Looking to Join the Lean Start-up Movement?
I love Lean. In my eyes, the work Steve Blank, Eric Ries, and others have done to provide a cogent, accessible frame around the academic concepts of emergent strategy is one of the most important contributions to the innovation movement over the past few years.
I have repeatedly stated that the next wave of innovation will come from companies that harness the transformational power that too often lies latent inside their organizations. There is a growing sense that so-called lean start-up techniques — developing a minimal viable product, learning in the marketplace, and pivoting based on market feedback — can help to unleash this potential. Indeed, in this month's Harvard Business Review cover story, Blank notes that the development of the lean start-up toolkit comes "just in time" to "help existing companies deal with the forces of continual disruption."
If I had a quibble with lean techniques it is with the extreme perspective that some practitioners take that research and thinking are useless — that learning comes only from developing prototypes and testing in-market. That's not right. Any initial strategy for a new growth business will be partially wrong, but the thinking that went into it is likely to be partially right, too. Good innovators invest the time to research their opportunities and formulate as robust hypotheses as they can so that they focus the learning from their experiments.
Consider the research Jeff Bezos did before he founded Amazon.com that led him to focus on books rather than music, clothing, or electronic appliances. Studying the book market then led Bezos to locate his company near some of the major book distributors. Sure, he might have gotten there through experimentation, but studying market dynamics helped him to cut a couple of corners. There's no doubt that people inside large companies over-engineer business plans, but don't let the pendulum swing too far the other way.
Of course, the value of a tool depends on its application. Innosight's field experience helping large companies more systematically pursue the creation of disruptive growth businesses suggests that leaders looking to leverage lean should heed three pieces of advice.
- Create mechanisms to enable experiments. One of Blank's most important points is that there are no answers inside the building — entrepreneurs need to learn in the marketplace. Corporate leaders can take steps to encourage this kind of market-based learning. Consumer packaged goods companies can test ideas in the corporate store where employees shop, for instance. Telecommunications companies can create a small secondary network where they can test ideas without running the risk of interrupting service to millions of customers. Service companies might have a handful of clients that agree to be guinea pigs for new ideas. These kinds of mechanisms help to reduce the friction of testing — and accelerate the process of learning.
- Pick people carefully. I call it the Jordan fallacy, in homage to Michael Jordan's one-year with the Chicago White Sox AA affiliate. Jordan was undoubtedly one of the best basketball players we've ever seen. But when he left basketball to play another sport, he couldn't compete with athletes who had spent their entire lives perfecting their craft. Sure, he was better at baseball than 99% of the population, but he simply wasn't world class. Companies fall into the Jordan fallacy when they ask their very best operators, who are skilled at executing a known business model, to transform overnight into entrepreneurs who are skilled at searching for an unknown business model. That doesn't mean that companies should either outsource the task or bring in entirely fresh blood. It's vital to include people in innovation initiatives who know how to work internal systems and have a good understanding of the unique, difficult-to-replicate assets that create your company's competitive advantage. The best candidates for this role might be hidden not among your top performers but among the "aliens" who live at the fringes of your organization.
- Be prepared for lean's consequences. My colleague Mark Johnson notes how a company's business model eventually leads to a set of implicit rules, norms, and metrics that govern its operation. Following the lean start-up methodology can require making rapid decisions about funding a particular venture; quickly killing ideas that hit too many roadblocks; or launching an idea before it has gone through the typical quality control process. Companies with rigorous annual-planning processes or ones with very deliberate, consensus-based decision mechanisms will struggle to truly embrace the lean start-up approach because it will run counter to many of these systems. Leaders have to carefully ensure that their resource allocation, portfolio management, and incentive systems encourage the rapid-fire experimentation that characterizes a lean start-up.