The Entrepreneurial Enterprise

Guest post by Lisa Regan, writer for The Lean Startup Conference.

How can established companies benefit from implementing Lean Startup? To answer that question, we hosted a webcast conversation earlier this week with Eric Ries, Brant Cooper, and Patrick Vlaskovits. We’d like to share a few highlights and invite you to join the ongoing conversation by posing questions for Eric, Patrick, and Brant in the comments to this post. They’ll jump in to answer in the coming days. (Of course, you can also continue the conversation by attending The Lean Startup Conference. Our latest batch of discounted tickets is about to sell out, so register today.)

A lot of people think the “startup” part of “Lean Startup” means the ideas apply only in young companies. But, in fact, they can be crucial in large, established companies that need to find growth in new products and new markets. As Eric puts it in the webcast, “I’ve met now the CEOs of some of the biggest companies in the world, and I still spend time with the CEOs of high-growth Silicon Valley companies from the garage on up, and what all those people have in common is that they are seeking out sources of sustainable growth…. What we care about in the innovation community is growth that is driven by customers and creating value for them. And we just so happen to think that the best way to create sustainable growth in our highly disruptive world is through continuous innovation…. And that challenge I have seen to be identical no matter the size of the company.”

Patrick and Brant understand these problems intimately. They are the co-authors of The Lean Entrepreneur, and the co-founders of the Moves the Needle Group, which advises the innovation practices of Fortune 100 companies. Their webcast conversation with Eric began with a discussion of the ways that large companies come around to realizing they need to implement Lean Startup. Among other themes they covered: the conditions under which established companies implement Lean Startup; the hindrances and incentives they face; what individual employees can do to implement the methodology; and how to protect a company’s core business from the potential impact of experimentation. Though we’re posting a few highlights below, we encourage you to watch the video in its entirety, as Eric, Patrick and Brant dig into technical details and case studies that will be helpful for people engaged with this topic.

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The webcast conversation examined corporate versus startup structure, and the limitations on innovation that corporations create for themselves. Problems arise when companies isolate areas of the business in what Eric refers to as “functional silos”—independently operating teams (design, engineering, marketing, legal, etc.) that discretely address specific areas of the production chain. Each silo may be innovative in itself, but at some point it considers its work complete and hands off to the next silo, with which it has had little to no collaboration and for whose tradeoffs it has not accounted. What can Lean Startup do about this?

Eric:  I’ve now worked with a number of companies where once they adopt Lean Startup, it gives them a common vocabulary for all the different teams to use the same vocabulary, the same business-oriented, results set of concepts to wrap all these techniques in…. We knock the silos down and get everybody on a single, cross-functional team to say to everybody, look, you are a startup, you are not a set of different functions, so you, team…go experiment and learn how to make this happen. When teams are organized that way they’re so much more productive, so much more energized, the creativity you unlock is incredible.

Brant:  We’re still taught in MBA school is these silos, right? And if people can just imagine, if the way we motivate people, the way we do performance reviews, and incentivize people within silos—those measures cannot be drawn in a direct line to corporate objectives. You cannot draw a direct line to reducing waste or improving revenues or cutting costs…whereas the cross-functional teams, you can tie it to a performance metric that has a direct result in the corporate objectives.

Patrick, with a bit of highly practical advice: One of the things Brant and I counsel large organizations, particularly ones that have already embraced Agile, is to extend the Agile metaphor into the funnel, for example, and show the benefit of Lean Startup for the sales and marketing teams, and then show the benefits of Lean Startup to the HR folks…. With sales and marketing experiments, often you pick low-hanging fruit in the millions of dollars very, very quickly. We’ve seen this time and time and time again, and that’s how you get other parts of the organization and other functional roles excited about starting LS methods.

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A variety of audience questions came in effectively asking how an established company, with an existing product, customer, and brand image, can make use of a minimum viable product (MVP) for experimentation purposes without damaging the larger company’s standing.

Brant: The core business has to be protected from the startup. We separate out these startups. They need to exist in a different place for the time being, so that the startup is protected from the questions around return on investment, and the core business is protected from the startup…. So you’re not launching a minimum viable product to all of your core business customers--that’s a no-no. You have to keep these separate. And then the Lean Startup acts like a new startup. You have to go find your own customers to experiment with, you have your own brand, so you have to think like a Lean Startup.  You’ve got your validated learning with the customer development you’ve been doing with your own market segment. But you’re not going to your core business.

Patrick: The startup “can’t run to the core business and have all its problems solved for it. Because then you get something like the children of helicopter parents, that can’t fend for themselves. And ultimately if it’s a real innovation, that has real value and creates real value for customers, it has to fend for itself. It has to be a stand-alone business case that makes sense.

Eric, on making lemonade out of an MVP lemon: The great thing about an MVP is that if customers don’t like it, but they care enough to complain, that’s actually great news. Most of the time when you do an MVP, no one even notices. Zero customers show up. You have “launch day” and then nothing happens, because your value proposition is so wrong that no one cares. So that doesn’t harm the brand. If people complain but you kept the scale of the product small--and MVP is about containing the scope of the experimentation so that the cost of failure is low--then you can make it right for those customers that complain. Like, you can send them a hand-engraved letter press apology. Every single one. Personally delivered to their house. By you. If that ever happens.

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So how do you start a Lean Startup practice where you actually work? Patrick, Eric, and Brant all talked, in response to audience questions, about the importance of individual actors within corporations deciding to, as Patrick put it, “be subversive.”

Brant: Changing the culture is what’s needed and it’s hard and it takes time. And so I think if you’re a person inside of an organization that is ready for this type of stuff, the first thing you should do is go find like-minded people, and that’s actually how you start the process…. I’m not saying go do something that’s going to get you in trouble, but you can’t wait for some magic to happen, for some external force that says ok, now this company is prepared for Lean Startup culture. You actually have to go and make the change yourself.

Patrick:  Actually, let me go as far as to say you should go get in trouble, you should actually be subversive. I’m half-joking here, but I think we’ve all seen this, that where Lean Startup has managed to take root and flower is where initially you had some aggressive early-adopters act a little subversively. If you have a mortgage and a family, I’m not telling you to risk your career on adopting Lean Startup, but if you’re passionate about making change, you can’t wait for permission to do this stuff, you’ve got to start doing it and you’ve got to start doing it intelligently, and part of that is hacking the actual internal political system. That’s very difficult, obviously, but it’s part of that journey.

Eric:  Think of all the managers who worked at Kodak, or Nokia, or Blackberry--pick your favorite company that has had a total collapse in living memory. And say, “How would it feel to be the manager who was there, who saw the disruption coming and did nothing about it?” First of all, is that actually a good path to having a longterm career? If you have to feed a family and make your mortgage, and your company collapses while you’re there, is that really going to help you? I feel like it’s almost irresponsible to put your head down and say, “Whatever, I work for a great institution, and I’m going to let it crumble under my stewardship….” The future leaders of companies I think are going to be the people who today started learning with these techniques, because what we’re talking about here is nothing less than a full-scale paradigm change in the management culture and management philosophy of modern companies. So would you rather be an early adopter of that, or have someone else take that lead?

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Interested in more in-depth discussion of Lean Startup in the enterprise? We invite you to check out the entire video, including a fascinating conversation about why revenue is not a good growth metric. For even more insight, register today to join us at The Lean Startup Conference in December. If you bring eight or more of your employee, we’ll give you a substantial break on the price. For more info on the benefits of team registration, see our post on fostering innovation in established companies. For pricing details just email our executive producer Melissa Tinitigan and use the subject header “group discount.”