Navigator Insights

Applying lean start up principles to corporate innovation

“Lean Startup” is a method for developing businesses and products which was first proposed in 2011 by Eric Ries. The Lean Startup takes its name from the lean manufacturing revolution that Taiichi Ohno and Shigeo Shingo are credited with developing at Toyota. “Lean start-up” favours experimentation, over-elaborate planning, customer feedback over intuition, and iterative design over traditional “big design up front” development.

Ries claims that startups can shorten their product development cycles by adopting a combination of business-model hypothesis-driven experimentation, iterative product releases, and validated learning. Ries’ overall claim is that if startups invest their time into iteratively building products or services to meet the needs of early customers, they can reduce the market risks and sidestep the need for large amounts of initial project funding and expensive product launches and failures.

The same principles can be applied within large established corporations to speed up and better target their new product development processes.

The Lean Startup Method

In his book Eric Ries gives the five basic principles of the Lean Startup as:-

  1. Entrepreneurs are everywhere. You don’t have to work in a garage to be in a startup.
  2. Entrepreneurship is management. A startup is an institution, not just a product, and so it requires a new kind of management specifically geared to its context of extreme uncertainty.
  3. Validated learning. Startups exist not just to make stuff, make money, or even serve customers.

They exist to learn how to build a sustainable business. This learning can be validated scientifically by running frequent experiments that allow entrepreneurs to test each element of their vision.

  1. Build-Measure-Learn. The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere.
  2. Innovation accounting. To improve entrepreneurial outcomes and hold innovators accountable, we need to focus on the boring stuff: how to measure progress, how to set up milestones, and how to prioritize work. This requires a new kind of accounting designed for startups—and the people who hold them accountable.

He has divided and explained these principles under the topics of “Vision”, “Steer” and “Accelerate”.

“Vision” makes the case for a new discipline of entrepreneurial management. Ries identifies who is an entrepreneur, defines a startup, and articulates a new way for startups to gauge if they are making progress, called validated learning. To achieve that learning, startups—in a garage or inside an enterprise—can use scientific experimentation to discover how to build a sustainable business. Similarly rather than investing time in planning and research culiminating in an intricate business plan, entrepreneurs accept summarizing their hypothesis in a framework called a business model canvas. This simply describes how a company creates value for itself and its customers.

“Steer” dives into the Lean Startup method in detail, showing one major turn through the core Build-Measure-Learn feedback loop. Beginning with leap-of-faith assumptions that cry out for rigorous testing, to learning how to build a minimum viable product to test those assumptions, a new accounting system for evaluating whether you’re making progress, and a method for deciding whether to pivot (changing course with one foot anchored to the ground) or persevere. Basically he says that lean start-ups use a “get out of the building” approach called customer development to test their hypotheses. They go out and ask potential users, purchasers, and partners for feedback on all elements of the business model, including product features, pricing, distribution channels, and affordable customer acquisition strategies. The emphasis is on nimbleness and speed: new ventures rapidly assemble minimum viable products and immediately elicit customer feedback. Then, using customers’ input to revise their assumptions, they start the cycle over again, testing redesigned offerings and making further small adjustments (iterations) or more substantive ones (pivots) to ideas that aren’t working.  This is perhaps one of the hardest mindset shifts for established corporations seeking to adopt a lean approach to innovation.

In “Accelerate,” techniques that enable Lean Startups to speed through the Build-Measure-Learn feedback loop as quickly as possible, even as they scale, are explored. Ries also discusses organizational design, how products grow, and how to apply Lean Startup principles beyond the proverbial garage, even inside the world’s largest companies. Here lean start-ups practice something called agile development, which originated in the software industry. Agile development works hand-in-hand with customer development. Unlike typical year-long product development cycles that presuppose knowledge of customers’ problems and product needs, agile development eliminates wasted time and resources by developing the product iteratively and incrementally. Through this process start-ups can create the minimum viable products as tested.  Corporations need to learn to operate on “good enough” data, rather than completed data, and to expect and accept failures as healthy parts of the innovation process that provide opportunities to iterate on the original idea, or to pivot away from it.  It may also be necessary for the corporation to adopt different measures than the traditional financial measures visible in profit and loss statements and balance sheets – including cost of customer acquisition, customer lifetime value, churn and viralness – to truly value the impact of their innovations on the organisation.

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