“If you are in an environment of extreme uncertainty, you are an entrepreneur.”
– Eric Ries, author of The Lean Startup
In my 15-year career working as a researcher, designer, and strategist, my focus has been on helping business leaders break new ground. I have worked with the full spectrum of technology-based companies, ranging from Silicon Valley to Wall Street, and while I have been part of some true breakthroughs, I have also witnessed my fair share of failed innovation. When I look back over my career, it’s these failures that intrigue me the most, because, very often, these projects were the ones that began with the greatest promise. Why is it that companies—particularly large, established companies—consistently fail to innovate, despite their best efforts? And what should they do about it?
The truth is that traditional companies are designed to consistently and predictably exploit existing business models. It’s only when companies attempt to apply their tried-and-true methods to the discovery of new business models that they fall flat. This is not news to many business leaders, who have long experimented with different approaches to innovation. While some of the investment in “innovation programs” has paid off, the majority of established companies continue to struggle when it comes to developing the new. And as the pace of change continues to increase exponentially, business leaders face increasing pressure to find a way to consistently innovate or otherwise risk falling behind.
When what you’re doing isn’t working, Chip and Dan Heath, authors of the book Switch, suggest finding the “bright spots”—people who are already effective at doing what you seek to do—and then adopting the behaviors that make them successful. In the case of breakthrough innovation, the bright spot is the startup community. Silicon Valley thought leader, Steve Blank, defines a startup as “a temporary organization in search of a scalable and repeatable business model.” In other words, startups not only excel at discovering new business models, it’s their whole reason for being. Teams tasked with innovation inside large organizations should look to startups for inspiration.
There is a set of practices, collectively known as “Lean Startups,” emerging from the startup community that promises to dramatically decrease the risk and boost the efficiency of the startup model. A blending of Lean Manufacturing and Agile software development practices, “Lean Startups” is a genuine movement that is rapidly transitioning from the cutting edge of Silicon Valley into the mainstream of business thought leadership.
WHAT IS LEAN?
“Lean” is a term coined in the 1990s for a management philosophy (primarily developed by Toyota in the mid-20th century) centered on the idea of eliminating waste. For a company with a proven business model, the goal is to execute on that business model. Anything that does not directly contribute to creating value for customers through execution is a form of waste. Examples of waste include “overproduction”—building products and features customers don’t want—and “inventory”—raw materials, work-in-progress (WIP), or finished goods not currently being used to deliver value to customers.
WHAT IS A LEAN STARTUP?
In contrast with an established company, a startup has no proven business model to execute on. Quite the opposite, in fact; the reason a startup exists is to discover a newbusiness model. The goal of a startup, therefore, is not to execute, but rather to learn. In a Lean Startup, anything that doesn’t contribute to useful learning about customers is a form of waste and must be eliminated.
KEY CONCEPT: CONTINUOUS LEARNING
The mortality rate for startups (or any project that breaks new ground) is incredibly high—and even if they survive, they typically far exceed projected delivery dates and budgets. The problem is that traditional management practices designed for business optimization are lethal for a team tasked with business discovery and put teams at risk of delivering products customers don’t need or want or for which there is no scalable market.
Unlike the traditional linear “waterfall” product development process, Lean Startups engage in a process of constant rapid iteration, known as “continuous deployment.” Lean Startups do this by first developing a hypothesis about the customer problem and solution, then building the lightest-weight possible version of the solution—called “minimum viable product” or “MVP”—and then testing that solution with real customers and measuring the results. This “build, measure, learn” cycle is repeated ad infinitum throughout the life of the project, with an initial goal of homing in on product/market fit. In each iteration, the unit of progress is a validated learning from customers. In stark contrast with traditional management philosophy, even if customers thoroughly reject the problem/solution hypothesis, the team’s work is considered a great success if they uncover a validated learning that they can fold into the next iteration.
FIVE LESSONS FROM LEAN STARTUPS
LESSON 1 – SET OUT TO CHANGE THE WORLD
Apple Fellow Guy Kawasaki suggests that the first and most important key to startup success is to “make meaning.” In his book The Art of the Start, Kawasaki observes that teams without a deeper sense of purpose “may still become successful, but it will be harder because making meaning is the most powerful motivator there is.” And there is data to back up Kawasaki’s claim: A recent survey conducted by the Startup Genome found that the most successful startups are driven by impact rather than experience or money.
LESSON 2 – RECRUIT THE RIGHT TEAM
Start with a small, cross-functional team. Findings from the Startup Genome survey suggest that startups with 2-3 founders, and with an equal balance of business and technology focus, are the most successful. Avoid staffing up until the business model has been validated; the Startup Genome also found that premature scaling is the most common reason for startup failure.
LESSON 3 – PROTECT THE TEAM
If they’re following the Lean Startup model, the team will be working in a radically different way than the rest of the organization. If you don’t protect the team, they won’t be able to resist the pull of the status quo, and you will be back where you started. Set up the team in a different building—or, better yet, a different city.
Additionally, protect the team’s incubation period. According to the Startup Genome, startups need 2-3 times longer to validate their market than most founders expect, which in turn introduces pressure to scale prematurely.
LESSON 4 – “GET OUT OF THE BUILDING!”
“Get out of the building” is Steve Blank’s way of saying you must test your hypotheses face-to-face with real customers. While this can feel uncomfortable, especially early on when ideas are half-baked, getting out of the building is crucial. This can be deceptively difficult to do well; if possible, include a team member early on with design research skills.
LESSON 5 – EMBRACE THE PIVOT
When they realize that their initial assumptions about the business model or target market are wrong, successful Lean Startups “pivot.” In other words, they radically change the business concept mid-stream to move in a more promising direction. While this may sound like heresy to many in the traditional business world, the Startup Genome findings suggest that Lean Startups that recognize they are on the wrong track and pivot have dramatically higher success rates than those who stick with a model that’s not working.
While large businesses have historically struggled to consistently innovate, the Lean Startups paradigm is poised to change the game. By enacting these five practical lessons from Lean Startups, leaders within traditional businesses can begin to master the art of discovering new business models, and, ultimately, thrive in the face of change.
The body of knowledge around Lean Startups is growing every day. Below is a list of recommended reading and resources to learn more about Lean Startups: