Memo to large companies: Listen to Lean Startups

Taking a page from Lean Production (the rigorous scientific-like management practices used by Industrial Engineers since the day of mass production, coupled with a heavy dose of Japanese-management style employee engagement), the Lean Startup movement has taken the entrepreneurship world by storm – finally providing a playbook to make a system out of winning in what has previously seamed like a random walk crusade, doomed to disastrous failure.

The goal of Lean Production is to make more with less – to best deal with certainty, which for some reason, wasn’t all that obvious to most mature enterprises until companies like Toyota shined the light on the less wasteful path to ‘execute’.  The goal of a Lean Startup is to learn more with less – to deal with uncertainty, which for some reason, wasn’t all that obvious to most infant enterprises until Steve Blank, Alex Osterwalder,  Eric Ries and an elite introspective group of serial entrepreneurs shined the light on the less wasteful path to ‘search’.

Blue-Experiment-iconUnless I’m the only one who missed the memo, large enterprises have never had a playbook for Innovation.  When some looked to copy the ‘startup way’, aka ‘return their firms to their entrepreneurial roots’, they were fitting a square peg into what grew up to be a round hole.  The function of the company had changed from ‘search’ to ‘execution’ and it was hard to ‘go back to school’ when the opportunity cost of making money beckoned the status quo.    But what they didn’t know, didn’t hurt them.   Startups were actually NOT good role models for innovation – Most were unhappy children and teens trying to grow up too fast – Fixated on emulating the planning-centric management ways and structure of the large enterprises instead of nailing their customer value proposition and scalable business model.

The Lean Startup changes everything. (note:  if you haven’t done so already, see Steve Blank’s groundbreaking article on the Harvard Business Review).   Startups now have a playbook to minimize failure rates and build stuff that customers actually want, and finally, large companies can take note and envy the youthful endeavors with cause lean startups can provide valuable lessons to their internal innovation teams this of course, after figuring out their own ways to deal with corporate governance, incentives and structural issues that allow innovation to flourish – and new memo:  myopic focus on ‘shareholder return’, non-project specific bonuses, and five-year plans on large known markets isn’t they way to successfully innovate .

So specifically, here are five ‘big ideas’ or concepts that innovation teams within enterprises of all sizes, and especially at large, established corporations, can adapt from the Lean Startup Movement.  The first three ideas are courtesy of the leading minds behind the Lean Startup movement, Steve Blank, Alex Osterwalder and Eric Ries.  The last two ideas I’ve added based on my experience applying lean principles in my corporate career.

1.  Innovation teams must Search before they Execute (by Steve Blank)

  • Search before execution is the central theme behind Steve Blank’s famed startup philosophy, ‘Customer Development’, the discovery and validation of ideas before the commitment to a plan
  • This is especially important when dealing with a New Market – there’s a lot of uncertainty and companies need a way to deal with it (much like Col. Boyd gave us the OODA loop to deal w/ the uncertainly in air-to-air combat (not that that happens anymore)
  • The answer is not to do a 5 year plan based on gut feeling, nor faith…nor even an upfront analysis based on experience (with the help of finance drones), corroborated with ‘truth through debate’.  Why not?  Because there is no data in the building!
  • The first thing an innovation team needs to grok is that they are dealing with hypothesis and admit the possibility (I know it’s hard for some people), that they may actually be wrong and that they’ll learn best from the behaviors of target customers
  • To find the truth, you gotta get out of the building to ‘talk’ to customers!  You must develop the product in tandem with developing customers (a dialogue, iterative process where you’re open to not only changing the solution that solves the problem, but to changing what problem you really should be solving)

2.  Innovation teams should search for a scalable business model, not simply a cool product (by Alex Osterwalder)

  • Innovation is often unrelated to technology performance or new product features and can include such aspects as a superior channel, complementary offerings by partners, an effective growth engine design, creative monetization, etc.
  • Alex Osterwalder has done a remarkable job emphasizing business model innovation and also providing a must-use tool for working on early stage ventures, the business model canvas.
  • It is true that finding a product/market fit should be the initial emphasis of an innovation team and that one can launch with a less than optimal business model to first nail the customer value proposition.  But from the start, you have to at least answer the question of:  “HOW do you sell one (widget)?”, not simply WHOM you’re selling it to

3.  Innovation teams should practice Agile Development (by Eric Ries)

  • There is no sense being open to change if you can’t actually perform the needed change
  • Making changes, all the time, even various times per day in some cases, is very uncomfortable for traditional product teams, hampered by a project manager’s mentality instead of a designer’s mentality
  • But agility, like it or not, goes hand in hand with customer development and working from a hypothesis mindset, not unchecked assumptions
  • Just as importantly, innovation teams must learn how to set up data-driven experiments to measure the effect of a given change to either the product or the business model
  • As Eric Ries advises, when a team nears their product launch date, it should consider offering a Minimum Viable Product (MVP) that gets them battle tested with early adopters, delaying more complete, polished offerings to conquer the mainstream market – that comes next after de-risking the venture through the lessons provided by the MVP
  • Think agile development only applies to software?   Think again – I’ve just recently interviewed a cutting edge DNA sequencing company with a complex hardware product and they’ve fully adopted agile development with twice a month-releases

4.  Innovation teams should be small, but well networked (my suggestion)

  • It should be obvious that there can’t be too many cooks in the kitchen when still figuring out the recipe, teams should be small, and well led, of course (there has to be least one great chef, backed by capable sous-chef(s))
  • My own experience as a corporate innovation manager showed small teams are better than siloed organizations at ‘searching’ and bringing novel ideas to reality, as long as they’re diverse, contain the needed skillsets amongst the various members and are extremely open-minded to pursue the best solution, and not an agenda
  • Just as important as the composition of the small team is its ability to be well networked, both internally and externally
  • I’d like to emphasize the importance of internal networking – recruiting experts and mentors, much like a startup does, not only helps to avoid sophomoric mistakes, but it also helps to gain credibility with downstream decision makers
  • More so than convincing a few key stakeholders, the team should in tandem look to build a ‘community’ of support around their idea
  • Teams should also be sharing findings and experiences with eachother – for no better reason than “misery loves company J“
  • It takes a village to raise a child – likewise for an idea 

5.  Finally, innovation teams need to adopt “Value of Experiments” accounting (my suggestion)

  • When working on new ventures, especially in unknown markets, traditional accounting measures like ROI, NPV, etc. are of little use (because the early projections are purely fictional and usually way off)
  • It’s more important to think of projects not as plans but as experiments – thus, accounting measures that are centered around valuing the return on experiments are what’s needed
  • Business experiments have three forms of value, especially for efforts done within larger organizations:
  1. There is the Option Value or avoiding the cost of doing nothing in a potentially attractive market
  2. There is the Strategic Value of the experiment – what will be learned, what connections will be made, goodwill created, etc. from trying a new idea (that can be leveraged at a later time by other parts of the organization)
  3. There is the Exit Value.  Fungible pieces of the experiment can be re-used elsewhere, assets re-appropriated or sold, startups spun-out, patents filed and IP licensed, etc.
  • There is also the immeasurable cultural value of encouraging people to try new things … that in itself can justify almost all ‘small steps’ under some sort of affordable loss cap (and in lieu of mindless corporate training, still largely done through lectures vs experiential methods)

Innovation is difficult but it can be seen as a process, and thus learned.  The Lean Startup movement provides a great example of systemically trying to improve the act of discovery.   Larger organizations can benefit from the momentum gained by the thousands of startups that have been trying the various aspects of Lean principles – They must of course, first have the right conditions to allow innovation through small teams that can emulate startup behavior – this includes corporate governance, incentives and organizational structure.  There are caveats to applying lean startup principles in large organizations vs. startups or in traditional industries vs. the usual, web-centric world of startups – that’s the subject of the follow-up blog.

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One comment

  • A great summary of the Lean Start Up strategy with useful new input. We are right now trying to bring big corporations into the LSU perspective and we are dealing with most of the issues you underline.
    thank you

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