What is “Pilot Purgatory” and Why Every Start-Up Should Know This Term
Over the past few years, I’ve been honored to work on an effort led by the World Economic Forum (WEF) and support my McKinsey & Company to dig into the underlying reasons for the slow pace of adoption of the Fourth Industrial Revolution (4IR) technologies into the manufacturing industry. Out of this work, the term “pilot purgatory” was coined and is a term that all organizations, regardless of size should be familiar with. Pilot purgatory is an operating model that will slow adoption in large companies and kill startups.
A McKinsey study found “While most businesses with pilots believe in IoT’s economic potential, a McKinsey survey in May 2017 found that less than 30 percent of pilots are starting to scale. Eighty-four percent of companies were stuck in pilot mode for over a year and 28 percent for over two years.” The Forum published a detailed white paper that dives into successful use cases.
Pilot purgatory is a barrier to the successful adoption and modernization of large corporations, but understanding and recognizing this phenomenon is critical for B2B or enterprise-focused startups. For this note, I’d like to address the concerns from a startup point of view.
Many startups like to tout their number of customer pilots or “conversations” with large companies as proof of early traction. This may be true, but as many startups know, many of these pilots go on forever or never convert to the critical enterprise deployment. This is pilot purgatory as experienced in a startup and it can be deadly.
How can startup leaders identity real progress vs. “industrial tourism,” as a fried of mine likes to call it? First, the same factors hold for the startup CEO that hold for the large company CEO. To summarize the WEF and McKinsey work over the past few years, a few simple questions can shed light on your situation.
1. Is your customer focused on a business problem/outcome or are they really interested in the technology? Large companies have no problem spending $10,000, $50,000, or more as part of their “innovation landscaping” efforts. This is industrial tourism and unless the project has a high-level sponsor, quantified key milestones / KPI, and a well-defined business case, it’s most likely this is going to be a long slog.
2. What is your timeline and budget for deployment if this pilot is successful? Customer problems that are well defined are part of the company’s strategy. If you can solve their pain point in a structured pilot and hit the metrics, they will be ready to buy and scale. No timeline and budget usually mean this is an exploration. While it may be worthwhile to do for customer development or product feedback, just do not bank on the bookings.
3. The most important question. “If I spoke with your CEO, are they aware of this pilot and timeline?” If it is a real opportunity, the answer will always be a quick “Yes” and maybe even the better answer of “Would you like to speak with them?” This has led to me having direct conversations with customer CEOs and other C-level executives.
When I share these findings and the WEF whitepapers with my startup friends, they are cautious about asking direct questions, but the consistent feedback has been that once they start asking these simple questions, they quickly know if they on a path of success or looking at more time lost in pilot purgatory. Your commercial, product, and executive team need to be able to make this diagnosis and act accordingly as you ration out your valuable time and investor dollars.
