Your Startup Needs a Skunk Works
I love a good skunk works. And I love what they do for my startups.
A skunk works is formed when a company ropes off a portion of its resources to develop a secret or future-facing project. It could be a small full-time team, a dedicated percentage of work time, or just an off-hours splinter project run as an offshoot of the company.
The differences between a skunk works project and a traditional side project are:
- The skunk works project is focused solely on innovation, and not necessarily related to the current business model or feature roadmap.
- The team has a relatively large degree of autonomy to make its own decisions.
- The team is usually free from day-to-day working constraints.
- The team ideally works in secrecy.
When done correctly, a skunk works project can produce a trajectory-changing acceleration to take a company to new heights.
When done correctly.
For that reason, I believe that every company needs some degree of skunk works within its walls, at all times. It’s something I’ve done with every single startup I’ve founded or been a part of, and I’ll share with you the ways I’ve seen it work.
First: Why do a skunk works in the first place?
A skunk works is a way to emphasize the strengths of a startup — speed, flexibility, innovation — while still focusing on revenue.
But wait. Isn’t a startup kind of a skunk works already?
Well, no. A startup can only experiment for so long. In fact, one could argue that a startup needs to be even more laser-focused on sustainability and profitability than a mature company. After all, if a startup has bad quarter, it can die.
That said, in over 20 years of doing startup, I’ve learned that every company — regardless of its size, age, and amount of funding — always needs one foot in each of two camps:
Profit vs. Growth: I’ve said it before and I’ll say it again: You can be profitable, or you can grow, and it’s pretty freaking difficult to do both at the same time.
Results vs. Risk: You have expectations and numbers to hit every month, every quarter, every year. The more risk you inject into the company, the harder it is to predict and hit those numbers.
Research vs. Execution: Every product or service is eventually doomed to become a commodity if left to stagnate. But all the R&D in the world means nothing if the results never leave the lab.
Today vs. Tomorrow: The world is going to change whether or not you change with it.
Work vs. Fun: I say this a lot too: You have to inject some fun into what you do every day. Some companies do it with beer Fridays. Be the one that does it with science.
Now, let’s talk about some ways to do a proper skunk works.
Use revenue to fund growth
Sometimes shifting innovation to a skunk works lets a startup substitute or complement outside funding with a steady stream of revenue. This gives the founder a much stronger negotiating position when raising money, allowing the company to hang on to more equity, while at the same time dramatically reducing the risk that comes with executing on a game-changing idea.
One of the startups I’m advising did just that. When the founder established the company, he realized he had two stories.
The first story revolved around removing the friction from a traditional business process, streamlining it, and offering it with a different and much more customer-friendly pricing model. He raised a Series A on this story, and immediately started executing his new methods on the traditional process, resulting in a steady stream of revenue for the business.
The second story required a wholesale evolution of the very process he was streamlining. This was a risky idea with a huge potential reward, and he started planning it even before the first story kicked off. The second story idea simmered and evolved while the company continued building revenue streams and learning lessons from the first story. Then, once he hit his revenue target, he turned on the skunk works.
This company’s skunk works is a mix of couple of his current full-time employees devoting part of their time to manage a team of outside contributors. This team meets and works outside the office, and doesn’t get in the way of the business. They plan to launch their evolutionary new process later this year.
Now the founder is out raising his Series B on the new process, and he’s got a much better story to tell. He’s able to directly connect an existing line of revenue to the industry-changing, incumbent-smashing product he wants to build.
Don’t just talk about the future, figure it out
At my current startup, Spiffy, we come to you to wash your car and change your oil, and we built our own tech stack to make the process seamless for the customer.
We’re big fans and followers of Amazon, and much like how Amazon started out by selling books and CDs, we’re looking to change how you maintain your vehicle, starting with mobile washes and oil changes.
It’s not lost on us that Amazon’s need for a massive tech infrastructure to handle their holiday shopping surge resulted in AWS. Dedicated servers are too expensive? Let’s change that. Or that Amazon’s lack of satisfaction with the limits of their logistics resulted in Amazon Prime and all those silver Amazon trucks clogging your neighborhood streets. Shipping costs and speeds create friction for the customer? Let’s change that.
We believe the future of the automobile will be directly impacted by changes in connectivity, ownership, autonomous vehicles, and electrification — sooner, rather than later. So we have a number of skunk works underway to address changes in these areas. As these projects start to mature, and as the future begins to meet us halfway, we roll them out.
Obviously I can’t talk about most of them, but a good example is connected car. We can now unlock and lock a vehicle from our app during an appointment, with the owner’s permission, of course. This saves time and reduces friction. Of course, not a lot of our customer base uses this feature now, but we think it’s going to be standard operating procedure in a few years. And we’re ready.
By the way, Amazon can already deliver packages to your trunk. Porch pirates a problem? Let’s change that.
Big ideas require new ideas
Sometimes when you’re building a revolutionary product, you have to also figure out how the revolution is going to go down.
At my previous startup, Automated Insights, we pioneered Natural Language Generation technology, a science so new that at the time we didn’t even call it Natural Language Generation, we called it automated content, or “robot writers.”
The concept of generating structured, interesting, human-sounding content from numerical data was almost a solution in search of a problem. Then, when we landed a contract to do matchup recaps for both Yahoo Fantasy Football and NFL.com, we realized the scope of the problem: How do you create content for humans when humans don’t have access to the source material?
Then we realized that as data collection was growing exponentially, the problem was enormous. And everywhere.
So we took the idea of a skunk works and made it a full-fledged part of our organization, a concept like Google’s Project X and later spoofed by Hooli’s XYZ in Silicon Valley — which, by the way, is a spot-on example of an improperly done skunk works.
I led this team, which focused on merging our tech with business intelligence, machine learning, even audio and video, to wrap our brains around the changes in how data was being created, collected, aggregated, and reported, and how we could compress all the necessary analysis into a few concise sentences.
Even when the applications that came out of the skunk works weren’t immediately viable, they usually led to solutions that complemented our product or helped us wade into entire new lines of business.
Start a skunk works. Do it out in the open or behind closed doors. Pay for it or find off-hours time. Do it for the company or make it a company within the company. Just understand that when all your talent is working on generating revenue, you just can’t let all that creativity go to waste.
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