The Portfolio Spiral

U+, in partnership with the ILO Institute, is excited to bring you highlights from ILO’s Weekly Virtual Gatherings. In a recent meeting, we learned from an R&D specialist about how experimentation and risk-taking are an important part of the innovation process.

Insight prepared and provided by Peter Temes and Christian Hamilton of ILO.

The “Portfolio Spiral” is a vital habit of independent, fast-growing ventures that large companies often block for new internal ventures.

A career R&D leader at a major pharma firm was tapped to lead a new innovation division in 2000, and observed that “looking at something genuinely new took the kind of thinking and courage that was not typical to our company.

“We eventually figured out that you need to pivot, you need to test rapid, parallel experiments and observe what the market preferred, at a faster pace and without end in the start-ups.

“We’d have, essentially, a portfolio of similar options, similar but different business models, similar but different market positioning, that we’d present to the market, and most would lose and one or two would show promise, and we’d take those and make them the basis for another new but smarter portfolio, and we’d inch toward the winning proposition, and finally we’d have something that would work.

“We’d provision for a real launch, we’d find the leadership, we’d build the supply chain, and then we’d start making some money. But the model we invested in too often became static. We stopped repeating the portfolio approach and just stuck with what we thought was the winner, with minor variations.

“But if you look at how a fast-growing venture-backed firm gets to $100 million, that portfolio process never stops.

“For a big company like us, it stops because you’re trained to think that big changes require approval and budget. That’s why I began saying, pull failure forward, push cost back.”

Large firms tend to experiment less than fast growing smaller firms do. They tend to put more energy into scaling existing offerings and operating models than seeking new ones.

Because they are creatures of their parent organizations, internal new ventures often hold too tightly to initial success from the first range of in-market experiments, when they should be repeating the process of using every success to anchor a new wide-ranging portfolio of related offerings to the market.

Big-company start-ups often bet too much on the winners of the first-wave portfolios, and experiment less, instead of spiraling the portfolio model again and again.

“We were spinning up new offerings, or meaningful variations on a successful product, almost every time we sat with a potential new customer. We never said, this is what we offer. We said, we have tools and capabilities that we can combine and reinvent to help you with your biggest problems. We can do this and this and this, or that and that and that, and we’d love to invent something new for you. What do you need?” the founder of a media-technology start-up shares. Then he sold to EY.

“They tried hard to keep that pace. But they simply couldn’t. It took months, and something like 20 decision makers, to decide what our mid-level folks were allowed to sell into existing clients.

“They were forced to play defense, mostly, which was new to all of us. Eventually EY and Deloitte and others embraced a design-studio model in spots. But only in spots, and only where the regional leaders really see the vision. It’s still culturally more resistant to the kind of experimentation and customization that drives growth of new offerings. Driving growth of audit, or growth of M&A advisory is a different thing entirely. Growth of new stuff takes much more experimentation at speed.”

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Launched in 2005, ILO is a membership organization for large companies, government agencies and not-for-profits, bringing senior executives leading innovation together for knowledge sharing and community building. ILO has completed more than 300 best-practice research reports, focusing on emerging challenges and opportunities. To learn more about ILO, membership benefits, and how to join, visit www.iloinstitute.net.