"Our industry does not respect tradition— it only respects innovation." from Satya Nadella in his opening email after becoming CEO of Microsoft. Microsoft's shares have increased 3x since his appointment as CEO, in-part, due to Microsoft's sharpened focus on innovating in cloud services and ressurgance of hardware innovation.
It’s not unheard of that a large company often forgets how to innovate, but its also common in early-stage startups as well. The culture becomes comfortable with the status quo and the company loses its ability to innovate. This happens because the startup becomes obsessed with and designed around data and optimization.
Today's startups have tons of business intelligence tools, off-the-shelf A/B testing tools, a data science team, and product managers who know much more about writing SQL than they do about interviewing customers (of 67 PMs Andy interviewed in 2017, 75% of them could write SQL but only 4% knew how to properly interview a customer.)
This is bad. Most startups, just like large companies, need to go through continuous phases of innovation in order to create 2x+ step changes in the potential for their business. Going 0 to 1 with their first product is an innovation. It’s what allows the company to get off the ground. But its incredibly rare the original innovation is enough to carry them from seed to IPO. What’s more common is that startups need to innovate several times over in order to create step changes that help them scale from early stage to growth stage and from growth stage to a publicly traded company.
Today's startups, specifically PMs, are great at A/B testing, but not great at creating new features based on customer insights and a leap of faith.
Optimization is when a startup iterates on its existing products or services to squeeze more juice out of the orange.
Innovation is when a company embarks on building entirely new products or services for existing customers or for a new segment of customers.
Today's startups fall quickly into the optimization trap. They quickly resort to A/B testing and micooptimizing the product, but not creating new products based on customer insights and a leap of faith.
Product Managers especially seem to be stuck in this trap. Andy interviewed 67 PMs in 2017. 75% of the could write SQL quiries but only 4% could run an effective user interview.
Andy juxtaposes two approaches — optimization vs innovation. Optimization is when a startup iterates on its existing products or services to squeeze more juice out of the orange. Innovation is when a company embarks on building entirely new products or services for existing customers or for a new segment of customers.
The right approach combines the two in a mixture that is accordance with the company's risk tolerance. Andy makes the analogy to the modern portfolio theory (think: stocks (high risk) and bonds (low risk)).