Innovate like a venture capitalist: Drive your digital transformation with the 10-5-4-1 Model.
Every organization needs the capacity to generate disruptive ideas. No one can afford to stand still and pretend that past habits will guarantee future success. If your organization isn’t ready to meet the new realities of an ever-evolving marketplace, another will.
Such ideas are critical to facilitating digital transformations, arguably the most pressing challenge facing organizations today. New digital technologies have already altered standard operations across the business landscape, and many experts forecast further technological shifts, such as the advent of AI and 5G networks, proving to be even more rowdy.
But it’s easier to say generate ideas than to do it successfully. While most organizations understand the need, few are equipped to bring those ideas to fruition. In fact, 70 percent of attempts to digitally transform a business fail.
The question then is not only, “How do we generate disruptive ideas?” It’s also, “How do we recognize which ideas will succeed?”
Tony Saldanha, former VP of Global Shared Services and IT at Procter & Gamble, has an answer to both. It’s the 10-5-4-1 model.
In this video preview of his expert class, Saldanha explores this model’s advantages:
Your Innovation Portfolio
- Don’t invest everything in one big transformation project. Create a portfolio of projects to deliver the financial outcomes you desire. Aim for a mix of high-risk/high-return initiatives and low-risk/low-return initiatives.
- Evaluate every 10 transformation projects using this rule of thumb:
- 5 – The number of projects you may kill (due to extended time horizon, uncertainty, etc.)
- 4 – The number of projects that may become 2x drivers of growth
- 1 – The number of projects that may become 10x drivers of growth
It makes sense that Saldanha would extrapolate his model from venture capitalists. VCs are in the business of making bets, but they must make those bets carefully. It would be unwise for them to hit the economic roulette table and bet it all in the basket. Sure, the potential payout is promising. The odds they’ll stay in business long . . . less promising.
That’s why many VCs follow the diversification model. They make numerous investments in an array of companies. The successes balance out the misses so that, overall, the portfolio pays out. They also assist their startups with third-party assets and connections.
The 10-5-4-1 rule provides an excellent distillation of this model: explore many ideas with small bets and foster those that show promise. We can see this mindset at play in the histories of many successful companies. Take, for example, one of the most successful companies of the digital age: Google.
Google’s graveyard of failed ideas is expansive, moonlit, and brimming with atmospheric mist. To name but a few of the projects buried there: Google Glasses, Google Lively, Google+, Google Health, Google Notebook, and Google Buzz. And we’ve only listed a smattering of projects that entered the market. Who knows how many others never saw life beyond a trial run or a few squiggles on the office whiteboard.
You can similarly exhume and study the many failed projects of other successful companies, too. Yet, Google and these others are hugely successful because they follow some version of the 10-5-4-1 model. They invest in many small projects. They kill projects that don’t show promise. They cultivate those that do and run with the few that prove major drivers of growth.
Of course, it can be difficult to admit a pet project hasn’t panned out. The more time and emotional investment we make into something, the harder it is to crumble up and toss into the trash basket of lost ideas.
That’s another reason the 10-5-4-1 model is so promising. It shifts your perspective from the project to the portfolio. That perspective shift then lessens the sense of risk and dejection that comes with failure. After all, things will be okay as long as the whole portfolio succeeds.
That sense of freedom not only helps generate disruptive ideas. It offers the freedom to let them go, too.