Rita McGrath

We’ve all seen the story play out. A company experiences phenomenal success, their CEO makes the cover of notable business publications, and business writers use them as examples for the rest of us. Then, somehow, the firm gets into trouble. Competitors capture their customers, margins shrink, investors grumble, activists turn up, the CEO, or a succession of CEOs, are shown the door, and, eventually the company disappears or becomes irrelevant. A root cause, McGrath argues, is the pervasive belief that a competitive advantage, once established, is enduring. This belief leads to complacency, inward focus, loss of customer engagement and a stifling of innovation.  Instead, smart strategists leave old assumptions at the door and pursue opportunities to establish and exploit transient advantages.

Most organizations suffer from a pervasive anti-failure bias.  When things don’t work out as planned, those seen as responsible are branded as having failed.  Here’s the problem: in fundamentally unpredictable environments, it is a fool’s game to make bold predictions, because you simply don’t have the information you need.  Getting the information when you really don’t know requires some kind of experimentation.  Some experiments don’t work out, but that doesn’t mean they failed.  It simply means that particular path forward isn’t going to work. Failure is essential if your organization is to take the controlled risks to engage in the innovations crucial to effective competition.

To gain these benefits, follow six principles:

1.  Plan to convert assumptions to knowledge
2.  Be quick about it
3.  Contain the downside risk
4.  Make sure uncertainty is genuine, but not overwhelming
5.  Intelligent failures are celebrated
6.  Learning is codified and transferred

You have what you think is a great idea to pursue an attractive new opportunity. Before you can make progress, though, you are hit with a barrage of questions that you have no way of answering. “What will the ROI of this venture be?”; “how long will it take to launch”; “how will it affect our existing product lines?”. If you’re like people in many organizations, you will dutifully put together a conventional business plan, with details about the idea, spreadsheets that project what the financials could look like and GANTT or similar charts laying out the project timeline. And even as you are doing all this, you know in your heart of hearts that this is more a quantification of fantasy than it is likely to bring your idea to life. There is a better way.

In the seminal work that formed the basis for the Lean Startup movement, McGrath describes how to create a plan for a new venture that gets you to early answers fast, by focusing on the most critical assumptions that you need to convert to facts.  It’s disciplined, but it’s a discipline that comes straight out of the entrepreneurial mindset.

Companies that are blindsided by changes in their environment or disruptions in their competitive space have one thing in common: Their executives and decision-makers somehow got disconnected from the “edges” of the organization—where small changes start brewing before their implications are obvious to everybody. So too, when a big opportunity is missed or dismissed. Why, for instance, did Microsoft initially miss something like five major shifts in underlying technology as it tried to defend its Windows franchise, and why is it regaining relevance now?