John Caddell's blog

There’s nothing more fun for me than building a new business, whether it’s a startup or a new line of business within an existing company. New businesses are the life-energy of capitalism, the “creative” part of “creative destruction.”

But like most everyone who’s been involved in starting up new ventures, I’ve endured my share of missed opportunities, strikeouts and horror stories. Anyone who’s been in this business for a while knows there are no sure things.

As a result, it’s been gratifying to tune into the developing literature in managing innovation, whether it’s finding out how P&G does it, how to brainstorm more effectively, or the ever-expanding Clayton Christensen library. And I’ve been eagerly awaiting “Discovery-Driven Growth: A Breakthrough Process to Reduce Risk and Seize Opportunity” by Rita McGrath and Ian MacMillan.

McGrath’s article “The Value Captor’s Process” was one of my favorite of 2007. And in “DDG” she and MacMillan describe an entire new-business development process using the same pragmatic thinking.

The book, in page after page, honors innovation as a complex process. Failure of new projects is not a result of poor planning; it is a necessary component of the uncertainty of interplaying markets, technologies, customers and competitors. The tragedy of innovation is not failure, it’s risking huge investments and careers before the business learns whether the potential in the venture can ever be realized.

The typical tools of managing innovation have been detailed, upfront planning, hurdle rates and stage gates. By contrast, McGrath and MacMillan propose an iterative prototyping approach to managing innovation: do as much on paper as possible before “breaking ground” on expensive investments; document assumptions and launch inexpensive experiments to validate or refute them; create rough financial models and refine continuously; monitor progress frequently; compare results to expectations; disengage when the likely outcome of the project falls short of alternative uses of capital and resources; extract value from the results of failed projects.

The managers who use the DDG prescription speak almost like acolytes of the Cynefin framework:

As we go into markets where we’re trying to learn, what we’ve gotten better at is trying small things. If they are successful, we spread them like wildfire. If not, we kill them quickly. (p. 162)

And, in the spirit of “giving it away,” McGrath and MacMillan offer all the tools they reference in the book on their website. This lifts “Discovery-Driven Growth” above the level of a book and into the realm of a vital business resource.

Using this approach may not increase the yield of ideas to successful initiatives–as McGrath and MacMillan write, “remember the plan was uncertain to begin with, so there can be no question of failure–how can you fail if you had no idea of the outcome to start with?” But it is certain that a company that dedicates itself to implementing “Discovery-Driven Growth”’s ideas will improve the yield–possibly dramatically–of profit to investment for new ventures.