Steve Blank explains that it’s easy to know which Horizon you’re organization is in by seeing what it’s doing with the business model. If your company is executing the current business model, it’s in Horizon One. If it’s modifying a channel, a customer type, a territory, or a product, it’s modifying its business model. And that’s Horizon Two. If it’s experimenting with many changes to its business model, then that’s Horizon Three.

Business Models and Lean Innovation Management

The relationship between business models and Lean Innovation Management is kind of how we’re keeping score. That is the traditional McKinsey three horizons really had no underlying framework for us to kind of scratch our head and going wait a minute, is this horizon one, or two or three. Now it’s just pretty simple, we just simply look at the business model and say, wait a minute, are we executing the current business model? Well if that’s the case then it’s a horizon one activity and let’s just focus on execution, process, procedure etc. hopefully we can make those better but we know what our business is.

And horizon two says let’s look at that business model and say, perhaps we want to in fact try a new channel, or perhaps we want to try new customers with existing products or a new region or something else. That’s extending the current business model. That is almost all of the business model kind of knowns, but we’re going to try some experiments and see if we can actually extend it.

But it’s horizon three that feels like a startup, because if you look at that business model, and maybe we have a great idea about a customer segment or maybe we have a great idea about some technology that we own. But almost everything else is a hypothesis. So in that case we’re searching for a business model. That is we have a vision which is what makes great new initiatives or great new startups, but we have very little facts.

The distinctions here is that in large companies we used to then go to the exec staff and the board and say I need 50 or $100 million or tens of millions for a new initiative. Now, the key idea is we can test and search for new business models, literally with tens of thousands of dollars within 10 weeks. And this is not some theory. We’ve built this process and put hundreds of teams and lots of companies through it, that you can make a machine literally for testing and validating or invalidating new business model hypothesis at just blinding speed and that gets the innovation back inside large companies.