Lean Startup Methodology:What Fortune 500 Executives Can LearnFrom Scrappy Entrepreneurs

 By Jennifer R. Smith

Many smart, aspiring entrepreneurs are well-schooled in Eric Ries’ “lean startup methodology.”  They diligently follow his prescription of translating their visions into falsifiable hypotheses, developing minimum viable products (MVPs) to test those hypotheses, and then rapidly iterating and/or pivoting in response to market feedback – all while optimizing their preciously scarce resources.

But what about corporate leaders?  I doubt many of the executives at the helm of Fortune 500 corporations talked about “lean startup” in their business school Strategy 101 classrooms or obsessively debate its applications in today’s boardrooms.  On the contrary: as a management consultant, I engaged with my clients on strategies to invest years and millions of dollars in building and perfecting new products before they ever reached the user. 

Corporations obviously have resources that startups don’t: they have time, money, embedded processes, and an established brand that allow – and in many ways, even compel – them to move slower and invest more up-front.  But does that mean that they always should?  I would argue not. 

Fundamentally, corporations have the same needs and objectives as a startup:  understanding customer needs and establishing product-market fit, while optimizing resources.  Lean startup principles are a means to accomplish these goals – and they are broadly relevant, regardless of whether you are a single founder with a vision or a multibillion dollar MNC.

When should a corporation apply “lean startup” methodology? These principles are best applied when: a) developing a new product or service that represents a departure from the firm’s current business model; b) brand/reputational risk is low (e.g., product performance is not critical to the customer and they are likely to tolerate a less-than-perfect MVP without damage to other parts of the business); c) the firm is uncertain of customer demand for the proposed product/service; d) the product or service lends itself to an MVP (it’s hard to imagine an engineering firm building an MVP for a bridge!).

How should a corporation apply “lean startup” methodology? Corporations can attempt to integrate lean startup principles into their existing processes (for example, building iterations of MVPs into their product development cycles). However, many may hesitate to do so, given the risk of disruption, the practical challenge of changing entrenched corporate culture, and the inappropriateness of this methodology for certain parts of the business.  Thus, corporations may wish to create a separate group tasked with applying lean startup to a particular new product development – basically, creating a “start-up experiment” within the broader organization.  Insulating this group from the resources, processes, and pressures of the rest of the organization has several tactical implications:

1) Staff with “entrepreneurial-minded” people:  Management should be thoughtful about who is tasked to join and lead this group.  While it can be a great development opportunity for rising stars, the group might also benefit from an outside perspective – perhaps mixing in outside talent with past experience working in a lean startup environment.

2) Starved from resources of parent company:  The company should simulate the pressures facing a resource-constrained start-up.  Thus, the newly created group should receive only limited seed funding and be required to “pitch” to the parent company (like it would an investor) how it would use additional money to achieve specific milestones.

3) Separation from the organization’s business planning process:  Following from the point above, the newly created group should have agility to operate on its own timeline, enabling it to move as quickly as it needs to respond to market feedback.

4) Recognize that customer base may differ from the rest of the company: For a sufficiently innovative or radical product, the group will need to target “early adopters,” whereas the rest of the company likely sells to “mainstream customers” (following Moore’s “Crossing the Chasm” theory).

4) Be comfortable with measured failure:  The team needs to develop its own culture, where failure is embraced as part of the learning process.  Management needs to make it clear that what counts is how the team responds to failures -- quickly adapting, testing, and measuring, iterating this cycle until it works – and adapt the performance evaluation process accordingly. 

***

I welcome comments on any of the above.  Have you seen any corporations apply these principles particularly well?  Are there other interesting applications of lean startup methodology within Corporate America?