• by Michele Anderson , August 15, 2011

Building the Virtual Start-up

Twenty-five-year-old Silicon Valley programmers are nipping at your heels, and your Web strategy expired in 2003. Your mobile apps haven't performed. You know you need to build a new platform that takes into account all the new tools of media and marketing - mobile platforms, online gaming and social networks.

So what do you do? Should you acquire? Or build internally? It is a regrettable fact of life that most acquisitions do not work. The acquired firm rarely sits well inside the larger firm; in fact, it typically results in a kind of corporate indigestion. The grand hopes of synergy fade away. Talent moves on. So, conventional wisdom goes, you should build a new business. You should put your brightest folks together in one room to generate ideas.

But again, experience shows this doesn't work. Your best and brightest already have more than enough work. They end up distracted; the bold effort they are charged to create never materializes, or if it does, it solves yesterday's problems. No one can build a new business between 5 p.m. and 7 p.m. There is, however, another way. Do not attempt to build from within. Don't seek to acquire. Instead, create a "virtual start-up."

At Activate, where I am a partner with Michael Wolf, this issue's guest editor, the virtual start-up is core to our strategy. For media and marketing organizations looking for radical, difficult change, and who have been burned by acquisitions, the virtual start-up is a way forward - a "third way" that allows large organizations to become full participants in the digital world with as little waste and disappointment as possible.

What is a virtual start-up? It's a small, agile enterprise that you build by drawing on the best talent you can find, both inside and out. Once the team has created a product, you "acquire" the start-up by migrating the new business into your organization.

I like to think of the process as a kind of heist - as in the film Ocean's 11. You define the business and then you build the team. And afterwards, everyone goes their separate ways. What's left behind is a new product with new customers.

Casing the Joint

If a virtual start-up is like a heist, what exactly is being stolen? In this case, it's the assets of your own organization - whether an archive of content sitting underutilized on hard drives, or a database of consumer behavior with metrics for every neighborhood in America or data about attendance at large stadium entertainment events. Any media or marketing organization of significant size has key assets that are underutilized.

What we're stealing are not the assets themselves, of course, but the value that is locked within them.

How to start? First find the right question - not an answer, but a question - about the latent assets and capabilities of your organization.

A leader of a media organization might ask: What sort of online application could give millions of people access to my archives? A head of a consumer-marketing firm might ask: What sort of new, geography-aware, mobile-platform advertising units could reach those millions of consumers in their neighborhoods?

An event-marketing expert might wonder: Can a sponsored, social-media platform/game be created that allows people who attend large entertainment events to find and connect with each other?

The answer to each question is not just strategy, not a new business unit, not a new marketing plan, but an actual, discrete product. And to have a product, first you need a prototype.

Assembling the team

Once you've framed the question and understand what kind of product you'll be creating, your next job is to assemble a team with the required set of skills.

This is not a typical human-resources effort. These are people who may be around for only a few months. They don't want healthcare - they have their own. They don't need an office - they work from home. They may be highly resistant to meetings. These are "alpha practitioners."

Alpha practitioners can take some work to find. Reach out into your community. Find out who built the products you respect. Do not be afraid to talk to strangers. And be prepared to meet some resistance. These are people with more work than they can handle. You may need to contact some of them more than once. They need to understand that you are serious - that you are willing to fund and support them.

Where can you find these experts? Look for the most revered industry conferences - the ones where it's hard to get a ticket -  and see who is speaking or appearing on panels. The best senior developers of mobile apps, information architects, user-experience experts and graphic designers are utterly connected. They have thousands of followers on Twitter. Read through their slide shows and blogs to get to know them. This will have the side effect of giving you an education on the current thinking in their disciplines. And when you reach out to them, make sure they understand that you are truly familiar with their work - that you understand what they do, and that you specifically need and value their skills.

Don't forget that you have something these practitioners want (something besides money!) - the chance to work on large, complex problems and find solutions that work globally. You may need to educate them to work at the scale of your enterprise. But never forget that what these experts crave, more than anything, are truly hard problems to solve. Don't scale back your ambition. Stay in selling mode: Most of these people would never have any interest in working for your company full-time.

One absolutely critical member of the team is the "inside" man or woman. He or she is the bridge between the larger organization and the new enterprise. This person should have a good grasp of technology - and be able to understand the project in all of its ramifications, from the number of servers needed to host it, to the expected audience metrics that will indicate success. And he or she should be free to be part of the project and to do whatever it takes to ensure success.

The kickoff

Where do you find room for a virtual start-up? In a virtual office. It's very unlikely that you'll find the best people all in the same city or even time zone. This is not a concern: Hire based on skills and experience, not location, and count on airplanes, instant messaging and emails to solve the problems of geography.

That said, the kickoff is key. You want to bring the team together at least once, to allow them to get to know each other and give them the ability to form a cohesive unit before letting them return to their various homes.

A properly presented plan - which shares your current business goals and outlines the new work you'd like to do -  can save countless hours later on. Define the metrics for success; help the team understand your current business and your larger goals. Be willing to hear criticism. You are paying top dollar for this team. The team as a whole may see problems with your starting strategy that you never expected.

The kickoff shouldn't simply be about meeting and greeting. There should be a real product plan for moving from "question" to "answer" before all the team members depart back to their offices.

You won't be presenting a buttoned-up plan. You'll be leaving open spots to get input from your team. And, after the kickoff, don't dismiss the team - start with an actual development session where everyone is in the room. Much of the color and richness of the project will come from product creation. Remember, code can be written quickly; working Web sites and data-gathering tools can be developed in hours, not months; assumptions can be tested and changed. Absolutely any idea is open to be discussed, tested or thrown away if it doesn't work.

And remember: Experience comes first. At this stage, customer experience is more important than a revenue model. You need users first; then you can monetize.

Traveling without baggage

This is a start-up - the goal is not to preserve order, but possibly to destroy it in search of a larger success. Accounting rules, legal compliance issues, fundamental issues of copyright, the silos preserved by various business units - all these should be brought into question by your team.

There can be tremendous pressure from the larger organization to seek more immediate return on investment, or to use the team to solve existing business problems. But that's not the purpose of this team. It exists to create a new business - to use new approaches and new ideas, to reuse existing assets. The team should have no respect for silos or for the differences between business units. And no baggage. This is why, once you've built the team, you must - and this is critical - keep it separate from the larger organization. Keep team members away from legal; keep them away from accounting. You are not simply solving a problem - you are building a business, moving quickly, and focusing not on the organization but on the consumer. That doesn't mean you must invent everything from scratch. Technology is now a commodity. Many once-difficult problems - such as adding game elements to an Internet product, connecting users to social networks and creating communities - now have off-the-shelf (or off-the-Web) solutions that can be implemented in weeks or days. The job of the virtual start-up is to build a thin layer over existing services. Do not reinvent. Reuse.

While regular meetings and presentations are fine, don't overburden your team members and require them to demonstrate progress with long slide-decks and long, on-site meetings; these people are self-directed and, given that they are solving totally new problems, it's better to just let them try and see what happens instead of attempting to guide the process - because the "process" doesn't actually exist.

At the same time, you can keep a close eye on progress by monitoring the "ambient communication" around the project: Code is written and checked in; groupware is used to communicate; email lists and chat logs are available for review. Constant development and iteration are the norm, not the exception. Create policies to encourage this and be very wary of anything that might slow it down. Find the fastest way to check in -  maybe a regular, brief conference call rather than a report.

Fencing the goods: the handoff

One major cautionary word, learned from hard experience: Development schedules can be very difficult to predict. Code is complicated, and the new ecosystem -  including mobile vendors, "app stores," and a number of hard-to-control-for variables - all contribute to a slowdown in coding. No matter how great your developers are, they'll always need more time; despite the best efforts of thousands of project managers, software development remains an inexact science. So add time in to your schedule: Pad it by at least 30 percent. Fifty percent is better.

After just a few months, the team should have something to show, not just a prototype but a real, tested product - whether an application to be sold by Apple or in the Android marketplace, a collection of new code ready to deploy on millions of Web sites or some other new, virtual product that can be used by hundreds, thousands or millions of individuals.

Now it's time to start the acquisition. The virtual start-up is, by definition, temporary. Your heist team, having extracted value from the assets inside your organization, will stay with you through product launch and will help you serve your product's first customers. But ultimately the team members will leave and move on to other projects.

Your organization, however, will be left with a new (and hopefully thriving) product that has customers and support needs, and which must be integrated into your larger portfolio. Thus, while your heist team is working, you must also build a longer-term team that will nurture the new company - and bring it back into the fold of the larger enterprise.

This is when your inside man or woman comes back into play. This person serves as ambassador for the new product, educating both existing employees and new ones as to its role inside your company.  He or she helps them understand what the product offers (and also keeps them calm when they realize the new product might disrupt current ways of working).

In the handoff, don't forget to bring your ad sales and marketing teams in to learn and experience the product. They need to understand what they'll be selling (or selling against) and to understand the competitive landscape -  because your product will, of course, have competitors, often a new class of smaller, agile ones.

And then comes launch day, when the product goes out to the world. Launch day is a wonderful opportunity for your organization to demonstrate its willingness to engage with new business models and its desire to seek out new opportunities. It's also the first chance you'll have to bring the power of the larger organization online to support and promote the efforts of the new start-up. This is where the advantage of the virtual start-up is felt most keenly: It combines the awesome power of a large media or marketing organization with the agility and efficiency of a new, digital product. Rather than an also-ran app, for example, you'll be promoting something that truly belongs to the new, digital ecosystem - something designed to reach the mass audience of the future.

And once you're done, once the product has been launched and is thriving, you'll have the knowledge to execute on the most difficult aspects of digital strategy. And that's when you can do it again - by creating a new virtual start-up.