Horizon 3 Development

The following post is not that directly concentrating on software development, but more in the early stage business development in B2B field. The learnings here seem to apply to domains that are a bit slow moving, like maritime and telecommunication. Maybe they can be applied more widely, but I have no first hand experience from others. Would be interesting to hear your thoughts if you have similar experiences from other business fields.

 McKinsey's three horizons is a framework for categorising businesses that are in different stages. 

Three Horizons

Horizon 1 (later H1) is a steady running mature business. One that is no longer growing much, but generates revenue steadily. Aim in this business is to maximize profitability. 

Horizon 2 (later H2) is growth business. It is not yet necessarily profitable, but the engine of growth has been found and there's a good product-market fit. Aim is to maximize the growth while there's still market left. At the later stage the goal is to make the business profitable a.k.a become H1 business.

Horizon 3 (later H3) is new business. Usually far from profitable, maybe even no customers at all. In this category useful metrics can be found from Lean Startup. In theory companies would like to minimize the time spent in H3 and skip this part with as little effort as possible and become an H2 business.

One can see similarities in the three horizons model and Technology adoption lifecycle model. The early adopters are willing to try new things and are willing to accept some 'children's deceases' in the products partially for the possible edge they can gain from the new innovation, partially for the sheer value of being seen as pioneers or forerunners.

The Problem in H3

The problem is that one cannot advance from H3 to H2 without really having a solid, scalable solution. H3 customers might be willing to have a proof of concepts, co-develop or co-create a solution together with the solution provider, but usually customers at later stages are expecting more maturity. And there are two options: you build the basis for scalability while you are still seeking the product market fit with your H3 business or you are late and will have huge delivery pains at the beginning of your H2 journey.

Needless to say, the problem is not that trivial to solve. H3 businesses are usually startups or internal startups with limited resources and budgets. Time is their biggest enemy, because time equals salaries and other operational expences and with a long time to market you probably lose the opportunity window and some competitor gets the customers. The time constraint is the reason companies do sub-optimal design choices that result in non-scalable architectures. Instead of taking the extra time to do things properly, companies take technical debt. And when you reach the growth phase it might be really difficult to find the time to pay the debt back.

What to Measure

In my experience (B2B software development in telecommunication field), the biggest bottleneck is not software, it's customer access. The metric I propose to follow in H3 phase is how deep customer relationship you have been able to develop.

• How many meetings you have had with different people in the customer organisation?
• What are the roles and ranks of persons you have been interacting with?
• How precise questions they have asked?
• How well have you been able to understand the customer's business and identify the customer's painpoints and problems?
• Are you able to provide them with something that helps them
  a) save money
  b) get more money
  c) help them do something they couldn't before

Deepening the customer relationship takes a lot of time. So does finding new customers. That's why testing your ideas might be really slow compared to working in B2C where you can more easily reach many customers (although I'm aware that it is nowadays really difficult to get consumers attention). Keep track of your progress and you are able to make decisions based on data!