Making Three-Horizon Thinking Operational
Part 3 of 4: Implementation Frameworks, Pitfalls to Avoid, and Real-World Success
Understanding the three-horizon framework is one thing. Actually implementing it in a fast-moving scale-up is something else entirely.
In Parts 1 and 2, we explored why roadmap-only thinking fails and how the three-horizon framework creates sustainable competitive advantage. Now comes the hard part: making it operational in your organization.
The challenge isn't conceptual understanding—most executives immediately grasp why portfolio thinking matters. The challenge is organizational: How do you maintain strategic discipline when everything feels urgent? How do you defend Horizon 2 and 3 investments when customers are demanding Horizon 1 features? How do you structure teams and metrics to support different horizons simultaneously?
After implementing this framework across dozens of scale-ups, we've developed a battle-tested approach that works even in high-pressure, resource-constrained environments.
The Four-Step Implementation Framework
Step 1: Portfolio Audit and Reality Check
Before you can rebalance your portfolio, you need to understand your current state.
Most leadership teams significantly overestimate their Horizon 2 and 3 investments. They remember the strategic initiatives they discussed in quarterly planning but forget how many got deprioritized for urgent customer needs.
Conduct a ruthless audit:
Map every active initiative—every engineering team's current focus, every product manager's roadmap commitment, every ongoing project—to one of the three horizons.
The classification rules:
Horizon 1: Improves core product for existing customer base and use cases
Horizon 2: Extends capabilities to new segments, use cases, or creates platform advantages
Horizon 3: Explores fundamentally new technologies, business models, or market opportunities
Then calculate actual capacity allocation by engineering time, not by number of initiatives. A Horizon 3 "exploration" that gets 5% of one engineer's time doesn't represent 10% of your portfolio.
What you'll discover: Most teams are running 85-90% Horizon 1, 10-15% Horizon 2, and 0-5% Horizon 3—regardless of what their quarterly plans say.
Hidden Horizon 1 work: Watch for "strategic initiatives" that are actually core product improvements disguised with ambitious language. If it's serving existing customers in existing use cases, it's Horizon 1 no matter how innovative it sounds.
Step 2: Define Strategic Target Allocation
Now that you know where you are, decide where you need to be.
Your target allocation should be based on:
Current market position: Early in your category? Heavy Horizon 1 to establish dominance. Mature market with entrenched competitors? More Horizon 2 and 3 to differentiate.
Funding runway and revenue growth: Limited runway demands Horizon 1 focus on revenue and retention. Strong position enables more strategic investment.
Competitive dynamics: Fast-moving competitive landscape requires more Horizon 2 platform building and Horizon 3 exploration.
Technical debt burden: High technical debt requires rebalancing toward Horizon 1 infrastructure work before you can effectively pursue Horizon 2.
Example allocations by stage:
Pre-Series A (proving PMF):
Horizon 1: 75-80% (core value prop and retention)
Horizon 2: 15-20% (initial platform thinking)
Horizon 3: 5% (technology exploration)
Series A/B (establishing market position):
Horizon 1: 60-70% (operational excellence and expansion)
Horizon 2: 20-30% (adjacent markets and platform)
Horizon 3: 10% (strategic exploration)
Series C+ (market leadership):
Horizon 1: 50-60% (optimization and enterprise)
Horizon 2: 25-35% (new markets and ecosystem)
Horizon 3: 10-15% (transformational opportunities)
The critical principle: Your target allocation should be explicit, documented, and jointly owned by your CPO and CTO. It's not a suggestion—it's a strategic commitment.
Step 3: Establish Governance and Decision Rights
Strategic allocation means nothing without governance to protect it.
The operational challenge: Horizon 1 work generates constant pressure to reallocate resources. A major customer threatens to churn. A competitive deal demands a specific feature. A technical incident requires immediate attention.
Without governance frameworks, these pressures will consume your Horizon 2 and 3 capacity every single time.
Create decision frameworks for:
Promotion criteria: When does a Horizon 3 experiment graduate to Horizon 2 investment? What evidence is required? Who makes the decision?
Standard: Validated customer demand + technical feasibility + strategic alignment + resource commitment.
Sunset decisions: When do you kill initiatives that aren't delivering? How long do Horizon 3 experiments run before they need to show progress?
Standard: Quarterly reviews with explicit continuation criteria. Horizon 3 experiments that haven't generated learning in 2-3 months get killed or pivoted.
Resource reallocation: Under what circumstances can you pull resources from Horizon 2 or 3 to address Horizon 1 needs?
Standard: Only for customer-affecting incidents or strategic opportunities that would be materially accretive to business value. Requires joint CPO-CTO approval and documented payback plan.
Review cadence: How often do you reassess portfolio balance and make strategic adjustments?
Standard: Monthly portfolio reviews (tactical adjustments), quarterly strategic reviews (major rebalancing), annual planning (fundamental strategy shifts).
Step 4: Align Organization and Metrics
Different horizons require different team structures and success metrics.
The structural challenge: If you measure all teams by the same metrics (features shipped, customer adoption, revenue impact), you'll kill Horizon 2 and 3 work.
Team organization approaches:
Dedicated Horizon 1 teams: Optimize for delivery velocity, operational excellence, and customer satisfaction. Measured by feature adoption, system reliability, customer retention.
Cross-functional Horizon 2 squads: Balance customer development with capability building. Measured by market validation, technical feasibility, and strategic option creation.
Small Horizon 3 exploration teams: Emphasize learning speed over shipping speed. Measured by hypotheses tested, insights generated, and graduation readiness.
The key principle: Teams should have primary horizon ownership while maintaining awareness of portfolio objectives.
Metrics that matter by horizon:
Horizon 1:
Customer retention and NPS
Feature adoption and engagement
System performance and reliability
Time-to-market and delivery predictability
Horizon 2:
Market validation signals (beta participation, customer commitment)
Strategic capability development (platform maturity, data assets)
Competitive differentiation impact
Technical-market fit indicators
Horizon 3:
Hypotheses tested per month
Validated learnings generated
Strategic insights surfaced
Graduation readiness (market signal + technical proof)
The Four Deadliest Pitfalls (and How to Avoid Them)
Pitfall 1: Horizon 1 Gravity
The problem: Urgent customer needs and revenue pressure consistently pull resources away from Horizon 2 and 3 work. "Just this once" becomes every quarter.
The solution: Ring-fence capacity for strategic horizons. Treat Horizon 2 and 3 allocations as non-negotiable infrastructure investment, not discretionary spending. Establish executive accountability for maintaining portfolio balance.
In practice: Your CPO and CTO jointly commit to board-level reporting on portfolio allocation. Missing your Horizon 2/3 targets is a strategic failure, not an execution flexibility.
Pitfall 2: Horizon 3 Delusion
The problem: Teams label incremental Horizon 1 work as "strategic innovation" to make it sound more important or get access to Horizon 3 resources.
The solution: Define ruthlessly clear criteria. Horizon 3 should feel genuinely uncertain and exploratory. If it's a sure bet that's obviously valuable, it's probably Horizon 2.
The test: Would this initiative make sense if your current business model disappeared? If no, it's not Horizon 3.
Pitfall 3: Disconnected Horizons
The problem: Horizon 2 and 3 initiatives don't leverage Horizon 1 customer relationships and market position. They become science projects disconnected from business value.
The solution: Require all strategic initiatives to articulate how they build on core advantages. The best Horizon 2 and 3 work multiplies the value of Horizon 1 rather than diversifying away from it.
Governance rule: Every Horizon 2/3 initiative must answer: "How does this make our Horizon 1 business more valuable or defensible?"
Pitfall 4: Missing the Transition
The problem: Promising Horizon 2 or 3 initiatives prove their value but die because there's no clear path to scaling them or integrating them into Horizon 1.
The solution: Establish explicit graduation criteria and resource commitments. When initiatives validate their hypotheses, commit to scaling them rather than treating them as perpetual experiments.
Best practice: Include "graduation budget" in portfolio planning—reserved capacity for scaling validated Horizon 2/3 initiatives into Horizon 1.
Real-World Case Study: Series B SaaS Transformation
Company Profile:
B2B SaaS platform, mid-market focus
$15M ARR, 80 employees
Strong product-market fit but increasing competitive pressure
Preparing for Series C fundraising
Initial State (Portfolio Audit):
92% Horizon 1 (customer features and enterprise gaps)
8% Horizon 2 (scattered platform initiatives)
0% Horizon 3 (discussed but never funded)
Strategic Challenge:
Investors wanted to see defensible competitive advantages
Enterprise prospects demanded platform capabilities
New competitors launching with AI-powered features
Team felt stuck on feature treadmill
Implementation (6-month transformation):
Month 1-2: Audit and Strategy
Comprehensive portfolio audit and realization of allocation gap
Joint CPO-CTO strategic planning workshop
Board alignment on three-horizon strategy
Target Allocation:
65% Horizon 1: Enterprise features, core optimization, technical debt
25% Horizon 2: Platform API, vertical modules, advanced analytics
10% Horizon 3: AI-powered automation, embedded product, mobile experience
Month 3-4: Organization and Governance
Restructured teams around horizon ownership
Established monthly portfolio reviews
Created different success metrics by horizon
Protected Horizon 2/3 capacity in sprint planning
Month 5-6: Execution and Validation
Horizon 1: Shipped key enterprise features, improved reliability
Horizon 2: Launched platform beta with 12 early adopters
Horizon 3: Validated AI automation concept with design partners
18-Month Outcome:
Series C raised at 3x higher valuation than initial projections
Investors specifically cited platform strategy and AI roadmap as differentiators
Customer retention improved 15% despite maintaining feature velocity
Platform revenue reached 12% of total ARR within a year
Two Horizon 3 initiatives graduated to Horizon 2 with dedicated resources
Team satisfaction increased - engineers valued strategic work alongside execution
The CPO-CTO Partnership: The transformation required weekly portfolio reviews, monthly board updates jointly delivered, and explicit agreement on trade-offs. When a major customer demanded a feature that would consume Horizon 2 capacity, they jointly negotiated a phased approach that protected platform development.
Key Success Factor: They treated portfolio allocation as a strategic commitment, not a planning suggestion.
Making It Stick
Three-horizon thinking isn't a one-time planning exercise—it's an operational discipline that requires consistent reinforcement.
Monthly rituals:
Portfolio allocation review (actual vs. target)
Horizon 2/3 progress updates
Resource reallocation requests and decisions
Quarterly disciplines:
Strategic portfolio assessment
Graduation/sunset decisions
Market validation reviews
Board communication on portfolio strategy
Annual planning:
Fundamental strategy refresh
Target allocation adjustments
Multi-year horizon roadmaps
In Part 4, we'll explore how to measure portfolio health, communicate strategy to stakeholders, and build the competitive advantages that compound over time.
Coming in Part 4: Measuring Portfolio Health and Strategic Success—The metrics that matter, stakeholder communication frameworks, and the long-term competitive advantages of portfolio excellence.
Ready to transform your product planning? Our Board Alignment / Investment Prep service helps leadership teams articulate three-horizon strategy to investors and establish the governance frameworks that ensure execution. We also offer Horizon Planning workshops that take you through the complete implementation process.