Jun 30th, 2019

Startups Beware: Time Horizon 2 Might Kill You

In early 2000 Mehrdad Baghai published “The Alchemy of Growth: Practical Insights for Building the Enduring Enterprise” — a book which quickly became a seminal read for managers and leaders in companies big and small. In the book he developed the Three Time Horizon model — a model which, due to it’s first principle-based reasoning, continues to provide valuable guidance and insight to this day.

The short of the model is that companies can/must operate in three distinct time horizons: Horizon 1 is the here and now — arguably every company needs to be good in Horizon 1, otherwise they wouldn’t exist. Horizon 3 is classic research & development: many years out, often more basic and fundamental in nature. Some companies are good at this — think about the classic IT giants like IBM or Microsoft. And then there is the in-between: The dreaded Time Horizon 2. The period where you bring something from R&D into the here and now. This is where things often go terribly wrong…

There are at least three main challenges for big companies in this space — but for startups it often is outright deadly.

The challenges with Time Horizon 2 include a lack of market/customer validation, timeframes which require substantial amounts of funding to survive (let alone thrive) and a need for an unwavering focus and discipline. All things only a few select startups will ever manage to get through – and yet I regularly meet entrepreneurs who start their company squarely in a Time Horizon 2 market, don’t understanding what they are getting themselves into or, more often than not, not even realizing that their time to market will span years and years.

Believing that you are in Time Horizon 1 when in reality you are in Horizon 2 (or sometimes even Horizon 3) will most likely break your neck. Think about all the blockchain startups which popped up two to three years ago – the founders of most of these companies believed that the blockchain will be squarely here by now. Alas they build a business using the endurance, funding and structure of a Time Horizon 1 company in a Horizon 2 market.

Beware the fallacy and take a good, hard look at your market and its maturity. Nothing wrong with Horizon 2 markets — unless you don’t know you are in one.

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