The Lean Entrepreneur: How Visionaries Create Products, Innovate with New Ventures, and Disrupt Markets

Over the Horizon: A Framework

In 2000, McKinsey & Company management consultants Mehrdad Baghai, Stephen Coley, and David White introduced a “3 Horizon” framework to help break this pattern.12

1. Horizon 1 is the core business, accounting for most revenue. The business model is well understood and is executing (for now) with all cylinders firing. The primary focus is on near-term performance.

2. Horizon 2 represents internal businesses on the rise: products that have customers, have perhaps achieved product-market fit, and are ready to scale. These businesses have the potential of becoming core to the business—in other words, a Horizon 1 unit.

3. Horizon 3 contains early-stage startups. They might include research projects, prototypes, inventions, products in pilot phase, and strategic investments in external young companies. Most of these startups, for a variety of reasons, will fail.

This, it seems to us, is a reasonable way of looking at things. But how these groups are funded and how they interact with each other (if at all) are critical to their success. The three horizons should be seen as a pyramid, with a greater number of smaller investments on the bottom and winners bubbling up to the top, the same way the innovation economy works.

Geoffrey Moore, author of the marketer’s bible, Crossing the Chasm, sees a problem in the application of horizon planning whereby Horizon 2 teams are often tossed Horizon 3 projects that are little more than “prototype-stage products” ...