The one thing large companies must absolutely have before adopting Lean Startup thinking

The new management fad is here: Teaching large companies to adopt Lean Startup thinking (Yes, I’m guilty as charged myself).   But this is already off to a bad start if it is simply a hammer hitting another nail.

The Classic Lean
The two previous instantiations of Lean Thinking were certainly the right tool for the job.  First applied to manufacturing, ‘classic’ lean thinking was used to greatly improve operational efficiency. MIT’s James Womack, Daniel Roos and Daniel Jones have done the world a tremendous favor in distilling what it means to be operationally lean:  To be operationally ‘lean’ means to cut out the fat, i.e. eliminate wasteful activities to focus only on what adds value to the end consumer.   Wasteful activities in operations include defects, excess inventory, superfluous motions, over production and waiting time.   Lean thinking drove everything my colleagues and I did in trying to become a world-class auto manufacturing plant in Portugal for a Ford/VW JV, AutoEuropa.   Initiatives such as Just-In-Time delivery, entrusting responsibility for quality to those making the product (including stopping the line), continuous flow, and the relentless pursuit of perfection simply worked!  We all understood the goal was to produce more (value) with less (effort) and that it could be achieved systematically by following trued-and-tried principles US, European and Asian automakers had perfected for over a century.

The New Lean
As the entire world began to accept that operations could easily get out of control and become quite wasteful (some of us even got degrees in Industrial and Systems Engineering just to make sure), someone else began to spot waste elsewhere – in an unsuspecting, management black box of a place no one ever bothered to look before – startups! That someone is none other than the Silicon Valley great Steve Blank, creator of Customer Development and the original influencer of the Lean Startup movement, although Eric Ries (Steve’s former student) should get full credit for the “Lean Startup” naming rights and astute analogies of incremental and iterative product development (aka Agile Development) to ‘Classic’ lean principles (e.g. small lot sizes/SMED).

Steve Blank, with whom I had the pleasure of working with last year, was first to note that most Startups are actually quite wasteful (while the rest of us hold them up a pedestal, angelic concoctions immune to criticism, which we save for large ‘evil’ companies).   Much like Lean Manufacturing gurus such as Taiichi Ohno spelled out ways in which large companies were being wasteful, Steve spelled out the various sources of startup waste, including:

  • Building stuff nobody wants
  • Not showing enough empathy for the customer (too much in-the-building vs. out-of-the-building time)
  • Acting like small versions of large companies
  • Ignoring operating under highly uncertain conditions (Faith vs. evidence based)
  • Sticking to the plan (eager to meet arbitrary launch deadlines & scale fast) vs. getting the business model right

All this waste leads to one fundamental problem: Extremely high-failure rates!   Steve and Eric have been proposing Lean thinking to startups to fundamentally ameliorate the waste behind such high failure rates (easing the entrepreneurs suffering, primarily, but also the fact that many worthy innovations don’t see the light of day).

Startups (I’m in one now) that actually listen to Steve and Eric, will ‘grok’ three things:

  • They know their problem is high uncertainty
  • They know their job is thus to Search, not Execute
  • They know they must iterate their way to success, not plan it

Can we mix the Classic with the New Lean?
So this brings me to the point of the story – Can or should large companies adopt Lean Startup thinking?

Large companies are certainly very different from Startups.  Aided by the classic lean tools, they’ve become eximious at removing operational waste and dealing with certainty.  They’ve worked hard to get where they are and keeping current customer commitments is the priority. They’ve also become addicted to predictable quarterly results, aided by conservative growth efforts within the same business model (and some ‘affordable loss’ R&D in ‘moonshot’ projects to prop up their innovation quotient, although no one is holding their breadth on these actually making any money).

Although it’s blatantly obvious that large companies are different from startups, most Lean Startup consultants are trying to ram the philosophy down large companies throats, as-is.  “Open up and drink the new Kool-Aid!” – “Unleash Lean Startup ‘catalysts’ throughout the R&D and product organizations, tell them to stop waterfall development and adopt agile development and ‘presto’! From slow-moving behemoth to lean in minutes!  Still not getting it? Well then, just set up a separate organization that does get it (with a fancy name for what is essentially an incubator) – Let the new cools kids operate lean and leave everyone else alone then!”

What is wrong with this advice? Everything!   Never having worked for a large company themselves, Lean Startup consultants are trying to solve the same problem for large companies that startups have:  High failure rates in pursuing uncertain opportunities (the classic, when you’re a hammer, everything is a nail).  But ‘high failure rates’ is NOT the main problem that large companies have, which for the most part, are not earnestly pursuing uncertain opportunities (I’ll reveal the problem as I see it after managing innovation in a large tech company for years in the paragraphs ahead).

More profound Lean Startup thinkers like Steve Blank know it’s a lot harder than it looks to make the elephant dance. According to Steve, large companies should indeed adopt Lean Startup thinking, but not until they make more fundamental structural changes.   You can’t change the function of a large company from execution to search without first changing the form.    Steve includes several items to address in structural change for continuous innovation including organizational arrangements to balance the present with investments in future, employee incentives, and proper executive decision-making tools.

Yes, but only after…
Steve Blank makes some great points about the need for structural change before large companies can successfully apply lean startup thinking.   But I believe there’s an even earlier precursor to structural change that must be addressed if large companies (and their intrapreneurial employees) are to have any luck with Lean Startup ways – A change in attitude!

Having tried to emulate startups/VC’s and implement Lean Startup thinking in a large tech company myself as far back as 2005 (We called it Lean Innovation back then) I found out that you can certainly reduce the odds of failure for any given new project initiative by being flexible and efficient at learning.   But that wasn’t addressing the fundamental problem that a large company has related to innovation compared to a startup:  The risk of False Negatives, not the risk of False Positives!

A startup may indeed be acting foolish, ‘carefree’, faith-based vs. evidence-based, and taking wasteful, unnecessarily risks with their precious time and resources in finding something that people want and that can actually scale profitably.  They can’t afford to be wrong (can’t risk a False Positive) with the one chance they’ll get and should be more worried about having some kind of success, not being stubborn . But there’s one thing that all startups have that should be praised – they have Cojones!  

You can certainly take someone with courage and try to best guide their enthusiasm (for their own good, I hope).   But you can’t proceed to use the same approach with someone that hasn’t even made the commitment to innovate outside their comfort zone in the first place.

Madeleine-Albright2Large companies can begin to adopt Lean Startup thinking the day they work up the courage to innovate beyond the obvious growth choices!   Only then can they leapfrog the wasteful years of being faith-based vs. evidence based in navigating under high uncertainty conditions.    For most large companies, especially in the tech space that I’m more familiar with, the problem isn’t lack of money (meaning, so what if a given project fails) – the problem is WAY too much cash piling up – Is it because of a lack of good ideas or just plain fear or complacency in trying new things?  After making a living in systematically producing dozens of great ideas every year, trust me the problem is the latter – relatively speaking to the startup ecosystem on the outside, large companies don’t have the courage to implement new things (at the individual level, failure and deviation from embracing certainty is punished, not rewarded!). 

And therein lies their major problem for large companies – since they fund so few truly bold business experiments in uncertain tech and market conditions, large companies run a great risk of missing the next big thing (the risk of False Negatives), not the much more manageable risk of making startup-like mistakes with relatively small projects (As opposed to a startup, they can live with quite a few False Positives).  It reminds me of the scene in Braveheart when King Longshanks ordered his archers to fire into the mist of battle and his counselor was worried about hitting his own men.. The King replied “Yes, but we’ll hit theirs as well”.

Once a large company makes the strategic commitment to truly innovate, meaning to create new business models, then it makes sense to make that as efficient as possible (especially in learning), applying lean thinking to anything that the company is trying to do systemically – from simply producing widgets in known markets, to producing new ideas for unknown markets.

Summary:

  • Lean thinking has been the right tool for the job in manufacturing and startups
  • Lean Startup thinking can be applied to large companies with caveats
  • The first caveat is structural change that must proceed a change in function from execution to (more) search
  • The second, and most important, caveat is the change in attitude to allow for truly innovative venturing (No sense telling project teams to adopt lean startup thinking if they’re still innovating in the known business model)
  • Startups can’t afford to make mistakes (Biggest risk is a False Positive, i.e. they bet the house on a wrong idea and run out of runway to survive);  Large companies can’t afford NOT to make mistakes (Biggest risk is a False Negative, missing out on the next big thing).
  • If large companies adopt Lean Startup thinking – It must be wholesale …pockets of insurgency won’t do..although, you gotta start sometime and somewhere (drink the MVP kool-aid if you must for this also!)
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