Soak before the Squeeze
Having been involved with building a new edtech category over the past year, I’ve been reflecting on the challenges in new category creation. In the Trellis Sessions that I used to admin last year, I floated the idea of Scope VS Scale or knowing when to explore vs exploit – AKA, soaking vs squeezing.
A lot of that thinking was driven by my observations of smaller startups. Now that I’ve been working sufficiently long in a larger setup, I can see how some of that thinking applies here as well. I’m dumping my thoughts as bulletpoints. Maybe I can write it up later.
Notes on Scope vs Scale
New Category Creation involves dealing with a set of unknowns – these may be in the form of consumer need, society & culture, vendors, competitors, regulation or a number of other factors.
Therefore, category creation is inherently an exercise in variety creation
Variety1, in this instance means that the category is in a mode of market-fit exploration. It is in the act of developing a growing set of responses to environmental threats and opportunities, many of which may be as yet unknown.
To exploit an existing category means dealing with a known set of environmental variables, for which control-responses exist. Working with known variables is an exercise in Scale.
To explore, then, is to create a new category. This means that one has to determine and formalize a set of as yet unknown variables. This is an exercise in Scope.
So, we may refer to these two phases as the Scoping vs Scaling phases of a business.
The first order effect of Variety is to create Optionality.
The second order effects of Variety protect the system from shocks
- variety ensures the system has sufficient responses to environmental shocks
The downside of variety is an increase in time and money spent. Both of these are required to ride out the shocks of new category creation
- Venkatesh Rao calls this Fat Thinking. A way for the organisation to deliberately introduce slack into its system – for the purposes of learning
In an multi-portfolio organisation, variety created by a single category can inform/educate other categories. The real ROI is actually distributed across the portfolio.
Footnotes
In particular, I’m referring to the law of requisite complexity. The Wikipedia entry describes it as follows: “The law of requisite complexity, holds that, in order to be efficaciously adaptive, the internal complexity of a system must match the external complexity it confronts.”
When building a new kind of business model, one must expect a build up of internal complexity. This means planning for, budgeting and operating with more resources and skill sets than one would with a mature business. Early stage models also need more experimentation, which also tends to increase internal complexity. This is a response to dealing with external complexities, both in terms of markets, and regulations. Unknown unknowns tend to provoke initial internal complexity as a response. ↩︎