This is our manifesto in action, our take on the meaning of various approaches & frameworks, industry terms and product development & commercialization stages.
Approaches & Frameworks
The concept of build-measure-learn is from Lean Startup methodology, and refers to an iterative cycle through which you build something, measure the results and learn. The faster you go through the cycle, the better, because it increases the frequency of experimentation, which typically increases the volume of learning.
Design Thinking is an approach to solving problems by putting the user or customer in the center of everything you do. A key concept of Design Thinking is DVF, which stands for Desirability (do people want it?), Viability (can it make money and scale?) and Feasibility (can we build it?). The idea is that every product or service needs a balance of all three in order to be successful. Most big companies focus on feasibility and viability, often ignoring or not putting enough attention on desirability. In Highline Beta’s Venture Studio we use DVF as a way of determining and understanding our riskiest assumptions, in order to put together the appropriate experimentation and validation plan.
External innovation is work done in collaboration with external startups or venture studios, where the end results are not fully owned by the corporate. For example, when a corporate partners with a startup in a pilot accelerator, we consider that external innovation. Or when a corporate spins out a company working with a venture studio – that’s external innovation.
Internal innovation is work done by a company to innovate on its own. When a company builds wholly-owned ventures, that’s internal innovation. Most incremental innovation is internal innovation, but transformative, disruptive or growth innovation can also be done internally. Companies may bring in external agencies, venture builders, coaches, etc. to support internal innovation, but those companies remain the owners of the innovation produced.
Lean Startup Methodology
Lean Startup is an approach to validating and building startups, products and even features in an iterative way. The goal of Lean Startup is to eliminate waste (time & money) by iterating quickly through a cycle of build → measure → learn. Lean Startup was popularized by Eric Ries, and has since received an enormous amount of attention through various books (i.e. Running Lean, Lean Analytics, etc.) In Highline Beta’s Venture Studio we use Lean Startup methodology to focus on rapid experimentation, with a focus on validating our riskiest assumptions at any point in time.
A collaborative approach to innovation (and solving problems) by working with external partners, often startups, but can include others as well such as academia, venture capitalists, other large companies, etc.
Rapid prototyping is the process by which you build scrappy, often lower fidelity prototypes in order to test your assumptions, typically with a focus on validating the solution. A prototype can take on many forms.
Validation is the process by which you test and aim to prove (or disprove) your assumptions. Using Lean Startup methodology, the goal is to run tests or experiments as quickly as possible to maximize learning.
Venture Validation (HLB offering)
Venture Validation is the process that Highline Beta uses to further determine the potential for a new venture idea. It comes after an initial Discovery phase, which is mostly focused on identifying and validating a problem. Venture Validation works to validate a solution, typically without investing heavily in building anything significant; i.e. it’s rare that we build an MVP in Venture Validation. Instead we use proxies (i.e. low to high-fidelity prototypes) to determine demand, the right feature set (to build in an MVP, through a pilot), and further develop the business case.
Accelerators are either run by corporates or external entities (i.e. YCombinator, Plug & Play, etc.) in order to help startups grow their businesses. Often focused on earlier stage startups, typically within a fixed time period (i.e. 3 months). Many external accelerators focus primarily on fundraising.
Breakthrough Innovation is essentially the same as Transformative Innovation.
Otherwise known as “the mothership” this is where a company’s primary focus lies, including the incremental innovation it’s doing to maintain market share and defend against competition.
Corporate Pilot Accelerator
A corporate pilot accelerator is a service offered by Highline Beta, specifically focused on executing pilots between corporate partners and startups. Pilots go by several names including Proof of Concept (POC) or Project, but ultimately the goal of a corporate pilot accelerator is for a corporate partner and a startup to do something together, with the goal of determining whether an ongoing commercial relationship makes sense.
CVC stands for Corporate Venture Capital, and this typically refers to the organization or department within a large company that’s focused on making startup investments. Some CVCs will be structured as typical venture capital funds, whereas other CVCs will invest from the company’s balance sheet. CVCs typically focus on investments that have strategic value for the core business, with financial returns as a second priority, but this is not always the case.
You’ve probably heard people say, “Every company is a tech company.” That’s the essence of digital transformation – taking previously analog or offline capabilities and bringing them online; or taking legacy technology infrastructure and replacing it with newer infrastructure. Digital transformation is squarely in the realm of incremental innovation, although it can serve as a platform for longer term R&D and new businesses.
Discovery is the name Highline Beta has given to the initial work of validating new opportunity areas and problems worth solving. Companies will use different terminology for what is often the initial phase of the innovation process (i.e. Ideate, Ideation, Generate/Generation (of Concepts), etc.) Highline Beta’s Discovery process is focused on identifying meaningful problems that a specific user/customer segment has, in a large potential market, where our corporate partners have an unfair advantage. It typically takes 60-90 days to complete the Discovery process.
Disruptive innovation is the process of displacing established, existing solutions or companies. Netflix is a classic example of disruptive innovation because it leveraged a new business model (subscriptions) and technological infrastructure (the Internet) to destroy video rental stores. Big companies can attempt to disrupt themselves (and should), but often this is met with a great deal of concern because of the potential implications at scale.
Emerging growth represents new opportunities to grow a business outside of its core business model. Typically this means innovating one or more variables: new product/service; new business model; new go-to-market strategy. If none of these are true, then it’s likely not emerging growth, but represents incremental innovation. Emerging growth often requires a new organizational structure (i.e. the existing of a venture arm), and new parameters by which value (and ultimately growth) is created.
Growth innovation is focused on uncovering new opportunities for growth outside of the core (i.e. beyond incrementally improving your existing products/services). New opportunities represent: new problems to solve, new markets, new users/customers and new business models.
Growth innovation is challenging to do internally because often the resources are unavailable, be it budget, talent, time, etc. Venture studios are well-suited to growth innovation because it’s outside the core (lending itself to the potential for creating new startups), higher risk (lending itself to venture capital), but can still remain connected into your core business, for the purposes of unlocking unfair advantage.
Incremental innovation is the process of continuously improving (often in small amounts) an existing product or service. Most of a company’s innovation efforts are incremental, which makes sense – it’s necessary to defend your existing market share and “compete with the Joneses.”
An incubator, in the context of a large company, is a department, structure or possibly a program designed to foster internal innovation. It can work on H1, H2 or H3 innovation, but often focuses closer to the core. Occasionally, incubators are also called innovation labs, venture arms, corporate venture studios or something else.
Innovation Horizons (H1, H2, H3)
The Three Innovation Horizons model was created by McKinsey to represent three types of innovation based on how close they are to a company’s core business.
H1 innovation is incremental innovation. It speaks to the continuous (albeit fairly minor) improvements that a company is making to their existing products and services. A large percentage of a company’s time and budget is typically allocated to incremental innovation which is designed to extend the life and competitiveness of existing products/services. Another way of saying this is that H1 innovation is meant to defend the core. H2 innovation is meant to focus on new opportunities, including new markets and new products/services.
H2 is focused on growth opportunities that may be close or far from the core, but are executed differently from incremental innovation. They require a more entrepreneurial approach, with a higher likelihood of failure. In our experience, most companies spend the least amount of time in H2. It’s entirely possible to spin-out new startups focused on H2 innovation, through a venture studio.
H3 innovation is often the furthest from the core, designed to explore completely new opportunity areas and business models. A great deal of long-term R&D lives in H3, which companies often spend extensively on but struggle to commercialize. H3 innovation is a suitable place for a venture studio to operate.
Often, H1, H2 and H3 innovation is thought to represent timelines; with H1 innovation being the fastest, H2 taking longer, and H3 taking longer still. While this is a reasonable way to think of the three horizons it’s not always the case. For example there could be major digital transformation projects that are considered H1 innovation that take several years, whereas it may be possible to create H2 or H3 innovation quite quickly (although to scale can still take years.)
An innovation lab is a department or structure within a larger organization dedicated to innovation. Often innovation labs are more R&D focused, which can lead them into H3 innovation that’s not only further from the core, but more focused on hard technical challenges and new technologies. Innovation labs often struggle with commercialization.
A kill switch is a set of accepted criteria by which it’s decided that a new venture should be shut down. It’s often quite difficult for corporations to shut down innovation projects and new ventures, and so it can be helpful to design a kill switch and agree on the parameters under which something will be shut down.
Big companies need to leverage every tool in the innovation toolbox in order to achieve their goals. We believe it’s important to disconnect the validation of an opportunity (i.e. finding a problem worth solving, finding a new business to build, etc.) from the method by which you’ll do it. Instead of deciding upfront that you’re planning to build internally, partner, invest, acquire or co-create/spin-out, go through the validation process first and then pick the right tool in the toolbox.
A spin-in is a new venture that is brought into the core of the company after the initial validation of the opportunity is complete. Spin-ins do not have an independent structure and are wholly owned by the corporation in question. Often a new venture that has very close ties to the core is spun-in as opposed to spun-out, because of the strategic value of having the new venture held internally.
spinout or spin-off is the creation of a new company (a separate entity) that exists independently. Spin-outs are an effective tool for innovation that the core business isn’t going to pursue, maintain or scale. Spin-outs typically allow external investors to participate, and require an external founding team. Venture studios help corporate partners create spinouts.
Stage Gate is often used as a reference to an innovation process that has clearly defined, and typically, linear milestones. Each “gate” is a set of success criteria through which the innovation goes through. In software development terms, we often call this “waterfall.” While most innovation processes have gates or key milestones that need to be achieved, we believe it’s important for innovation processes to be more fluid, iterative and adaptable, as opposed to what a typical stage gate process might look like.
In the context of building new ventures, strategic value refers to the benefits that a new venture delivers back to the core business. If a new venture has low strategic value, it typically means it exists further from the core. If a new venture has high strategic value, it’s clear how the existing and growth of that new venture will directly benefit the core business (and in particular the core’s primary business model.)
Transformative innovation is the process of creating something new, which leads to new markets, new revenue and new growth. Often transformative innovation relies on large technological shifts that take place through R&D (either within your organization or elsewhere.) For example, the iPhone is a transformative innovation – radically new from previous cell phones it created a massive market for smartphones, app developers and more. Growth Innovation and Transformative Innovation may be the same thing, although growth innovation does not rely on large technology shifts. For example, you could enter a new market and grow substantially (i.e. growth innovation) without inventing anything radically new.
A venture is a new product or service, typically focused outside the core business, which warrants a new, more independent structure (i.e. dedicated team, budget, startup-centric metrics, etc.) At Highline Beta we often describe a venture as having its own business model (i.e. it could live independently and stand on its own two feet) while simultaneously driving value back to the core business (justifying why the core business is investing in the new venture.)
A venture arm is a department or organization within a larger company that’s dedicated to innovation outside the core. It goes by a variety of names, which are somewhat interchangeable, including an innovation lab, internal incubator, and internal or corporate venture studio. A venture arm will operate differently from the core business, with a different set of governance principles, different talent, new methodologies for innovating, new metrics for tracking progress and more.
A venture studio builds and invests in startups. If a company only builds new ventures or startups but doesn’t invest, it’s an agency, largely focused on a service fee model.
The term “venture studio” is being used for a variety of other things as well, including within corporations, where they’re launching internal or corporate venture studios to build new ventures or businesses that are typically owned by the corporate. Highline Beta’s venture studio works with corporate partners and founders to build, launch and invest in new startups.
White Space Innovation
White Space Innovation is the process of identifying unmet needs and developing new solutions in-market. This is essentially the same as Growth Innovation and similar to Transformative Innovation.
Product Development & Commercialization Stages
Low fidelity tests or prototypes are typically used early in the process of validating a new opportunity or venture. They are done using basic digital tools or even offline tools (such as paper; sticky notes; etc.) Low fidelity options can be effective at validating critical assumptions early on, such as people’s interest in a problem space. Additionally low fidelity options can be used to get quick feedback on a solution’s user experience or how a solution might work, without requiring design or coding.
A Minimum Viable Product is designed to solve a user’s problem and create value. Typically, the key to a successful MVP is engagement; i.e. measuring the usage by users/customers/stickiness and whether this helps determine the value created.
A Pilot is often considered a more complex or robust Proof of Concept (POC), but these terms may be interchangeable as well. A pilot is effectively a test of a company’s solution or potential solution. In the context of a pilot accelerator, startups are launching pilots with corporate partners. In the context of a venture studio, a pilot is often put into market before the completion of a Minimum Viable Product (MVP) in order to test key assumptions that need to be validated.
Problem Solution Fit
When you’ve validated a problem and then built a solution that solves the problem, you have Problem-Solution Fit. This can happen fairly early, and can be done through a Minimum Viable Product (MVP), although it often takes numerous iterations. You know the solution is creating value when you can measure it qualitatively and quantitatively and the “exchange of value” between you and the user is proven (i.e. they’re paying in some way, through money, attention or data.) From a startup perspective, Problem-Solution Fit is often hit between Seed and Series A financing rounds.
Product Market Fit
Product-Market Fit means that not only have you solved a problem for a user/customer, and you’re doing so consistently, but you’ve figured out how to “sell” the product into the market with regular consistency. You’ve moved past your early adopters (from Problem-Solution Fit) and proven that you can scale into the market through repeatable tactics, and that later adopters are equally gaining value from your product as the early adopters.
Often, we find that corporate partners declare Product-Market Fit too early, when in fact it’s a signal of scale, and not just that you’ve launched a product in-market with early traction. From a startup perspective, Product-Market Fit rarely happens before Series A, and often startups can raise a Series A financing round without true Product-Market Fit. It’s also important to note that Product-Market Fit isn’t a specific point in the journey–it may be achieved, and then there are circumstances that put you “out of Product-Market Fit.”
Proof of Concept
A Proof of Concept (POC) is effectively a test of a company’s solution or potential solution. In the context of a pilot accelerator, startups may be launching POCs with corporate partners. In the context of a venture studio, a POC is often put into market before the completion of a Minimum Viable Product (MVP) in order to test key assumptions that need to be validated.
A prototype is a mid-to-high fidelity option for validating assumptions. Prototypes are usable and can be interacted with, but often do not provide real value (i.e. they’re not really usable solutions.) An example is a landing page for testing value propositions – users can visit the landing page, click around and sign up, but they don’t get access to the solution they’re signing up for.
We find that that are a lot of terms in the innovation space that lack a clear meaning and singular understanding. This was a “fun” exercise for us that we hope reduces some of the ambiguity when it comes to these terms.
Do you agree with these terms? Did we leave anything out? We would be happy to connect and talk about it.