The best, most innovative companies in the world are experts in finding new business models while ensuring their current paradigms run smoothly. They protect their cash flow and revenue-generating portfolio. But above all else, they are always evolving to not only stay ahead of the competition, but also deliver on shifting customer expectations.
Amazon, Apple, Google are some of the ambidextrous corporations that are operating such fully functioning, well-managed innovation machines. They have mastered the art of customer-serving capabilities with a degree of speed, nimbleness, and risk acceptance commonly associated with entrepreneurial startups.
However, one could ask if only digital giants achieve such a mature level of innovation. Can all companies accomplish this feat?
To answer this question and more, we had a chat with Andy Cars, innovation catalyst and founder of Lean Ventures. Drawing from a diverse background as entrepreneur, mentor, coach, and angel investor, Andy provides fascinating insight on how a Lean Startup mentality can help businesses innovate for today and the future – all at the same time.
Andy, can you explain what it means to be a Lean Startup?
Lean Startup is a mindset and methodology to help reduce the time and risks associated with taking new ideas to market. A Lean Startup understands that the biggest risk (in most cases) is market risk – rather than technology risk – and that the most efficient use of resources is to test for market risk first. Essentially, this is done by validating initial user interest before building the solution and testing for initial user engagement, while iteratively morphing the offering to get better and better at solving the identified problem.
As opposed to Design Thinking where you tend to start by deep diving into the problem space, Lean Startup often has a passionate entrepreneur who already knows what they want to do. They already have a business idea and vision. But instead of attempting to build the "perfect solution" and then launch it, we immediately turn our attention to testing whether there is anyone else out there who also thinks the idea is worth pursuing.
Yet we are not content with a thumbs up or a friendly tap on the shoulder. Instead, we always ask for some form of sacrifice.
Money is, of course, the ultimate form of sacrifice, but people who are willing to give up their time to be part of a test or a joint development group or risk their social currency by shopping around the idea within their networks are also viable forms of sacrifice.
The basic step-by-step approach of Lean Startup is to start by visualizing your business model on a Business Model Canvas, Lean Canvas, or some other variation. Next, we identify the riskiest assumption in our business model, turn that assumption into a measurable hypothesis, and then design an experiment to test our hypothesis. Rather than letting our gut feelings dictate our next move, we try to stay objective and let the data that was collected during the test phase inform our next move.
How you structure and execute each of these steps makes all the difference. Teams that are successful in applying Lean Startup are not only focused and disciplined, but also understand many nuances of this methodology.
This cycle of identifying the riskiest assumption, converting to a measurable hypothesis, and designing and launching measurable experiments continues until we close the gap between the knowns and unknowns of the business model.
Our aim is to find problem-solution fit, and, in extension, product-market fit, which may lead us to a scalable and repeatable business model.
So it is possible for a large enterprise to operate as a Lean Startup?
Absolutely! At least parts of the business can and should operate as a Lean Startup. The most successful large enterprises are what is often called "ambidextrous" organizations.
Meaning that they have found a good balance between executing and incrementally improving on their current business models, while at the same time searching for and developing new business models.
Lean Startup is great when you want to find and develop new business models. The higher the uncertainty about future prospects, the more relevant Lean Startup becomes. While for incremental innovation, Lean Manufacturing methods, such as the Toyota Production System, are more suitable.
Like its cousin Design Thinking, Lean Startup is about going beyond "business as usual." Although venturing into the unknown is often seen as costly, risky, and vulnerable to long payback times, Lean Startup helps reduce these risks while building the company's innovation capabilities for the long-term. This, in turn, leads to a higher market innovation premium, which makes attracting top talent easier. It may also provide mergers and acquisitions with more firepower through a higher share price.
You mentioned that Lean Startup should be first considered as a mindset before it is followed as a methodology. Can you explain why?
As is the case for anything in life, it is tough to move forward if you have not embraced a mindset for change. One example is the difference between "fixed" and "growth" mindsets.
A growth mindset is inspired by other people's success. People who subscribe to this perspective are always looking for opportunities to learn and develop. They are curious and never cease to question the status quo. They continuously seek novel ways of solving the problems that they see around them.
A fixed mindset, however, is on the opposite side of that scale. In this case, people fear change and see the world as a case of "if it ain't broke, don't fix it." Challenges stress them out, and they are threatened by other people's success. If you try to introduce agile methods like Lean Startup to fixed mindsets, they will reject them faster than you can say "innovation."
(note: Andy speaks more about this in a recently published video called "The Innovation Mindset.")
How do intrapreneurs communicate the value of Lean Startup to their colleagues and senior leaders who may not be fully on board with this mindset yet?
Management is used to projecting future costs and revenues based on past data. There is nothing wrong with this approach, and many of them are quite good at making decent short-term projections for mature, semi-stable business models that have been proven to work.
But if you’re developing entirely new business models, where you attempt to offer a new value proposition to a new target group, your starting point is quite different. Most of what you have are things that you know you don't know and things that you don't even know you don't know.
At that point, it becomes futile to project anything. All you will be doing is basing one assumption on another until you end up inside your own reality distortion bubble. Instead, by combining a learning mindset with innovation accounting, the business can assess the data from Lean Startup experiments to estimate as early as possible the potential success of the business idea.
The success of every innovation depends on its ability to attract a loyal following of early adopters. If this cannot happen, there is no point in investing huge resources in trying to scale the product or service for the mass market. It takes a learning process to understand exactly who is the customer, what their top problems and constraints are, how well current solutions serve those jobs, how to price and package the product, how to reduce onboarding friction, and much more.
So instead of analyzing the hell out of an Excel spreadsheet, get out of the building and start interacting with future customers in a Lean Startup way.
In his workshop Lean Startup for the Enterprise, Andy will show you concrete tools how to prioritize and identify the most risky assumption in your business model, how to convert that assumption into a measurable hypothesis and how to design a quick experiment that you can run to test your hypothesis already by next week.
