Sunday, October 20, 2013

Lean Startup & Lean Innovation Factory

I had the privilege to attend the Lean IT Summit in Paris a week ago, and was pleased to hear “The Lean Startup” mentioned in almost half of the talks. Actually, the Lean Startup is so popular that some are getting annoyed :) I co-wrote the preface of the French edition because I am a strong believer in the principles that Eric Ries explains in his book. However, with popularity comes exaggeration and re-interpretation. Here are two things I heard during the lean IT summit that got me annoyed as well:
  • The Lean Startup is what the lean community has expressed for a long time, with better words. Kudos to Eric Ries for being such a great communicator !
  • The Lean Startup is a lean reformulation of well-known innovation practices. Actually, innovation is in the genes of lean manufacturing, so no surprise there !
I disagree on both accounts:
  • The Lean Startup is not a book about lean, it’s a book about innovation, mostly startups but which is also relevant for larger companies, which is why I am such a strong advocate. After writing part of the preface, I ordered many dozens of the book which I have distributed freely in my own company. Sure, the lean framework gives a lot of sense to the overall contribution, but this is not the point.
  • Although many of the key ideas have been around for a while, the combination of these principles into a well-defined innovation process is a true contribution. It definitely goes against what most people believed to be innovation in larger companies. I had heard Eric Ries’s ideas expressed by a few VC from Silicon Valley, but they were anything but mainstream.
Hence this short post is about two things. The first part is a “Lean Startup for dummies” summary. It is by no means thorough nor complete, my French post from two years ago did a better job, but it is written for the corporate world and emphasizes what may be seen as “different”, at least compared with how “innovation” was described ten years ago, when we talked about “ideation factories”. The second part describes what I call “Lean Innovation Factory”, that is the application of Lean Startup principles to the innovation division of a large company.

1. Lean Startup for dummies

Eric Ries’s book deserves to be read because it is filled with meaningful examples. Therefore, a short summary cannot do justice to its content. Here I will only pick three key principles:

(a)    Innovation is about doing, not about producing ideas

This principle is very similar to what the pretotyping  manifesto  promotes. The prototyping manifesto gave us these mottos:   innovators beat ideas, pretotypes beat productypes, building beat talking… which all tell that the key part in innovation is the doing. This is especially true in the digital world, and is acknowledged by similar mottos from Google (“Focus on the user and all else will follow”, “Fast is better than slow”) or Facebook (“code wins”, ”done is better than perfect”). To innovate means, most of the times and above everything else, to meet a customer problem and to remove a pain point. Value creation occurs at the contact with the customer, not in a brainstorming room. This does not mean that ideation tools and techniques are not useful or important; it means that only “on the gemba” can we check that innovation actually works. 

This is more revolutionary than it may sound for larger and older companies, which have associated the “innovation” word with “great ideas”. I have in my library dozens of book about innovation that distinguish between all kinds of innovation (according to the source of the “newness”) and that propose many processes for reaching all kinds of customers. The beauty of the lean startup framework is to simplify – so to speak, since value-creation-at-the-hands-of-the-customer is indeed hard – and to get rid of all the innovation funnels and ideation laboratory paraphernalia. What is clear to me after 15 years in the world of telecommunication service innovation is that everyone has the same ideas, the difference between success, failure and doing nothing (the most frequent case) is the quality of the execution process.

(b)   Innovation requires iteration since nobody gets it right the first time.

This principle is often associated with the motto:  fail fast to succeed sooner .  In the Lean Startup world, it leads to the MVP: minimum viable product. Each word is important: a MVP is a product that may be placed in our customers’hands (this is not a prototype, it may be simple but it should not be fragile). A MVP is “viable” when it solves the customer’s problem. Its role is to jumpstart an iterative process of feedback collection, which may only happen if the customer finds a practical interest with the MVP, on the first day. A MVP is “minimal” because it is “as simple as possible but not simpler”, to paraphrase Einstein. This allows us to start the iteration as soon as possible, but not sooner. This emphasis on iteration echoes what a venture capitalist from Silicon Valley told me six years ago: there is no correlation between the success of a software startup and the quality of the piece of code that is shown to the early investors. On the other hand, there is a clear correlation between success and the ability to listen to the feedback of early customers and turn them into improvements. 

This is also a bigger difference than one may think with the prevailing culture of large companies. It goes against the myth “you must get it right on the first time; you have only one chance to make the right impression”. The common culture of detailed market studies, coupled with the practice of lengthy marketing requirements, is replaced by a “hands-on” culture. MVP is a process that co-constructs software code, requirement and detailed specifications at the same time.

(c) A successful business model is built iteratively using customers’ feedbacks.

A successful business model is not a pre-condition but a post-condition for the innovation process. A startup is a “business model factory”; this is well understood today by the various startup “incubators” and “accelerators”  and it may be acknowledged as one of Eric Ries’ contributions. To make a “business model factory” deliver, one needs three things. First, we need to set up measurement points in our MVP. We need to measure usage and value creation, that is, how the problem is being solved. Second, we need to build and then validate a value creation model, which Eric Ries calls innovation accounting. This is the direct application of the old saying “a measure is worth nothing without a model” (without a model, one does not known how to interpret a measure). This is an iterative process and not an exact science, where trials and errors is the common approach. On formulate hypotheses, which are either validated on invalidated by the collected measurements. Eric Ries is adamant in his book about preferring facts to opinions :). Last, when the model fails, the startup needs to “pivot”, that is to formulate a new value creation hypothesis. A key contribution from The Lean Startup is the wealth of examples and explanations regarding business models and pivoting. 

This third principle is no less of a rupture with respect to the sanctity of the business case and its return on investment (RoI) that is observed in many large companies. It is simply not possible to formulate a credible business case when one starts to innovate. Obviously, one needs to start somewhere, hence there must be some initial hypotheses regarding value creation. However, the business model for the MVP is the result of an iterative process; the good news is that it comes with the validation provided by usage measures.

2. Lean Innovation Factory

I have started to use the term « Lean Innovation Factory » as a way to encapsulate principles from The Lean Startup applied to the innovation division of a large company, such as the one that I manage at Bouygues Telecom.  The name Lean Innovation Factory (LIF) captures three ambitions:

(1)    It is an innovation factory.

A “lean innovation factory” is a process that produces innovations. An innovation is a product or service that solves a problem, which is demonstrated in the hands of a customer. The process does not need to deliver a full-scale solution to prove its effectiveness, it can operate on a smaller set of customers, but only the “monitored feedback” of real users will validate the creation of innovative value. The emphasis is on “doing” and “building”; ideas have no glorified status in the Lean Innovation Factory, we strive for physical products and running software. We make ours the words of W. Edwards Deming : “In God we trust, all others must brings data”.

(2)   It follows the “Lean Startup” principles.

The engine for creating value is the iteration of MVP feedback, which means that we strive to build the first MVP as quicky  as possible (fail fast to succeed sooner), but while keeping the meaning of “viable” into our minds : the MVP is not a prototype, it is a product. We implement the heart of innovation accounting, in the sense that we measure feedback and we build continuously a value creation model that is validated or invalidated by our users.

(3)    As a “factory”, the process is as important as the end result, because the result keeps changing while the strengths and the skills of the “factory workers” may build up.

This is the same pitch that I made for the “lean software factory”, and a reason for choosing a similar name :) To build a lean innovation factory is not only to build great product or service innovations, it means to build an organization that learns to do this better and better over time. This is clearly what Eric Ries tries to teach from his own experience with many startups, and where the link with "The Toyota Way" is the most evident.

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