How Dubai Next can be a gamechanger for the startup ecosystem

The recent initiative by Dubai Crown Prince Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Dubai Next, is a government platform to drive entrepreneurship and innovation.

The initiative has the scope to make the UAE an innovation hub.

An IBM Institute study found that 90 per cent of startups fail within the first five years of their inception. Almost all the reasons for the failures are broadly related to innovation and leadership:
business models, planning, customer insights, lack of original ideas, focus, agility, tech capability, and leadership gaps. Nearly 80 per cent of investors said that startups lack unique business models, as the majority of them copy-paste successful models from elsewhere without unique local insights.

The Dubai Next platform should not subscribe to what most people think of startups – “Steve-Jobs-arrives-on-a-clamshell-and-the-world-is-changed-forever”. As the Valley entrepreneur and doyen of the lean startup movement, Steve Blank, puts it, a disciplined approach like the Discovery Driven Disruption (DDD) process can simply reverse the failure rate dramatically – and at much lower costs.

Dubai Next can help improve the success rate of its cohorts by embracing this lean startup methodology. The core idea of DDD is that rather than creating an expensive, risky plan for an uncertain venture, break it into stages. At each stage, identify and test assumptions, ideally at the lowest possible cost and time. That will de-risk ventures. Instead of fearing failure, one can then change the question into “What is it worth to our organisation to learn something?” Whatever the outcome, if you agree that the answer will be worth the investment, failure simply doesn’t enter into the picture.

The framework is about driving growth in uncertain times. In this pandemic-disruptive era, coping with uncertainty will be even more daunting for startups. It is easy to freeze in the headlights or otherwise guarantee that the effects of the downturn will be far more serious and longer-lasting than they need to be.

At its core, it’s a planning and execution methodology that helps startups to stay focused on protecting and enhancing current projects while also securing footholds to future growth areas, all at low cost and with little risk. The inherent idea is that one needs a different mindset today.

Recognise that with uncertain business ideas one really can’t know the result a priori. Instead, the goal is to learn as much as possible for as little cost as possible, always being prepared to redirect activities as and when new information unfolds. Here, one invests smaller resources that are affordable to lose to generate the knowledge that is needed to commit more resources. It begins by specifying a performance outcome that would make the growth efforts worthwhile.

Define success upfront, as well as the guidelines for what next after these goals. Thereafter, the rest of the discovery-driven tools are used to approach closer and closer to that goal, containing risk and downside exposure until the uncertainty is reduced to the point that one can confidently invest to capture targeted growth, or shut down early and inexpensively if things don’t work out.

As the plan unfolds, the assumption-to-knowledge ratio gets reduced. When it is high, there is high uncertainty, and one should prioritise learning, inexpensively and fast, at the lowest possible
cost. As the ratio shrinks, focus on hard outcomes.

Dubai Next can teach its cohorts the following and lead the lean startup movement:

1. Frame the challenge. Help frame a growth challenge at the founder level and define the growth frame for the startup. The outcome is a set of guidelines for types of initiatives to be pursued. As a result, everybody will be clear about what kinds of opportunities are legitimate and aligned to the business.

2. Create an opportunity portfolio. Analyse how resources are currently being allocated to the business and consider how these allocations would need to change, given the growth frame. Take a portfolio view of different types of growth opportunities. How much profit and cash flow growth is needed to come from the core business? How much to scale up? How much will go into low-cost, high-potential opportunities for future platforms? In today’s market, the typical portfolio of initiatives will contain a mix of short-term projects designed to enhance positive cash flows and low cash-drain.
3. Manage strategic projects. Start with identifying a ‘unit of business’ that will create the architecture of the business model. A unit of business is quite literally the unit of what you sell – what the customer pays for. You may find, as you progress on the discovery-driven plan, that the unit of business you started with doesn’t deliver the way you wanted, and so needs correction. You may also find that achieving your goals the way you originally thought is unrealistic. A rethink will be necessary to define the metrics of success, and to compare your metrics with those of potential competitors.
4. Connect plans to financials. Keep the plan coherent and connected to reality. Construct a reverse income statement and reverse balance sheet. Tie together the decisions made in the earlier steps and simulate future business, allowing for what-if speculations, and ensure that it is realistic.
5. Convert assumptions to knowledge. The identification, documentation and testing of assumptions will be done here. Develop operation specifications and assumptions checklists as well as the financial logic that underlies the business model. Show how operational activities and assumptions are intimately linked. Best practices will be deployed in redirecting projects, as many founders vaingloriously try to execute an increasingly unrealistic idea. Have a disengagement plan to take on the challenge of shutting down unviable ideas.

Rita McGrath is a professor at Columbia Business School and founder of Valize. M Muneer is the co-founder of Medici Institute