I mentioned a couple of weeks back that I am reading Clayten Christensen’s new book, Innovators DNA: Mastering the Five Skills of Disruptive Innovators. I’m still really enjoying it, and I now have a second major takeaway. As I wrote last time, the first take away was that to a large extent innovation is a learnt skill that can be self taught.
The new insight is that the skills of a good innovator – associative thinking, questioning, observing, experimenting and networking are very different to the skills of executives who are more execution focused – analysis, planning, detail-oriented implementation and self-discipline. These skills are not mutually exclusive, but they are very different.
This is interesting in the context of the development of a startup. In a company’s early days nigh on 100% of value creation comes from innovation and the execution is trivial. However, as the business grows operations become more complex and good execution becomes an increasingly important contributor to value creation. It is often written that founders ‘struggle to scale’ with a business, and this change in the skills required to lead a business explains why.
Anyone who has observed a lot of startups grow will have witnessed brilliant founders who were talented at the chaotic process of innovation struggle as the business scaled to 50 or 100 people. Along with charisma and the ability to sell, the most important skill in founding the business was innovation, and that comes from a lot of unfocused networking and experimentation – behaviours which are poor bedfellows with the detail oriented implementation and self discipline required to really scale a business.
When a founder CEO starts to struggle many boards respond by bringing in a ‘professional CEO’ who is skilled at execution. When it works these characters will get the the sales team functioning well, make sure the customers are happy, improve marketing, and iron out kinks in the product. These activities generally lead to an improvement in sales and profitability and increase the value of the business. That is why professional CEOs are hired.
The difficulty with the simple model described above is that there isn’t a sudden moment when the innovation is done and only execution is required. The most important innovation happens when the founder has the idea for the business, or maybe has the idea for a pivot that works, but the innovation doesn’t stop there. Rather, execution becomes slowly more important, and innovation relatively less so, but innovation remains vital to keeping the business moving forward.
To illustrate, at our former portfolio company Lovefilm the initial innovation was a £10-15 subscription service which gave the customer three DVDs at a time, delivered by post. In order to grow beyond their first early adopter customers the company had to innovate with different price points and numbers of DVDs and marketing programmes with free offers. Looking back the things they did seem pretty obvious, but at the time the ideas came from talking to people (networking), looking at other industries and geographies (observation) and experimentation – i.e. the skills of innovators. Then, later on, once they had a range of price points and improving those was more about execution than innovation they had to innovate again to become a digital business.
The takeaway here is that hiring an execution focused CEO won’t work out if it is done when innovation is still the most important part of the mix, a mistake that I have seen made many times, including in companies where I was a Director. I don’t think many boards think clearly about the difference between the skills required to innovate and those to execute, and about the right balance for their business given its stage of development. The beauty of this book is that it will get people thinking along these lines and give them a framework to analyse what they should be looking for.