How we do “Innovation” at Diagram

My team’s mission is to find or invent, nurture, and “de-risk” new venture ideas that can be put in the hands of amazing entrepreneurs and become the next crop of Diagram portfolio companies.

More often than not, when I walk into a wedding, dinner party or family gathering expecting a slight escape from my work life, I get the complete opposite – in the best way possible! Inevitably, as people ask “so what do you do for a living”, or “how is work going”, the conversations seem to be drawn out to in-depth explanations of the latest ideas we’re working on, testing one of our new concepts, or discussing issues people face that could be improved with technology. I absolutely love dissecting the frictions, unmet needs, and inconveniences in peoples’ personal or professional lives in order to invent new ways to solve these. This is why I consider myself extremely lucky to do the work I do day-to-day.

My team’s mission is to find or invent, nurture, and “de-risk” new venture ideas that can be put in the hands of amazing entrepreneurs and become the next crop of Diagram portfolio companies. To do this, we have a “company creation recipe” which breaks down into the following steps:

Step 1: Idea pipeline + one-pagers

We start by spending lots of time talking to our investors, interacting with companies in the financial services and insurance space, following the startup landscape globally, and generally reading and staying informed on big trends. From this ongoing work, we keep a (gargantuan) google-sheet that we call our “Idea Pipeline”, which contains a few hundred one-liners describing potential ideas. We periodically prioritize and pick from this list, and begin working on an idea by drafting what we call the “One-pager”. This is a brief memo that outlines our hypothesis for what the business could be, namely: what problem would it solve, for whom, with what tech-first solution? what makes the timing ripe for this now? how big is the total addressable market? who are the competitors? how would this business create and capture value? what is our unique and unfair advantage? and last but not least – would this have a positive impact on the world? At the one-pager stage, everything is a hypothesis, based on secondary research. So we know we might be wrong, but it’s more about asking ourselves “if this were all true, would this be an exciting business for us”. From there, we make a decision on whether we think the business can be a good fit for Diagram. If yes, we decide to spend more time on a “Research stage”.

Step 2. Research Stage

At this point, we’re looking to validate all the hypotheses we’ve previously made. To do this, we usually shift a lot more into primary research – interviewing customers, experts, conducting competitor demos, modeling the financials, etc. Of course, sometimes we learn things that make us realize the opportunity is not as exciting as we thought…for example pain points that don’t resonate with customers, the existence of well-funded competitors, or economics that don’t quite work. During this process, we leverage ethnographic research and survey techniques, and we rely heavily on the Power Financial Corporation ecosystem to find the right people to validate or disprove our ideas. This usually takes about a month. If we think the idea is still interesting, we articulate it into a pitch document that outlines our future vision for the business, and we start to share it with potential founders.

Step 3. Founder “pitch”

Sharing our ideas with potential founders is an interesting step in the process in that traditional roles are totally reversed – it’s an investor pitching a founder! Throughout the year we’re continuously meeting experienced entrepreneurs and building our network of potential founders. So when we have an idea that’s ready, we reach out to those in our network that we think could be a fit for the business in question, and are ready for their next venture. (P.s., if you’re an entrepreneur looking for your next venture, get in touch with us here and we’d love to share what we’re working on!). At this stage, our goal is to secure a potential CEO and onboard them to start working with us on the next stage of the idea: the pre-seed.

Step 4. Pre-seed

In parallel to the founder outreach, we develop a pre-seed plan which outlines the 2-3 key remaining questions or “risks”, and a plan to “de-risk” them by doing in-market testing. If it’s a B2C idea, we might run some customer acquisition tests to determine the cost to acquire a customer, or their willingness to pay. If it’s a B2B idea, we might build a clickable prototype and try to secure a first pilot client. This can get quite fun and creative – in one notable instance, we even answered customers’ questions ourselves to test a chat-based advice feature! Throughout the pre-seed, we closely involve the potential CEO or founding team. Over time, they shape their Seed plan, product roadmap, hiring plan and budget to ultimately pitch for a Seed investment. For me, this is one of the most rewarding steps, where we see the founding team taking ownership of the idea and shaping the future vision for the business. That is when it all starts to feel very real.

Step 5. Seed

Once Diagram and the CEO or founding team feel convinced that there is an exciting opportunity, we move to Seed the company! At this point, the Innovation team steps more into the background. We are always there to support founders in their first few months to transition the work done, but usually, they are off to the races very quickly.

One more important piece of this process: the team. As part of this work, each member of the Innovation team is given the opportunity to fully own an idea, shape it, advocate for it, and push it through the stage-gates described above. Everyone on the team has to be an entrepreneur. Working in the Innovation teams requires drive and strong ownership, and offers tremendous opportunities for growth and impact, in a highly mentorship-driven, supportive work environment. (p.s. you can learn more about opportunities to join the team here).

This process helps us get from one line on paper to a funded venture in roughly 3-4 months. Of course, there’s always more to improve, and we’re learning every day, so this recipe will continue to evolve.

Beyond the stage-gates and the process, I’ve come to find that there are a few key principles that help keep our early-stage innovation on track:

1. Being inspired by and rooted in the pain point.

The Y Combinator mantra “Make something people want” is absolutely crucial and it’s something we focus on throughout the exploration to ensure we are crystal clear on what problem we are solving, for whom, and why it matters.

2. Failing fast and killing ideas quickly

Thomas J. Watson, the early IBM CEO said: “If you want to increase your success rate, double your failure rate.” This rings particularly true for our work in the Innovation team. Not all ideas are good! We need to be prepared for our ideas to fail at any stage, and we need to celebrate the quick failures. In fact, my team has recently started a tradition of creating a tombstone for pre-seed ideas that “died”, so that we have an artifact to remember them by.

3. Taking a leap of faith

Even though we have a network that we leverage to get qualified ideas, and we spend lots of effort “de-risking” them as much as possible, entrepreneurship still fundamentally requires a leap of faith, and our work is no different. At some point, we have to make a decision on whether or not to keep working on an idea, and we always have imperfect information. That’s why I think of my team fundamentally as a group of entrepreneurs trying to create new ventures. We have to personally believe in the ideas, and we have to take a chance. That’s why throughout our efforts to understand the risks, the team and I still find it very helpful to periodically ask ourselves “…what if it does work?!”.

Through all this, my end goal is to launch new companies for Diagram, which is an incredibly motivating mission. I absolutely believe that together with fantastic entrepreneurs we can build successful companies that create economic value, jobs, and financial returns. What specifically gets me out of bed every morning is the feeling (humbly!) that through our work, along with the founders who ultimately bring the ideas to life, we are contributing to progress. We are advancing how technology is used in the financial services, insurance, and health sectors to better serve consumers, to make companies more efficient, to improve the status quo. By doing something new or different, we’re contributing to advancing human knowledge, and our collective understanding of what’s possible even beyond the verticals in which we operate. When I think of our pipeline of ideas, I’m incredibly excited about the problems we are solving and the novel themes we are taking on. Stay tuned…we can’t wait to show you what we do next!