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Memo to Large Companies: Listen to Lean Startups

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'What can large companies learn from startups? Ricardo dos
Santos, who will be a thought leader at my session on Failing Forward at IIR
BEI
13
, recommends looking at lessons from the Lean Startup movement. He shares
his insights with us in the following guest
blog
.' ' David Matheson
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 seemed like a random walk
crusade doomed to 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, Eric Ries, Alex
Osterwalder and an elite introspective group of serial entrepreneurs shined the
light on the less wasteful path to 'search'.
Unless 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 (that's the subject of a future
blog) .
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 get 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 got to 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're 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 great 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 data, 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
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 each other '
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:
- 1st.  There is the Option Value or avoiding
the cost of doing nothing in a potentially attractive market
- 2nd.  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)
- 3rd.  There is the Exit Value.  Fungible
bits and pieces of the experiment can be re-used elsewhere, assets
re-appropriated or sold, patents filed, etc.
-         
There is also the immeasurable cultural value of encouraging people to try new
things ' that in it can justify almost all 'small steps' under some
sort of affordable loss cap
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.
Like this topic?
Attend BEI Back End of Innovation 2013 with InnovationExcellence in Santa
Clara, CA in November! Learn more about the event here: http://bit.ly/1aP8ZpX

About the Author: Ricardo
dos Santos is a leading expert on entrepreneurship and corporate innovation,
having amassed more than 20 years experience driving internal ventures at major
corporations and launching early stage startups. In 2012, Ricardo brought that
experience and his vast knowledge of the Customer Development methodology he
learned directly under startup expert Steve Blank to Biological Dynamics, a
molecular diagnostics startup focused on the oncology market. Before joining
the executive team at Biological Dynamics, Ricardo helped set the standard for
successful corporate accelerators as the senior director of business
development at Qualcomm. He is a lecturer at San Diego State University,
teaching courses on Entrepreneurship and Innovation and he is also a part-time
speaker and advisor on Lean Innovation to Fortune 500 companies.

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