Opinion: Large companies waste Lean Startup’s power by listening to myths

Photo credit: bialasiewicz / 123RF Stock Photo.

In a previous post, I wrote about how large companies are poised to be the greatest beneficiaries of the lean startup movement. We are entering an era of technology that is well-suited to the resources that large companies have (i.e. The Third Wave). This next wave of technology will involve products and services that are costly to create and industry sectors that are highly regulated by governments (e.g. healthcare and education). These factors suit large companies because they have the resources to make the needed financial investments, form partnerships with other companies, and influence government policy.

The lean startup movement has also revealed innovation best practices to the business world. We now know that innovation involves the search for sustainable, profitable business models. There are several large companies that are currently working hard to embed some of these practices into their businesses. If large companies succeed in adopting innovative startup methods, then they will be in the best position to benefit from the era of technology we are about to enter.

Lean startup is dead

There are some that disagree with this idea. They argue that the third wave of technology means that the lean startup movement is nearing its end. Their view is that large investments and the long lead times needed to do innovation in healthcare, for example, mean that lean startup practices are now irrelevant.

My view is that these people have taken the wrong lessons from the lean startup movement. Below are some examples of these misconceptions:

• Lean startup is about being cheap, investing only small amounts of money into products. If this is the case, then the lean startup only applies to products that can be made with little money such as apps and websites.
• Lean startup is only for digital products. Physical products are expensive and take longer to make. Therefore, they cannot be made iteratively.
• Lean startup is only for small companies with a small vision. If you have a big vision of putting a dent in the universe, then you cannot possibly use lean methods to do that.
• Lean startup is all about running experiments and building minimum viable products. Oh yes, and don’t forget to pivot while you are at it.
• Lean startup is about failing fast. And failing fast means failing next week.

These misconceptions have been around from the beginning of the movement. However, as we move into the third wave of technology, they have become more prominent. If large companies learn only these myths, they will not benefit from the movement. In order to leverage their resources and advantages in this new era, large companies have to draw the right lessons from the lean startup movement.

Doing the right things at the right time

The number one reason why startups fail is premature scaling. This happens when a team launches a new product into the market before they are sure anybody wants it. So the lean startup movement’s key takeaway is this: Innovators should be doing the right things at the right time.

So the lean startup movement’s key takeaway is this: Innovators should be doing the right things at the right time.

This principle has nothing to do with the amount of investment money available or the resources that a company has. Regardless of the type of product we are making, it is important to understand our customers’ needs. It is also important to ensure that the product we are creating will deliver value to our customers. The real valuable insight from the movement: first we search, then we execute.

This insight applies to digital as well as physical products. In fact, when larger investments are at stake, ensuring that we are making stuff people want becomes more—not less—important. Many commentators forget that the lean startup movement was actually inspired by companies making physical products. Take Toyota’s lean manufacturing or Zara’s lean inventory management for example. IDEO, the legendary pioneers of design thinking, use “lean principles” to make physical products (e.g. the mouse for the first Macintosh). Design thinking puts the customer at the center of innovation, regardless of the product that is being made.

Business models matter

Even with the best R&D departments, the business model question doesn’t go away. In fact, research shows that there is no relationship between R&D spending and revenue or profits. In discussing some of the failures of Xerox PARC to commercialize their inventions, former chief scientist John Seely Brown notes how it is important for innovators to find the “architecture of revenues.” So beyond making stuff people want, another key takeaway from the movement is that business models matter.

Steve Blank defines a startup as an institution set up to search for a sustainable, profitable business model. As much as we want to know that we are making products people want, we also want to ensure that we are able to create and deliver this value profitably. This means that we have to test our business model in the market before we scale.

As we make prototypes of our products, we can use them to test our assumptions about the costs of production, price points, and potential routes to market. The key is to do as much early work as possible to remove business model risk from our products. We are not just running experiments and building minimum viable products for the sake of it. We are not just pivoting or iterating because Eric Ries says it is a good idea. All these practices serve a singular goal: helping us figure out our business model before we scale.

Asking the right questions at the right time

Big dreams are made of this