Lean startups vs lean companies

Venture Hacks has a great article today on lean startups. They quote extensively from two of our most important thinkers: Taiichi Ohno, creator of the Toyota Production System, and Kent Beck, creator of extreme programming. If you're not familiar with their work, and how it relates to startups, this is a great place to start. Go read it.

I want to take up one of the questions posed in the Hacker News discussion of the article:

The question in my mind against most of these efficiency driven programs is simple. If you're always looking to eliminate waste and become super efficient, you're not spending any time being creative or chasing radical ideas that may or may not be worth the effort spent on executing them.

Innovation sometimes requires a lot of wasteful experimentation and it looks like that is completely anti-thetical to the whole efficiency argument.

This is a common sentiment that derails many efficiency programs. But I do think it is a misconception of what lean startups are all about. Part of the problem is the distinction (that I owe to Steve Blank) between lean startups and lean companies. In a typical lean company, waste is defined as "every activity that does not create value for the customer." And this is 100% correct. By driving this kind of waste out of your company, you actually boost creativity by eliminating beaurocracy, busy work, unnecessary hierarchy, and, of course, excess inventory.

But statups require a special kind of creativity: disruptive innovation. And, as the commenter rightly points out, this is not really a matter of efficiency. By the standard of "customer value," most innovation-seeking experiments are waste. Lean startups operate by a different standard. I suggest they define waste as "every activity that does not contribute to learning about customers." (aka "how you get to product/market fit.") This is why I find the concept of the Ideas-Code-Data feedback loop so helpful. Any activity that actively promotes us getting through each iteration (including the learning phase) faster, is value-creating. Everything else (including a lot of traditional "agile" or "lean" tactics) is waste.

Of course, lean startups and lean companies both follow the same underlying principles. It's just the implementation that changes, as focus shifts from learning to execution. And, as many commenters noted, there are great companies that successfully incorporate innovation into their execution discipline (Toyota first among them). I would say that the true standard of waste is "anything that does not carry out the company's mission." But I think that is too abstract to be really useful for most startups, since it's hard to realize that the mission changes as the company goes through the natural phase changes of growth.