Learning from Lean Startups

Methods emerging from the Lean Startups community are changing the way we work today and will work in the future.   I wrote an article on this theme last year for the M3 Design Journal:

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“If you are in an environment of extreme uncertainty, you are an entrepreneur.”
– Eric Ries, author of The Lean Startup

OVERVIEW

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.

CONCLUSION

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.

FURTHER READING

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:

The Lean Startup by Eric Ries
Lessons Learned, a blog by Eric Ries
The Entrepreneurs’ Guide to Customer Development by Cooper, Vlaskovits
The 4 Steps to the Epiphany by Steve Blank

Get Smart!

I’ve been thinking a lot about the challenges and opportunities posed by the incipient era of smart devices.  Below is the full text of an article I wrote that was published last year in the M3 Design Journal.

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If you’ve been paying any kind of attention to the news over the past few months, you will almost certainly have heard about Nest, a new kind of thermostat from former Apple veteran Tony Fadell and his team. Much of the buzz about Nest has been focused on its sexy industrial design, but its real beauty runs deeper.  Like any thermostat, Nest’s job is to maintain temperature at a desired setpoint.  What distinguishes Nest is how that setpoint is determined.  Unlike earlier thermostats, which had to be manually configured, Nest automatically configures itself.

While the launch of a “smart thermostat” may seem like a trivial event, the truth is that Nest, and devices like it, signal a major paradigm shift from isolated traditional devices to networks of “smart devices,” a trend that has big implications for technology-based companies across the board.  Just imagine: if Nest can revolutionize something as straightforward as the thermostat, how might smart devices transform factories, or transportation, or hospitals?  As we move into a world of increasingly smart devices, business leaders—regardless of industry—need to develop their understanding of the smart device paradigm, and begin to imagine how they might take advantage of the huge opportunities presented by this fundamental change in technology.  In the first section of this article, we clarify exactly what a smart device is by examining the key characteristics that define smart devices.  In the second section, we provide a set of recommendations for how to begin tapping the opportunities presented by the smart device paradigm.

WHAT IS A SMART DEVICE?

Smart devices are distinguished from the traditional devices that preceded them by a set of unique characteristics.  (While no smart device embodies all of these characteristics, all smart devices will have at least a few.)  Smart devices are:

AWARE

Smart devices have technology that enables them to achieve a new level of “awareness.”  RFID tags enable smart devices to identify themselves—in other words, to be “self-aware.”  They also have a variety of sensors, which enables them to be “context-aware.”  For example, Nest has a proximity sensor that knows when a person is approaching, so it can light up its screen.  Motion sensors let Nest know if no one’s home, so it can turn down the heat and an ambient light sensor prevents the illuminated display from blinding you at night.

INTELLIGENT

Unlike traditional devices, smart devices are equipped with processors and software, which allows them to think and to learn.  For example, Nest has an internal schedule that records users’ behaviors, and algorithms that enable it to automatically adjust the temperature to maximize both comfort and savings based on what it has learned.

CONNECTED

Smart devices are connected to networks.  For example, Nest’s network connection enables it to access temperature data from the Internet, which it uses as a factor in determining the optimal temperature.  Additionally, users are able to control Nest remotely, via a website or a mobile app.
Smart devices are also connected to each other.  An early example of this is Sonos, “the wireless HiFi music system,” which is, essentially, a network of connected speakers controlled via a mobile app.  You can easily imagine that, at some point in the future, Nest will be part of a larger ecosystem of smart devices in the home all talking to each other.

SELF-DIRECTED

Traditional devices assisted humans in doing a job.  Increasingly, smart devices are doing the job themselves with minimal intervention from humans.  For example, Nest no longer needs a human to tell it what temperature to set.  As another example, it’s easy to imagine a future where smart devices in factories communicate with each other to automatically shut down or re-route a production line to contain a chemical spill if a machine goes down.

DISTRIBUTED

Some smart devices (like Nest) are embedded in the infrastructure of buildings; others, like smart phones and other personal smart devices, are “mobile.”  Still others are “ambulatory,” as in the case of small robots.  But what they all have in common is that they are physically distributed, placed “in situ” where they can best do the job they’ve been given.

CALM

Historically, technology has demanded a great deal of attention and energy from users.  In contrast, networks of smart devices seek to be “calm.”  Smart devices aim to recede into the background, communicating with each other to seamlessly support users, and only interjecting themselves into the user’s awareness when absolutely necessary.  Nest is an early example of this.  In the future, you can imagine a system of nearly invisible smart devices in the home, working together to regulate not only temperature, but things like security, energy use, air quality, lawn maintenance, etc., with very little human input.

INTERACTIVE

Smart devices utilize new technologies which lend themselves to new form factors and, ultimately, radically new forms of interaction.  Multi-touch, popularized by the iPhone, as well as gesture-based interactive systems like Nintendo Wii and Microsoft Kinect, are early examples.  The Fujitsu “Iris” tablet PC is another example—a transparent tablet PC that supports, among other things, instant translation of text and a “reality amplification” application that enables users to overlay an interior design on a real space.   Look for things like ambient intelligence, augmented reality, haptics, sophisticated gestural interfaces, heads-up displays, and flexible, transparent and auto-opaque screens to break through to the mainstream soon.

GET AHEAD OF THE CURVE

As Albert Einstein said, “The future comes sooner than you think.”  The era of smart devices is here, and if you aren’t already thinking about how to tap the attendant opportunities, you should be.  As with any major paradigm shift, advantages accrue to those who make the smart moves early.

IDENTIFY POTENTIAL OPPORTUNITIES

The first step is to identify and prioritize potential opportunities.  Start by thinking about market opportunities and promising technologies.  Also, be sure to consider some of the less obvious opportunities inherent in this new paradigm including data-driven offerings and device networks.

  • Identify market opportunities.  Start by taking a fresh look at your existing market.  Who are your customers?  What are their unmet needs?  Do you produce traditional devices that could be enhanced with smart technology to better meet customer needs?  Then think about potential new markets.  Are there new markets you could enter with the right new smart device?  What are your competitors up to?  Who might you partner with?
  • Identify promising technologies. The shift to smart devices is being driven by deep technological change, including Moore’s law and the increasing availability of both wired and wireless Internet bandwidth.  In turn, smart devices themselves are driving the adoption of (and demand for) supplementary technologies, such as RFID tags, sensors, Gorilla glass, etc.  What technologies do you produce that might be of value in the era of smart devices?  What new technologies could you employ to transform your existing offerings?
  • Think “data.” In the era of smart devices, it’s important to understand that hardware, software and data are inextricably linked.  If you are a hardware manufacturer, what kind of data might you collect?  Who might find that data valuable?  Is there a way to monetize it?  What kind of software might be needed for customers to make use of that data? If you are a software manufacturer, especially if you are focusing on desktop software, are there opportunities to improve your offering by introducing a mobile app or a software-driven device, or partnering with a hardware manufacturer?
  • Think “networks.”  While individual smart devices have significant benefits over traditional devices, the real power of this paradigm will come as smart devices are increasingly connected into networks.  What devices in your portfolio could be enhanced through connection to other devices?  What customer problems could be better solved with a network of devices?
EXPERIMENT

Early in any paradigm shift, there is a learning curve to understand where things are going and how to profit. Once you have identified promising opportunities, begin experimenting with ways of shaping smart technology to fit market needs.  In times like these, up-front certainty is impossible; experimentation is the only way to learn.

DEVELOP KEY SKILL SETS

New technologies and new interaction paradigms necessitate new skills.  To compete, companies will need to hire folks with real experience developing and productizing smart devices, as well as retrain existing staff.  If you’ve gotten this far in the article, it should be clear by now that engineers skilled in integrating new technologies will be key.  What may not be as obvious is how important investing in great design talent will be.  As devices become increasingly connected to each other, and as software and hardware become increasingly intertwined, working with designers who can create seamless, unobtrusive experiences and can design elegant interfaces that manage tremendous amounts of data, will be critical.

CONCLUSION

The era of smart devices presents significant opportunities for those who can see and take advantage of the possibilities.  Nest has changed the game for thermostat manufacturers through the application of smart technology.  Follow the tips in this article to “get smart” and inspire the same kind of transformation in your own industry!

Running Lean Workshop

I recently had the privilege of attending Ash Maurya’s great Lean Startups workshop in Austin, based on his Running Lean methodology.  I was incredibly inspired by this workshop, and wanted to share my top three insights from the day:

1) Having a great product and design is critical, but, ultimately, design and development work must be in full alignment with the business model, or your efforts are doomed to fail.

2) Building a successful business model is ultimately about understanding the nature and significance of key risks, and mitigating those risks.

3) Iterative testing of a falsifiable product/business model hypothesis, prioritized around the key risks, and focused on learning, is the most efficient way to arrive at a viable business model.

This workshop was chock-full of great stuff, and I will write more about my experiences implementing what I learned in the coming weeks.  Thanks, Ash!

Announcing: 7 League Studio

When I graduated college in the mid-nineties, I had no idea what I was going to do for a living.  My fascination with the intersection between humans and technology led me to an unexpected but very rewarding career designing digital products and services.

As my career progressed, I found I had passion and talent for the unique challenge of designing brand new offerings.  I love bringing clarity to the uncertainty of invention, and helping clients fulfill their business goals by delivering deeply satisfying customer experiences.

I believe that as technology continues to drive the pace of change, organizations will increasingly need to focus on invention rather than evolution in order to compete.  This insight led me to take senior design strategy roles at Liquidnet, TD Ameritrade and Thomson Reuters, where I was given amazing opportunities to work with and learn from executives and teams inventing the future of their organizations.

Today, I am happy to announce the launch of 7 League Studio, an independent consulting firm specializing in design and strategy for new-to-market digital products and services, with a special emphasis on Agile  and Lean UX methods.  So, if you need to create a compelling demo to secure funding, quickly home in on the perfect minimum viable product (MVP), or infuse fresh thinking into an existing digital product or service, I would be thrilled to help.

As with any major milestone, it is important to acknowledge this would never have been possible without the family, friends, colleagues and clients who have provided support and helped me learn and grow every step of the way.  Thank you!