There are two types of organizations that are driving a majority of our economic growth: the startup and the large corporation.
On one hand, we have startups, which are where the innovation is happening and on the other hand, we have corporations, which have the advantages of scale and abundant resources. We need a new kind of organizational structure that can bridge the gap, combining the strengths they each possess.
I’ve come up with a model that explains how startups can gain the advantages of scale and have access to greater resources while staying agile and preserving their penchant for innovation. This model is called the lego model.
In this model you can think of a startup like a rectangular block and a large corporation like a tower. Startups can create a tower by collaborating with other startups. When enough startups are seamlessly working together they have created a tower that is functionally equivalent to the towers of corporations that can take advantage of the efficiencies at scale. But the tower startups create is not a single indivisible entity, it’s more like a tower made of lego pieces. And that has a lot of advantages the indivisible tower doesn’t. It is more resilient, more flexible, more modular and can quickly be assembled and disassembled. This process incorporates principles from both evolution and nature selection. It enables unlimited experimentation and also fast replication for the stuff that works. (This is good that it mirrors nature, because we know nature works, because it created us). The modularity also gives much greater control over optimization, because it’s much easier to isolate and test particular variables. Best practices can easily move across the ecosystem because as things get increasingly quantized, they are easier to replicate. If one lego piece is shown to be particularly versatile or adaptive it can be plugged into many existing towers. If a particular lego piece is poorly constructed and not doing its job very well, there are plenty of pieces waiting in the wings that can replace this ineffective lego piece. That provides great resiliency because while you’re still only as strong as your weakest link, the chain isn’t fixed anymore.
Towers only have to live as long as they are still creating increasing value for the customer. As the vertical the tower is operating in begins becoming saturated, essential pieces can shift their focus from growth, to becoming as lean as possible— doing the same job with many fewer employees and much greater efficiency. The pieces that are no longer essential as the vertical matures can leave while still highly profitable, and move into an area where they are still adaptive or regroup and plan to start from scratch with the resources they’ve gained.
What we don’t want are companies trying to milk past innovations for all they are worth, through monopolies and legal manuerving. This is terrible for customers because it closes down the space and prevents further innovation. It’s terrible for companies too, because as soon as they stop innovating, a death knell has been sounded, and they are now fighting an uphill batter that will only get steeper. All utters have a limited amount of milk.
Why do large companies stop innovating? There are many reasons, a few are because: they become too large and innovation requires being flexible. The people in the organization age and become tired and complacent. It’s easier and more certain to incrementally improve existing products and services than venture into the uncertain waters of innovation.
What we want to have happen is to have successful organizations in a mature market release both their financial and human resources back into the ecosystem to begin creating more innovative lego pieces that will eventually be formed into more lego towers that serve new verticals.
But why can’t startups form these lego towers currently? Because currently they are just rectangular blocks without the knobs and holes. If the pieces are just flat rectangular blocks, the structure is more akin to a disjointed Jenga tower, which certainly isn’t adaptable or sustainable.
If theory is to be taken seriously, what does it mean practically for how we should be organizing startups?
In order to start building lego-like structures startups need to have greater interconnectivity and more standardization for interoperability. To achieve either requires a more mature startup ecosystem which will need to evolve to encompass many new things including: more transparency, more portable data, a more collaborative culture that focuses more on creating value than capturing it (meaning share more and worry less about protecting IP or being ripped off); a tighter community with more fluid relationships between first time entrepreneurs, entrepreneurial veterans and mentors. Startups also need better information including: roadmaps, templates, and organized, actionable guides. And the ecosystem needs more startups for startups—companies creating tools designed specifically to help other startups grow their businesses. We want to be one of them.
As these tools develop and the ecosystem matures achieving lego like startups will begin becoming feasible, but the culture must evolve in parallel, too.
What we’re trying to look at and understand is what the innovation landscape might look like in the future, I think the lego model is a step in the right direction. Let us know what you think. We’ll be sharing more implications of the lego model and complimentary ideas that could shape the innovation landscape.