The Three Horizons: Reframed for Scale-Ups
Part 2 of 4: Strategic Objectives, Investment Thresholds, and the CPO-CTO Partnership
In Part 1, we explored why traditional roadmaps fail to create strategic advantage. Now let's dive into the portfolio framework that actually works for high-growth companies.
The original McKinsey Three Horizons model was designed for Fortune 500 companies managing mature business portfolios. It's time-based: defend today's cash cows (0-1 years), nurture emerging businesses (1-3 years), create transformational options (3-5+ years).
For scale-ups, time isn't the organizing principle—strategic intent is.
You're not defending mature businesses; you're establishing new markets. You're not nurturing distant opportunities; you're building competitive moats. You're not creating abstract options; you're developing the capabilities that will define your industry.
The framework needs a fundamental reframe.
Horizon 1: Establish & Entrench
Strategic Intent: Prove, optimize, and defend your core value proposition.
This is the business you're in today—the revenue engine, the customer base, the value proposition that earned your Series A or B. But unlike enterprise "core business defense," scale-ups in Horizon 1 are still establishing their market position and building their initial competitive moat.
Strategic Objectives
Demonstrate repeatable value creation: Move beyond early adopter success to show that your value proposition works across a broader customer base. Prove unit economics that justify continued investment.
Build operational excellence: Transform your initial product into a reliable, scalable platform that can support 10x customer growth. This includes performance, reliability, and user experience consistency.
Establish category definition: Own the language and frameworks that define your market space. Become the reference point that customers and analysts use to understand the category.
Create switching costs: Build features, integrations, and workflows that make it increasingly difficult for customers to leave. Data accumulation, workflow embedding, and ecosystem integration all contribute.
Optimize for expansion: Design customer success and product capabilities that drive expansion revenue, not just retention. Land-and-expand strategies require Horizon 1 investment.
Investment Thesis
60-70% of total capacity should focus on Horizon 1 work. This is your foundation—the revenue and market position that funds everything else.
But here's the trap: Horizon 1 work will always feel more urgent than Horizon 2 and 3. Customer commitments, sales demands, and competitive pressure create constant gravitational pull. Without explicit governance, Horizon 1 can easily consume 90%+ of capacity.
The discipline required: Treat Horizon 2 and 3 allocations as non-negotiable strategic investments, not leftover capacity after Horizon 1 needs are met.
Horizon 2: Expand & Differentiate
Strategic Intent: Build adjacent capabilities that compound competitive advantage.
These represent 12-36 month opportunities that leverage your core position to create new value or address adjacent markets. They're not disconnected bets—they're strategic expansions that make your Horizon 1 position more defensible while opening new revenue streams.
Strategic Objectives
Extend into adjacent opportunities: Leverage your core capabilities to address related use cases, customer segments, or workflow stages. Each expansion should strengthen your core position.
Build platform capabilities: Create integration layers, APIs, and ecosystem frameworks that increase switching costs and enable partner-driven growth.
Develop compounding advantages: Invest in data accumulation, network effects, and AI/ML capabilities that become more valuable over time and harder for competitors to replicate.
Enable new business models: Experiment with pricing strategies, delivery models, or revenue mechanisms that could significantly improve unit economics or total addressable market.
Create enterprise readiness: For companies moving upmarket, Horizon 2 includes the security, compliance, and operational capabilities that enterprise customers require.
Investment Thesis
20-30% of total capacity should focus on Horizon 2 work. This is strategic muscle-building—investments that won't show immediate revenue but create sustainable competitive advantage.
The key insight: Horizon 2 initiatives should share DNA with Horizon 1. They leverage your core strengths rather than diversifying away from them. A horizontal SaaS platform shouldn't use Horizon 2 to build unrelated vertical products—it should use Horizon 2 to build the platform capabilities that enable vertical customization.
Success pattern: The best Horizon 2 work eventually migrates to Horizon 1 as it proves market value and becomes part of your core offering.
Horizon 3: Explore & Disrupt
Strategic Intent: Create the capabilities that will define your market in 3-5 years.
This is your strategic insurance policy and your offensive weapon. Horizon 3 investments explore fundamentally new value propositions, business models, or technologies that could either transform your market or protect you from being disrupted.
Strategic Objectives
Experiment with transformational technologies: Explore emerging capabilities (AI/ML, blockchain, spatial computing) that could reshape how your customers create value or how you deliver it.
Test business model evolution: Investigate whether new delivery models, pricing structures, or value exchange mechanisms might supersede your current approach.
Explore market adjacencies: Test whether capabilities you've built could unlock significantly larger markets or different customer segments.
Build defensive capabilities: Develop the technical or product capabilities that would make it difficult for competitors—especially well-funded new entrants—to displace you.
Generate strategic insights: Even "failed" Horizon 3 experiments create learning that informs Horizon 2 investment decisions and Horizon 1 product strategy.
Investment Thesis
10-20% of total capacity should focus on Horizon 3 work. The goal isn't immediate revenue—it's validated learning that informs strategic decisions and creates future options.
Critical mindset shift: Horizon 3 is measured by learning velocity and option value, not feature shipping or customer adoption. Different metrics, different success criteria, different leadership behaviors.
Graduation framework: When Horizon 3 experiments validate their hypotheses, they graduate to Horizon 2 with committed scaling resources. Most Horizon 3 work should fail fast or pivot—that's how you know you're being appropriately ambitious.
How the Horizons Interact: The Compound Effect
The power of three-horizon thinking isn't in managing each horizon well—it's in orchestrating how they interact to create sustainable competitive advantage.
Horizon 1 Funds Horizon 2 and 3
Your current revenue and customer base provide the resources that enable strategic expansion. Without Horizon 1 excellence, you don't have the capital or customer relationships to fuel exploration.
But it's not just financial: Horizon 1 customer relationships provide the validation ground for Horizon 2 capabilities and the insight source for Horizon 3 hypotheses.
Horizon 2 Strengthens Horizon 1
The best Horizon 2 investments don't just create new revenue—they make your core offering more valuable and defensible. Platform capabilities increase switching costs. Data advantages improve core product performance. Vertical-specific features strengthen your position in core segments.
Strategic principle: If a Horizon 2 initiative doesn't ultimately strengthen Horizon 1, question whether it belongs in your portfolio.
Horizon 3 Informs Horizon 2
Experiments and explorations reveal which adjacent opportunities warrant scaling investment. A Horizon 3 AI exploration might reveal a high-value use case that becomes a Horizon 2 platform capability.
The funnel effect: You should run 5-10 Horizon 3 experiments to identify 1-2 that graduate to Horizon 2 investment. That's efficient capital allocation, not waste.
All Horizons Share Customer Insights
Direct customer engagement in Horizon 1 reveals pain points that inform Horizon 2 opportunities. Horizon 3 experiments surface future customer needs that shape Horizon 1 roadmap priorities.
The self-reinforcing cycle: Current success funds future capabilities, future capabilities strengthen current position, and the entire portfolio becomes more valuable than the sum of its parts.
The CPO-CTO Partnership Across Horizons
Managing a three-horizon portfolio requires unprecedented coordination between product and technology leadership. Each horizon demands different collaboration models and joint accountability frameworks.
Horizon 1: Operational Partnership
CPO Primary Focus:
Customer satisfaction and feature adoption
Competitive positioning and market share
Expansion revenue and customer success
Product-market fit optimization
CTO Primary Focus:
System reliability and performance
Technical debt management
Operational excellence and efficiency
Engineering velocity and quality
Joint Accountability:
Unit economics and customer retention
Product velocity and time-to-market
Technical sustainability and scalability
Team productivity and satisfaction
Collaboration Model: Weekly tactical alignment, monthly strategic reviews, shared metrics dashboards.
Horizon 2: Strategic Partnership
CPO Primary Focus:
Market validation and opportunity sizing
Customer development and beta programs
Go-to-market strategy and pricing
Competitive differentiation
CTO Primary Focus:
Platform architecture and extensibility
Data infrastructure and analytics capabilities
Integration frameworks and APIs
Technical differentiation and IP creation
Joint Accountability:
Strategic option creation and validation
Technical-market fit demonstration
Platform value realization
Ecosystem development
Collaboration Model: Bi-weekly strategic planning, joint customer discovery, shared validation frameworks.
Horizon 3: Exploration Partnership
CPO Primary Focus:
Market sensing and trend analysis
Disruptive opportunity identification
Business model innovation
Strategic insight generation
CTO Primary Focus:
Technology exploration and R&D
Architectural experimentation
Technical capability development
Innovation investment
Joint Accountability:
Learning velocity and hypothesis testing
Strategic insight generation
Option value creation
Graduation decision-making
Collaboration Model: Monthly experiment reviews, quarterly portfolio assessments, joint learning synthesis.
The Critical Insight: Different Horizons, Different Leadership
The most common failure mode we see: leadership teams try to manage all three horizons with the same processes, metrics, and decision-making frameworks.
Horizon 1 optimizes for execution efficiency. You want predictable delivery, clear commitments, and measurable customer impact.
Horizon 2 optimizes for strategic leverage. You want validated market opportunities and technical capabilities that compound advantage.
Horizon 3 optimizes for learning velocity. You want rapid hypothesis testing and strategic insight generation.
Trying to apply Horizon 1 metrics to Horizon 3 work kills innovation. Measuring Horizon 3 experiments by features shipped or customer adoption misses the point entirely. You're looking for learning and option value.
Trying to apply Horizon 3 thinking to Horizon 1 work kills execution. Your core product needs operational discipline, not perpetual experimentation.
The CPO-CTO partnership must consciously shift collaboration models across horizons.
Making It Real
In Part 3, we'll explore the specific governance frameworks, organizational structures, and decision-making processes that make three-horizon portfolio management operational. We'll also dive into the most common pitfalls and how to avoid them.
For now, consider these questions for your leadership team:
If you mapped your current initiatives to these three horizons, what would your actual allocation look like?
Do your CPO and CTO have explicit alignment on Horizon 2 and 3 objectives, or are these conversations always sacrificed to Horizon 1 urgency?
What Horizon 2 capabilities should you be building now to defend your market position 18 months from now?
What Horizon 3 experiments could generate the strategic insights that inform your next funding round narrative?
If you can't answer these questions with confidence, you're managing a roadmap, not a portfolio.
Coming in Part 3: Making Three-Horizon Thinking Operational—Implementation frameworks, common pitfalls, real-world case studies, and the organizational structures that enable portfolio excellence.
Ready to implement three-horizon thinking in your organization? Our Horizon Planning engagement helps CPOs, CTOs, and founding teams define strategic objectives across all three horizons, establish governance frameworks, and align leadership around portfolio management.