Corporations don’t have five to ten years to waste developing a product that no one wants. Instead of building a plan and following it without question, companies should focus on implementing ideas quickly to determine whether they are good enough to spend more resources on. That’s where the lean startup method comes in to jumpstart corporate innovation strategies.
The lean startup method takes ideas around lean manufacturing and applies them to the process of innovation. Instead of using a business plan as a prediction of the future, a company turns the business plan into a series of hypotheses, such as what customers do or don’t want, and then quickly performs experiments to test these hypotheses.
In order to test hypotheses, companies create a minimum viable product. A minimum viable product is a scaled down version of an expansive vision of a product that can be delivered quickly and inexpensively. A minimum viable product allows companies to rapidly test ideas and determine whether or not they work in order to change directions without investing too many resources.
Eric Ries, author of The Lean Startup, presents five principles of the lean startup method.
5 Principles of the Lean Startup Method:
- Entrepreneurs are everywhere
- Entrepreneurship is management
- Validated learning
- Innovation accounting
What do these lean startup principles mean for corporations?
1. Entrepreneurs are everywhere
A modern company sees the creativity and talent of every employee as a precious resource. In order to leverage its entrepreneurs, a modern company needs to address all employees as entrepreneurs. Why? One, because we never know who the entrepreneurs are. Two, because most ideas are bad. If everyone can contribute ideas, companies have a greater chance of finding a good idea. But there needs to be a process as a company can’t implement every idea, even with a lean startup strategy.
2. Entrepreneurship is management
Eric Ries defines a startup as “a human institution designed to create new products and services under conditions of extreme uncertainty.” A startup is an experiment. Any size company can perform experiments. The key is to have a strategy when meeting failure. That is to pivot. When a company pivots, they stay grounded in what they’ve learned and change directions. Since time is money, the path to success is reducing the amount of time between pivots.
3. Validated learning
Companies should move from simply making stuff to validated learning. With validated learning the unit of measurement is not how far along the team is on adding features, but how far along the company is on learning who they’re customers are and what their customers need. As William Edwards Deming, an American engineer, said, “The customer is the most important part of the production line.” Teams must rigorously assess whether they are learning how to build a sustainable business. And a sustainable business is one that first understands the customer’s needs.
The question is not whether a product can be built but whether it should be built. Companies can build things very efficiently that nobody wants. The build-measure-learn cycle involves turning ideas into products quickly, measuring how customers respond, and then learning whether or not to pivot or persevere. A minimum viable product only needs to include features necessary to learn what customers want.
5. Innovation accounting
Entrepreneurs need to be held accountable, but to a different set of metrics. Instead of having product milestones, innovators should have learning milestones. A measurable metric for learning is customer behavior. Product development focuses on improvement in customer retention instead of product sales. With learning milestones, companies give themselves a timeframe to meet a customer behavior baseline and choose whether or not to pivot.