Coke’s David Butler on Building a Program for ‘Exponential Growth’

February 9, 2015

Explaining the Role

Scott Kirsner: Why does Coca-Cola need a VP of Innovation and Entrepreneurship?

David Butler: I think every brand, every established company, every large organization, I’d actually throw in governments in there as well, is looking at this whole space of disruptive innovation with the hopes of avoiding a Kodak moment.

Again, that’s an overused example now, but basically becoming irrelevant to the market that they’re in or the people that they’re talking to. I think every big company is looking at this whole thing and trying to figure out a way to avoid it and, in fact, perhaps leverage it for a new opportunity.

In [our] case, the company wanted to focus on exponential growth. Basically, “How could we do what startups do?” These high growth companies that came out of nowhere — Square, Spotify, Instagram — that didn’t exist four or five years ago, how are they able to create something that’s now valued in the multi-billion dollar valuation?

Learn by Doing

How can we do that? How do we partner with them if we can’t do it? To dig into that and try to figure that out on behalf of the Coca-Cola Company, that was the job. Now we’ve had quite a journey since then. We’ve tried many, many things. The cool way to say that is we’ve pivoted two or three times, but essentially we failed a few times and changed directions, lots of learning.

I put one slide up in front of our operating committee, which includes our chairman and his direct reports. It was a slide that just said three words: “Learn by doing.” I think that’s key.

I just said, “We’re going to learn by doing. I don’t know how to do this, but we’re going to try a lot of things. And we’re going to fail at a lot of them, but we’re going to learn continuously across that.”

We haven’t hired consultants. We haven’t asked other people to figure this out. We’ve actually tried to figure it out on our own, and I think that’s actually really key.

Kirsner: It sounds like you were very clear that this was not about incremental product innovation, like, a different package for Diet Coke or an extra button on the vending machine. This was about looking for real growth and things you just weren’t doing today.

Butler: Exactly. Every company does that kind of incremental innovation. We do that. What we were looking for is a way to tap into what founders are able to do, and startups are able to do. This whole movement, the “lean” movement that’s been going on for a decade, we wanted to figure out how we could tap into that to experience the exponential growth that they are.

Maximum Speed, Minimum Waste

Kirsner: Let’s talk about lean startup a little bit. I know you’ve done a decent amount of training for Coca-Cola employees, in a pretty short period of time, on lean startup. Talk a little bit about what you like about that method and maybe how broadly you’ve been training people there.

Butler: Lean means two things. It means maximum speed, and least amount of waste. Maximum speed, minimum waste.

If you think about it, what is every large organization faced with? They’re slow, and they spend a lot of money, and we’re right in there. This whole lean approach has been key to everything we’re doing here. Again, we didn’t get to it on Day Two. It took us a long time to figure this out.

We did two things. We created a new platform that we called Coca-Cola Founders, where we work with proven founders to co-create with them early-stage or seed-stage startups. We started that platform.

Then we started a second platform, essentially training lean principles across our internal organization. Those are the two things that we started about a year and a half ago.

Kirsner: Did you do the training yourself? Do you have a team of people that are running lean startup workshops inside the company?

Butler: Yes, it’s all internal. Actually, I will say that from the beginning we formed a relationship with what’s called Up Global, now. They started Startup Weekend. Essentially, you can learn how to create your own startup in 54 hours just right off the street, for a hundred bucks.

We wanted something as turnkey as that inside of our organization, so we partnered with one of the founders. He had spun off and started doing his own thing. We found him and brought him in to help us codify what they were doing. All of it is framed in our own language, in the Coke language that people understand here. It’s essentially internalizing the lean principles and tools out there.

Kirsner: I want to ask you a follow up about Coca-Cola Founders. In terms of that program, and bringing in entrepreneurs to work with your people to launch startups, how did you promote that? Did you put boundaries around it in terms of, “Hey, we’re looking for people with mobile app ideas or dispensing or distribution ideas?”

Butler: First of all, let me say that we’ve been investing and partnering with established startups, especially late-stage startups, for a number of years now. We are partners with Spotify, Misfit, Music Dealers, a lot of other startups. We had already been doing that. Once we understood lean, we thought, “What if we could all the way back to the beginning and partner with a founder that was specifically coming out of their startup?” In other words, they just sold or had an exit from their startup, or just had a big failure and were in between things.

What if we could find those founders who understood the lean method and were looking to create something big? What if we could find them and then partner with them from the very beginning, and expose to them the challenges that our company has — the big things that are very difficult for us to solve internally.

If we could explain that to them, if we could expose them to the assets that we have — every large organization has a tremendous amount of assets that are unthinkable, if you’re a founder. We have billion-dollar brands, and we have relationships with everyone from the CEO of Walmart to Bono. We could pick up the phone and call anybody. We can get a meeting with anyone.

If we could give them access to seed funding, and give them access to us as a launch partner, meaning get them to the right people inside of Coke to make decisions quick and pilot their product and all that… If we could give that to these proven founders, what could we create?

That could only work inside of Coke if it was in alignment with our business units. The way we’re structured is through geographic business units. We went to the BU presidents inside and pitched this idea. They were into it.

Then we went into the markets themselves, into the startup communities and found the founders. We built what we call a co-founder network where we just link them together. We built that network. In a year, we were live in 10 cities. That was last year.

Through that, they launched 23 startups across those 10 cities. If you know anything about this, one in 10 startups make it. That’s not an unusual number. We did that within a year. I have to say that doing anything like that is quite difficult inside of a large organization.

We ourselves actually approached that whole platform as if it was a lean startup, and just applied all the same methods and tools to that effort or that platform development as you would in launching a startup.

The Need for ‘Explorers’

Kirsner: I imagine a lot of companies could spend a year just figuring out the intellectual property issues of, “OK, we’re going to work with entrepreneurs and co-create things with them. Who owns it?”

Butler: Once you have an established business model and you have an established business like the Coca-Cola Company, essentially the way you keep that going is you hire people to execute your business model.

You hire managers to manage your business model. What you don’t hire typically are explorers, people to actually figure out new business models. I think that’s one of the biggest challenges for any big, successful company, to do this.

In our case, we have 700,000 people who are hired to execute a business model, and not explore a new one. When you go to them and say, “Look, we want funding to do this,” you mentioned the IP, “We want to do this and that,” they look at you like, “What, are you crazy? We don’t do this.” It’s a sort of fundamental structural issue.

A Startup to Solve Out-of-Stocks

Kirsner: Can you give one concrete example of what’s an idea that one of these 23 startups came up with? What kind of space did they focus on?

Butler: I’m happy to share all of that. Actually it’s on our website, if anybody wants to check out

We always start with a Coke problem, a Coca-Cola issue, a challenge. You never want to talk about problems inside a big company, so we call them challenges. But it’s essentially a big problem. The team that was based in San Francisco focused on one of the biggest challenges that we have inside of our US business, which is what we call out-of-stocks.

It’s easy to understand. If you go to your local convenience store wherever you live, and you’re looking for whatever you like, Coca-Cola Zero, let’s say, and it’s not on the shelf, that’s mildly disappointing to you. But that’s a billion-dollar lost opportunity for us.

Solving that out-of-stock issue is critical for us. It’s a group of interrelated problems. It’s not just one thing. Essentially, no one knows exactly when someone is going to buy the last six-pack or whatever of Coca-Cola Zero. Nobody knows that. A guy comes by every two or three days and restocks the shelf. There’s no on-demand model.

They thought, “What if we could create a way for the retailer, the shop owner, to post a job and whoever wanted to come and restock that shelf could do the job in an hour, wouldn’t that be more beneficial to Coke?” Could they create a business around that?

If you think about it, there are a lot of companies out there right now, TaskRabbit and others. This is sort of TaskRabbit for corporations. That’s what they created. It’s called Wonolo. The business model is just like Uber.

You post a job. Someone takes the job. The person that does the job gets paid through the app, not the retailer, so it removes that friction. Again, it’s sort of the Uber for temporary staffing. They launched that, I think, 10 months ago.

They’ve got 70-plus customers. Actually, Uber is one of their customers. Burger King, Home Depot, lots of big corporations.

Again, the idea is what we call win-win internally. It creates value for us internally, but it also allows them to hopefully to start a big, billion-dollar startup.


Kirsner: We’ve got a couple questions already from listeners, so let’s get to those. Question number one comes from Stanley Black & Decker. What types of metrics are you using to track your progress and define success?

Butler: That’s a great question. Actually, it took us a little while to get here. We track progress just like a VC does, in this case. We look right at growth metrics, the things that really matter. There’s a whole book on this, by the way, “Metrics that Matter.” It’s inside of a book called “Running Lean.”

In early-stage startups, they don’t have a product yet. Most of them don’t have a team or a product. The way that we measure success is by milestones. In other words, just as an easy example, one of our startups is looking for a CTO. One of their milestones is hiring a CTO.

We look at their milestones and measure according to those. Once they have a business going, they have real customers, they’re generating revenue, then we look at that. How many users do you have? How much revenue are you generating? When do you reach profitability, that kind of thing.

Kirsner: Phil Gibbs sends in a question asking, “Were the founders employees, or did they become employees of Coca-Cola? What are the issues around equity and ownership in startups? How did you hash that out?”

Butler: Great question. I mentioned we made several mistakes or pivots along the way. One thing that we did is we thought — and you can relate if you’re inside of a big company — we thought the easiest thing to do is just hire these people.

Number one, none of these people wanted to work inside a big company. I used a lot of my own personal equity and sweat and everything essentially selling them and talking them into doing it.

We hired them and got them all set up inside of Coke. Once they started doing what they are best at, creating a big startup, all of them are outside of the beverage industry. I mentioned the one about Winolo, that’s in the staffing industry. Our internal structure and support systems are not geared to running a staffing company. We’re a beverage company. All of a sudden I had all of the internal people, audit and everything, coming to me saying, “David, let me remind you. We’re a beverage company. We’re not a staffing company. What are these guys doing?”

Long story short, I’ll call it a pivot. We spun all of them out. All of those startups were spun out of the company. They’re all their own legal entities. We’ve set them up through a convertible note, so our investment converts to equity as soon as they reach a sustainable business model.

That was one of our major pivots. We hired them into the company. We figured out that wouldn’t work, so we spun them all out.

Working with Small Companies

Kirsner: We have another question about other examples of big and small companies working together effectively. That’s from Peter Sayburn at Market Gravity. I guess I would maybe expand that question to say, “Were there role models that you looked at of how big companies can work with smaller companies, or did you feel like, ‘OK, we’re going to have to hack our own path here?'”

Butler: I can answer that in two ways. One is going to sound almost self-serving, and I don’t mean it to sound that way. We didn’t have a model to work from.

Again, that’s why I put the slide up in front of our operating committee and said, “We’re going to learn by doing. If you want to fire me, fire me now because there’s a lot of things that are not going to happen the way everyone wants them to happen.”

We didn’t have a model to start with, especially in our industry. Having said that, I encourage anyone to look at Google, or the big tech brands, Amazon, Google, Facebook, even Apple. They use this model quite effectively. They have this portfolio of ventures — early-stage, late-stage startups inside their venturing portfolio — that they have investments in, relationships with.

At any point they can just acquire one of them, bring them in, and essentially repackage it. It’s not as easy as this, I know. Repackage it and then offer that service as a new Google service. Think about it. That’s how Facebook does it, Apple, all of these. That’s how the tech brands do it.

It feels very natural for them. Even from the outside you think, “Well, of course. They’re a tech company. They can do that.” I would challenge that. I’d say, “Why can’t every brand do that, every company do that?”

I actually think that’s the path to success going forward. I’d say anybody can look at Google or any of the tech brands and look at how they’re doing it and figure it out for their own company.

Kirsner: I would argue that a lot of bigger, more mature companies, they tend to have a corporate development group that looks at the acquisitions. That’s at a much later stage. They’re typically not building those relationships or making very early-stage investments in companies that just started this year and might have five, ten, twenty employees.

Butler: Scott, you’re right. We have got a M&A team, and they’re great at what they do. They’re used to doing big billion-dollar deals. Just last year we announced a couple of big ones, one with Monster Beverage Company, the energy drink, and Keurig. We do that kind of stuff all the time. We buy big bottlers that we have. These are multi-billion dollar deals. That’s more like private equity. Again, with this other approach, you have to get into this whole lean movement to understand how it works and the speed that you have to operate in.

Kirsner: Let’s see if we can get in a couple last questions here for you, David. Ken Durand from Ericsson wants to know, “Do you have any internal people that you allow to take advantage of the founders program? How do you get intrapreneurs involved?”

Butler: That’s a great question. To be very honest, we haven’t quite figured that out. I will say that once you do this, or if you can do this, it really connects with the “millennial” buzzword out there. A lot of existing employees or people who might not otherwise be attracted to our company, once we started doing this, they all of a sudden saw Coke in a whole new way.

The mechanics around how to take an existing employee and spin them out in their own startup, we’re still figuring that out to be totally honest with you. I can’t give you any big insight there.

Kirsner: You were saying earlier, and when I’ve heard you speak, you’ve done Startup Weekends for employees specifically, right? And you’ve done the lean startup training, so it sounds like you’re kind of paving the path to figuring that out.

Butler: Yeah, we do a lot of experiments and failing. We don’t look at failing as failing. We look at it as learning. How fast can we learn? I know it sounds trite when I say it that way, but we try everything.

All I’m trying to say is we haven’t cracked the code on that. We don’t know exactly how to do that internally, but we do Startup Weekends all over the place.

I have to say to rise inside of our company you have to be a great manager, managing our business model, great at execution. To actually create a high-growth startup, you have to be a great explorer. Those are, honestly, two different skill sets. It’s rare to find an amazing founder inside of a large organization. We’re just trying to figure that out.

Kirsner: That sounds like it’s an area that you’re still working on. What else for you feels like something you’re trying to solve, or an area that you want to explore, in the next year or so?

Butler: I’d say two things. One is more of a mental model, which is always super difficult. There’s a whole almost generational thing. I think for the first time in history, it’s super-easy to start a company. Funding, getting a team, working around the world, it’s very easy to start your own company.

I think just culturally people inside of our company and other companies, especially younger people, don’t feel like they have to go down that management track anymore. It’s a challenge for an organization to think about that and want to embrace that.

You have people inside the company that sort of get that and want change, want to embrace change, and then other people who just sort of see it as a fad, almost like the Internet. I used to work for a guy who told me that the Internet was a fad.

Speaking the Right Language Internally

Then secondly, this whole training on lean principles inside — trying to find the right language and the right way to actually position that, inside the company, so the maximum amount of people benefit.

We’ve tried everything. We’ve called it different things. We’re still in the process of making that work. You essentially just have to try to figure out how to get it inside your culture and use the right language. We definitely are still trying to figure that out.

Kirsner: Trying to figure out the right language in what sense? To describe the mission of all this stuff that you’re doing?

Butler: Let me give you an example. One of the common problems that we have inside of our company, what we would call a problem, is we need to get people to drink more Diet Coke. How do we do that? That’s a problem.

That’s a challenge for us inside, but that’s actually not a problem that people are facing out there. I don’t know that someone woke up today and said, “My car won’t start. I wonder if I could meet that solution with a Diet Coke?”

When you start talking about, “What is the problem we’re trying to solve,” there’s this sort of disconnect. It’s like being able to think, “Well, we have a business plan. Of course we need to sell more Diet Coke. That’s our problem.”

From the lean startup method you say, “No, what is the consumer or the user’s problem that we’re trying to solve?” Even simple things like that are difficult inside.

Kirsner: Got it. Let me just ask one last question about the book which comes out February, March?

Butler: February 10th.

Kirsner: What’s an idea or two that you think are counter-intuitive, unique, fresh, that you and your co-author focus on in the book?

Butler: The book is about how the Coca-Cola Company uses design to grow. In the interest of time, I’ll just say I think there’s a big disconnect around this word design and the value it can create for companies. What we did is we looked at growth in two ways: scale and agility.

If you’re a founder, and you’re trying to build your company, what keeps you up at night is scale, how to scale your business model, how to scale your product, your team, and so forth. If you flip that around, what keeps most business managers up at night is agility, how to adapt and stay relevant to the next generation.

What we’ve done in the book is showing how to use design in two ways. I think that might be the new thing, the interesting thing. Yes, you can use design to grow, but it’s two different approaches. We use a lot of examples around how we’ve done that at Coke, in both cases.

Kirsner: Cool. I’ll plug that. The title is “Design to Grow,” out next week. I’ll also mention David’s twitter handle is @DavidRButler, so you can follow him there. Thank you, David, for joining us today. It was really great. You covered a lot of ground.

Butler: Thanks Scott. It was awesome. Thank you so much.