize DoD Research and Engineering to allocate its budget and resources equally between traditional sources of innovation and new commercial sources of innovation.

  • Scale new entrants to the defense industrial base in dual-use commercial tech – AI/ML, Quantum, Space, drones, autonomy, biotech, underwater vehicles, shipyards, etc. that are not the traditional vendors. Do this by picking winners. Don’t give out door prizes. Contracts should be >$100M so high-quality venture-funded companies will play.

Reorganize DoD Acquisition and Sustainment to create and buy from new 21st century arsenals – new shipyards, drone manufacturers, etc. that can make 1,000’s of extremely low cost, attritable systems – “the small, the agile and the many.”

  • Acquire at Speed. Today, the average Department of Defense major acquisition program takes anywhere from nine to 26 years to get a weapon in the hands of a warfighter. DoD needs a requirements, budgeting and acquisition process that operates at commercial speed (18 months or less) which is 10x faster than DoD procurement cycles. Instead of writing requirements, the department should rapidly assess solutions and engage warfighters in assessing and prototyping commercial solutions. We’ll know we’ve built the right ecosystem when a significant number of major defense acquisition programs are from new entrants.

  • Acquire with a commercially oriented process. Congress has already granted the Department of Defense “Other Transaction Authority” (OTA) as a way to streamline acquisitions so they do not need to use Federal Acquisition Regulations (FAR). DIU has created a “Commercial Solutions Opening” to mirror a commercial procurement process that leverages OTA. DoD could be applying Commercial Solutions Openings on a much faster and broader scale.

Integrate and create incentives for the Venture Capital/Private Equity ecosystem to invest at scale. The most important incentive would be for DoD to provide significant contracts for new entrants. (One new entrant which DIU introduced, Anduril, just received a follow-on contract for $1 billion. This should be one of many such contracts and not an isolated example.) More examples could include: matching dollars for national security investments (similar to the SBIR program but for investors), public/private partnership investment funds, or tax holidays and incentives – to get $10’s of billions of private investment dollars in technology areas of national interest.

Buy where we can; build where we must. Congress mandated that the Department of Defense should use commercial off-the-shelf technology wherever possible, but the department fails to do this (see industry letter to the Department of Defense).

Coordinate with Allies. Expand the National Security Innovation Base (NSIB) to an Allied Security Innovation Base. Source commercial technology from allies.

This is a politically impossible problem for the Defense Department to solve alone. Changes at this scale will require Congressional and executive office action. Hard to imagine in the polarized political environment. But not impossible.

Put Different People in Charge and reorganize around this new ecosystem. The threats, speed of change, and technologies the United States faces in this century require radically different mindsets and approaches than those it faced in the 20th century. Today’s leaders in the DoD, executive branch and Congress haven’t fully grasped the size, scale, and opportunity of the commercial innovation ecosystem or how to build innovation processes to move with the speed and urgency to match the pace China has set.

Change is hard – on the people and organizations inside the DoD who’ve spent years operating with one mindset to be asked to pivot to a new one.

But America’s adversaries have exploited the boundaries and borders between its defense and commercial and economic interests. Current approaches to innovation across the government — both in the past and under the current administration — are piecemeal, incremental, increasingly less relevant, and insufficient.

These are not problems of technology. It takes imagination, vision and the willingness to confront the status quo. So far, all are currently lacking.

Russia’s Black Sea flagship Moskva on the bottom of the ocean and the thousands of its destroyed tanks illustrate the consequences of a defense ecosystem living in the past. We need transformation not half-measures. The U.S. Department of Defense needs to change.

Historically, major defense reforms have come from inside the DoD, at other times Congress (National Security Act of 1947, Goldwater-Nichols Act of 1986) and others from the President (Roosevelt’s creation of the Joint Chiefs in 1942, Eisenhower and the Department of Defense Reorganization Act of 1958.)

It may be that the changes needed are so broad that the DoD can’t make them and Congress needs to act. If so, it’s their time to step up.

Carpe diem. Seize the day.

The full article originally appeared on Steve Blank’s blog

Image credit: Capella Space

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Why Innovation Heroes Indicate a Dysfunctional Organization

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Why Innovation Heroes Indicate a Dysfunctional Organization

GUEST POST from Steve Blank

Recently I got invited to an “innovation hero” award ceremony at a government agency. I don’t know how many of these I’ve been to in the last couple years, but this one just made my head explode.

The award was for an entrepreneur who worked against all odds to buck the system to turn her insight into an application. She had realized it was possible to automate a process that was being done manually – reentering data from one spreadsheet to another and annotating it with additional data from another system. Inspired by her own work problem, she talked to her peers and other stakeholders, built multiple minimum viable products, and figured out how to get engineering, policy, legal, security and everyone else in the enterprise to actually approve it. And then she fought with the acquisition folks to buy the trivial amount of additional hardware needed to connect it. It was a development process that would’ve taken three weeks in a startup, but inside this agency took 10 months (which was considered fast.) At each step she was confronted with “we’re not budgeted for this” or “this isn’t on our schedule” and “this isn’t your job.” Most rational people would’ve given up and said “you can’t fight the system” but yet she persisted.

Having seen this scenario play out multiple times at multiple large corporations and government agencies, I could’ve repeated the speech her agency director made at the ceremony verbatim. “Blah blah blah and a $100 bonus.” Everyone politely applauded and went back to work feeling good. I was simply depressed. Never once did anyone ever step back and say that what we just witnessed was leadership rewarding and perpetuating a dysfunctional and broken system.

I’m constantly puzzled why thoughtful and astute CEOs and Agency Directors never ask:

  • Why is it that innovations require heroics to occur in our organization?

  • Why don’t we have a repeatable process for innovation?

  • What are the obstacles in the way of delivering needed innovation with speed and urgency in our organization?

  • Why is it that after each one of these awards we don’t go back and fix the parts of the system that made creating something new so difficult?

Instead, everyone at this award ceremony just went back to work like it was business as usual. I realized that innovation in this organization was going to continue to happen by heroics and exception rather than by design. As I’ve seen play out way too many times, ultimately the innovators get tired of banging their heads against the wall and leave government service or large companies. Their organizations hemorrhage the very people they need to help them compete against aggressive adversaries or competitors who have them in their sights.

An Organizational Design Problem

Sadly, this wasn’t a single act of bad management or malice. No single individual thought they weren’t doing their job. However, if anyone had taken the time to deconstruct the reason for the roadblocks to innovation, they would have uncovered they weren’t just obstinate middle managers, or a single bad process. Asking a series of “five whys,” (see this HBR article) would have discovered that:

  • The agency’s existing processes were not designed for non-standard work. As in most large organizations, they were designed for the repeatable execution of pre-defined tasks.

  • There were no resources available for non-standard work or any parallel organization responsible for innovation.

  • The culture of the organization discouraged experimentation and punished the inevitable failures of a learning and discovery process.

Ultimately, the root cause was the entire government agency lacked an Innovation Doctrine. This manifested itself as an organizational design problem. There was simply no permanent place in the organization for unscheduled innovation to happen. And even if there had been, there was no way to turn demos into deployment with speed and at scale.

Five Whys Steve Blank

Innovation Doctrine

In peacetime and/or when you’re the dominant superpower (or a commercial market leader), the emphasis is on process, procedures, and sustaining of existing systems. Deviations from that create chaos and diverge from the predetermined are not welcomed, let alone promoted, and funded. They are eliminated. This works great when the external environment – competitors, adversaries, technologies, threats – is static. However, in times of crisis, war or disruption, these unconventional thinkers and innovators are exactly what is needed, and their ideas need to be rapidly deployed.

Well-managed organizations realize that they need both innovation and execution. With execution being dominant in peacetime/competitive advantage you have managers of process. In crisis/wartime innovation is dominant. Instead of mangers of process you need innovation leaders who shepherd ideas through an innovation pipeline (via HBR). Successful organizations recognize that innovation isn’t a single activity (incubators, accelerators, hackathons); it is a strategically organized end-to-end process from idea to deployment.

While innovation and execution have different processes, people, and culture, they need to respect and depend on each other. This ambidexterity (see this HBR article) and the innovation processes that go with it require an innovation doctrine – an overall strategy and playbook for the entire organization and enterprise that includes an innovation pipeline and processes intended to drive innovation efforts, and describes the role of innovation leaders in an ambidextrous organization – all focused on rapid deployment of new capabilities.

Lessons Learned

  1. Innovation heroics are a symptom of a lack of an innovation doctrine

  2. An innovation doctrine has a playbook, and innovation pipeline and describes the role of innovation leaders in an ambidextrous organization – all focused on rapid deployment of new capabilities

  3. All large organizations – both government and corporate—need an innovation doctrine or else risk being outpaced by competitors

Image credits: Pixabay, Steve Blank

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