How Enterprises Can Avoid Startup Growth Disruption

Until very recently, established enterprises held all of the advantages over startups when it came to driving growth. Enterprises had leverage in channels, huge marketing budgets, strong brands and the purchase habits of existing buyers. There was an adage in the startup community that your startup’s new solution needed to be at least 10X better than the incumbents’ solutions to have a chance at success.

Startups Disrupting Retail, Travel and Entertainment

Today startups are disrupting and dominating incumbents with only marginally better solutions. From Airbnb to Amazon, entire industries are being disrupted by relatively new upstarts. Data and experimentation are at the core of these businesses. Jeff Bezos highlighted the importance of experimentation to Amazon’s culture when he said: “to invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment.” This culture of experimentation drives new product development, value enhancement in existing products and improvements in new and existing customers’ ability to discover products and experience value. Amazon is now one of the most valuable companies in the world and legacy hotel businesses such as Marriott have had to consolidate to compete with Airbnb.

The latest disruption is happening in entertainment, where Disney is said to be in talks to acquire Fox’s entertainment assets since Fox is struggling to compete with Netflix.

How have these relatively new companies grown so big, so quickly? They have gone beyond simply understanding data, to reorganizing their businesses around growth opportunities presented by the data. Unlike older enterprises, these newer companies are not stuck in their functional silos. They have baked into their early DNA cross-functional growth habits to manage coordinated growth experimentation across the entire customer journey.

Netflix is a great example of this new approach to growth. Much of their agile cross-functional culture can be traced to these two factors:

1. Netflix was built as a subscription business from the early days. Unlike many other entertainment businesses, this meant that growth was as much a function of retention as new customer acquisition. The responsibility for driving growth extends deep within the product team, which has continuously experimented with improvements to the recommendation algorithm as well as evolving to new ways of distributing content.
2. Netflix was the first entertainment business to stream a high volume of professionally produced content over the internet. This gave them deep insights into how people actually engaged with content — both their own content and that produced by other studios. This further improves their recommendation algorithms, driving engagement and retention. And it has also helps their studio determine which programs to develop and fund.

Using this approach, Netflix’s market cap has now reached nearly $85B, up about 2000% since 2013.

The Cross-Functional Trap for Enterprises

Older enterprises are taking notice and are trying to replicate these cross-functional agile teams to improve growth. It is relatively easy to understand the theory of why cross-functional, agile growth teams make sense. But unfortunately, efforts to transform established enterprises always face organizational resistance.

One typical mistake is that they try to implement cross-functional changes gradually. This usually results in team members reverting back to their old siloed habits. Often this is a sign that the initiative lacked enough up front buy-in from functional team leaders.

Another common mistake is sending a single team member to a class or program to learn the theory of cross-functional agile growth and tasking them with driving the change. Rarely is the person senior enough to convince the rest of the organization to actually implement the theory. And even if they are senior enough, the majority of their time is spent cajoling functional leaders to run important experiments rather than channeling their energy into finding new growth opportunities and designing effective experiments. Even a CEO would struggle without the buy-in of the broader team.

Big-Bang Approach to Agile Growth Transformation

I recommend that companies take a more deliberate, big-bang approach to growth transformation. If an incremental approach is preferred, start with a single product line. But either way, you should get all functional team leaders together in a focused offsite meeting to define a shared cross-functional vision and their respective roles and responsibilities. Trying to do it over an extended period of time leads to a gradual approach that eventually stalls.

And be prepared to challenge deeply rooted cultural norms. Outdated assumptions will need to be replaced with hypotheses that can only be validated through testing. The higher the velocity of testing, the faster your team will learn how to accelerate growth. And they will learn that many of their long-held assumptions were wrong. Experimentation is a humbling experience that eventually leads to the required growth mindset of the most effective teams.

The entire customer journey should be open to experimentation. Otherwise, teams will gravitate to lower resistance areas like customer acquisition and miss the high leverage opportunities that lead to breakout growth. To effectively prioritize and execute this testing, you’ll need to adopt the same proven growth process used by today’s fastest growing companies.

While it’s difficult to jumpstart this cross-functional habit of testing, each winning experiment will help you build momentum, especially if you communicate these wins across the organization. Eventually, cross-functional agile growth habits will replace the long-entrenched habits that are holding back your growth.

I have developed a one-day workshop to help your cross-functional team jumpstart growth transformation. More details about this program are available here.

Update June 2019: The program has been updated and refined several times since this article was originally posted based on feedback from running it at several startups and more established companies like eBay and Microsoft. I now spend the majority of my time running growth transformation workshops for individual companies and via public workshops attended by 3-5 cross-functional team members from each company. More details about this program are available here.

Note: This is reposted from Medium