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Continuation from Part 1 of The Lean Startup book summary…

 

 

ACCELERATE

 

START YOUR ENGINES

The critical first question for any lean manufacturing is: which activities create value and which are a form of waste? Once this distinction is understood, you can begin using lean techniques to drive out waste and increase the efficiency of the value-creating activities.

 

The value in a startup is not the creation of stuff, but rather validated learning about how to build a sustainable business.

  1. What do customers really want?
  2. How will our business grow?
  3. Who is our customer?
  4. Which customers should we listen to and which should we ignore?

 

These are the questions that need answering as quickly as possible to maximise a startup’s chances of success. This is what creates value for a startup.

 

 

9 – BATCH

Single-piece flow: The one envelope at a time approach. It works because of the surprising power of small batches.

 

When we do work that proceeds in stages, the “batch size” refers to how much work moves from one stage to the next at a time.

  • E.g. If we were stuffing 100 envelopes, the intuitive way to do it – folding 100 letters at a time – would have a batch size of 100. Single-piece flow is so named because it has a batch size of 1.

 

Individual performance is not nearly as important as the overall performance of the system. Even if the amount of time that each process took was exactly the same, the small batch production approach still would be superior.

 

The small-batch approach produces a finished product every few seconds, whereas the large-batch approach must deliver all the products at once, at the end. (Imagine if the time horizon was hours, days or weeks, or if the customers have decided the don’t want the product)

 

The biggest advantage of working in small batches is that quality problems can be identified much sooner

  • This is the origin of Toyota’s famous andon cord, which allows any worker to ask for help as soon as they notice any problem, such as defects in a physical part, stopping the entire production line if it cannot be corrected immediately. The andon cord can interrupt an assembly line, as the line is halted repeatedly, but the benefits of finding and fixing problems faster outweigh this cost.

 

Small Batches in Entrepreneurship

  • In The Lean Startup the goal is not to produce more stuff efficiently. It is to – as quickly as possible – learn how to build a sustainable business.
  • Working in small batches ensures that a startup can minimise the expenditure of time, money, and effort that ultimately turns out to have been wasted
  • Small Batches at IMVU
    • Product Immune System/Continuous Deployment
      1. The defective change is removed immediately and automatically
      2. Everyone on the relevant team is notified of the problem
      3. The team is blocked from introducing any further changes, preventing the problem from being compounded by future mistakes…
      4. .. until the root cause of the problem is found and fixed.

 

Continuous Deployment Beyond Software

  • Underlying Forces that make rapid iteration possible in the software industry:
  1. Hardware becoming software
    • What can be built out of software can be modified much faster than a physical or mechanical device can
  2. Fast production changes
    • Many assembly lines are set up to allow each new product that comes off the line to be customised completely without sacrificing quality or cost-effectiveness. This capability will allow the designers of products to get much faster feedback about new versions
    • When the design changes there is no excess inventory of the old version to slow things down. Since machines are designed for rapid changeovers, as soon as the new design is ready, new versions can be produced quickly
  3. 3D printing and rapid prototyping tools
    • New technologies are allowing entrepreneurs to build small batches of products that are of the same quality as products made with injection moulding, but at a much lower cost and much, much faster
  • The essential lesson is by reducing batch size, we can get through the Build-Measure-Learn feedback loop more quickly than our competitors can. The ability to learn faster from customers is the essential competitive advantage that startups must possess

 

The Large-Batch Death Spiral

  • Large batches tend to grow over time. Because moving the batch forward often results in additional work, rework, delays, and interruptions, everyone has an incentive to do work in even-larger batches, trying to minimise this overhead. This is called the large-batch death spiral because, unlike in manufacturing, there are no physical limits on the maximum size of a batch
  • Eventually one batch will become the highest-priority project, a “bet the company” new version of the product, because the company has taken such as a long time since the last release

 

Pull, don’t Push

  • In traditional mass production, the way to avoid stockouts (not having the product the customer wants) is to keep a large inventory of spares just in case
  • Lean production solves the problem of stockouts with a technique called pull.
    • Example: When you bring a car into the dealership for repair, one X bumper gets used.
      • This automatically causes a signal to be sent to a local restocking facility
      • This facility sends the dealer a new bumper, which creates another hole in inventory
      • This sends a similar signal to a regional warehouse, where all parts supplier ship their products
      • That warehouse signals the factory where the bumpers are made to produce one more bumper, which is manufactured and shipped to the regional warehouse
    • The ideal goal is to achieve small batches all the way down to a single-piece flow along the entire supply chain. Each step in the line pulls the parts it needs from the previous step. (This is the famous Toyota just-in-time production method)
      • When companies switch to this kind of production, their warehouses immediately shrink, as the amount of just-in-case inventory (work in progress inventory) is reduced dramatically
    • The right way to think about the product development process in a Lean Startup is that it is responding to pull requests in the form of experiments that need to be run
    • As soon as we formulate a hypothesis that we want to test, the product development team should be engineered to design and run this experiment as quickly as possible, using the smallest batch size that will get the job done
      • It is not the customer, but rather our hypothesis about the customer, that pulls work from product development and other functions. Any other work is waste.

 

 

10 – GROW

There are four primary ways past customers drive sustainable growth (termed engines of growth):

  • Word of Mouth
    • Embedded in most products is a natural level of growth that is caused by satisfied customers’ enthusiasm for the product
  • As a side effect of product usage
    • Fashion or status, such as luxury goods products, drive awareness of themselves whenever they are use
  • Through funded advertising
    • As long as the cost of acquiring a new customer (the so-called marginal cost) is less than the revenue that customer generates (the marginal revenue), the excess (the marginal profit) can be used to acquire more customers. The more marginal profit, the faster the growth
  • Through repeat purchase or use
    • Some products are designed to be purchased repeatedly either through a subscription plan (a cable company) or through voluntary repurchases (groceries or lightbulbs)

 

Sustainable growth is characterised by one simple rule: New customers come from the actions of past customers

 

The engine of growth is the mechanism that startups use to achieve sustainable growth

  • The word sustainable is used to exclude all one-time activities that generate a surge of customers but have no long-term impact, such as a single advertisement or a publicity stunt that might be used to jump-start growth but could not sustain that growth for the long term

 

Each is like a combustion engine, turning over and over. The faster the loop turns, the faster the company will grow. Each engine has an intrinsic set of metrics that determine how fast a company can grow when using it

 

The Three Engines of Growth (designed to give startups a relatively small set of metrics to focus their energies)

  • Shawn Carolan – “Startup’s don’t starve; they drown.” – There are always a zillion new ideas about how to make the product better floating around, but the hard truth is that most of those ideas make a difference only at the margins. They are mere optimisations
    • Startups have to focus on the big experiments that lead to validated learning. The engines of growth framework helps them stay focused on the metrics that matter
  • The Sticky Engine of Growth
    • Companies using the sticky engine of growth track their attrition rate or churn rate very carefully
      • Churn Rate: the fraction of customers in any period who fail to remain engaged with the company’s product
    • Rule: If the rate of new customer acquisition exceeds the churn rate, the product will grow
    • The speed of growth is determined by the rate of compounding, which is simply the natural growth rate minus the churn rate. Like a bank account that earns compounding interest, having a high rate of compounding will lead to extremely rapid growth – with advertising, viral growth, or publicity stunts
    • In the sticky engine of growth, a company is better suited to testing the value hypothesis (ch5)
    • The way to find growth is to focus on existing customers for the product even more engaging to them
  • The Viral Engine of Growth
    • Products that exhibit viral growth depend on person-to-person transmission as a necessary consequence of normal product use. Growth happens automatically as a side effect of customers using the product
    • The viral engine is powered by a feedback loop that can be quantified. It is called the viral loop, and its speed is determined by a single mathematical term called the viral coefficient.
      • The higher this coefficient is, the faster the product will spread
      • The viral coefficient measures how many new customers will use a product as a consequence of each new customer who signs up
      • A viral loop with a coefficient that is greater than 1.0 will grow exponentially, because each person who signs up will bring, on average, more than one other person with him or her
    • Companies that rely on the viral engine of growth must focus on increasing the viral coefficient more than anything else, because even tiny changes in this number will cause dramatic changes in their future prospects
    • Many viral products do not charge customers directly but rely on indirect sources of revenue such as advertising. This is the case because viral products cannot afford to have any friction impede the process of signing customers up and recruiting their friends.
    • In the viral engine of growth, monetary exchange does not drive new growth; it is useful only as an indicator that customers value the product enough to pay for it
    • Customers give these companies something of value: by investing their time and attention in the product, they make the product valuable to advertisers
  • The Paid Engine of Growth
    • Example – Paid Engine of Growth at work:
      • 2 companies, Business #1 makes $1 on each customer sign up, Business #2 makes $100,000 from each customer sign up
      • To predict company growth speed, you need to know: how much it costs to sign up a new customer
      • B#1 uses AdWords to find customers online and pays an average of 80c each time a new customer joins, while B#2 sells heavy goods to large companies – which each sale requires a significant time investment from a salesperson and on-site sales engineering to help install the product: the hard costs total up to $80,000 per new customers
      • Both companies will grow at the same rate, and have the same proportion of revenue (20%) available to reinvest in new customer acquisition
      • If either company wants to increase its rate of growth, it can do so in one of two ways: increase its revenue from each customer, or drive down the cost of acquiring a new customer
    • The paid engine of growth is powered by a feedback loop.
      • Each customer pays a certain amount of money for the product over his or her “lifetime” as a customer
      • Once variable costs are deducted, this usually is called the customer lifetime value (LTV). This revenue can be invested in growth by buying advertising
    • Example:
      • An advertisement costs $100 and causes 50 new customers to sign up for the service
      • This ad has a cost per acquisition (CPA) of $2.00
      • If the product has an LTV that is greater than $2, the product will grow.
      • The margin between the LTV and the CPA determines how fast the paid engine of growth will turn (the marginal profit)
      • Conversely, if the CPA remains at $2.00 but the LTV falls below $2.00, the companies growth will slow
      • A company can make up the difference with one-time tactics (invested capital or publicity stunts), but those tactics are not sustainable
 

 

Technically, more than one engine of growth can operate in a business at a time
. Successful startups usually focus on just one engine of growth, specialising in everything that is required to make it work. Only after pursuing one engine thoroughly should a startup consider a pivot to one of the others

 

Engines of Growth determine Product/Market Fit

  • Marc Andreessen coined the term product/market fit to describe the moment when a startup finally finds a widespread set of customers that resonate with its product:
    • “In a great market – a market with lots of real potential customers – the market pulls product out of the startup. This is the story of search keyword advertising, Internet auctions, and TCP/IP routers. Conversely, in a terrible market, you can have the best product in the world and an absolutely killer team, and it doesn’t matter – you’re going to fail.”
  • The concept of the engine of growth can put the idea of product/market fit on a more rigorous footing. Since each engine of growth can be defined quantitatively, each has a unique set of metrics that can be used to evaluate whether a startup is on the verge of achieving product/market fit.
  • A startup can evaluate whether it is getting closer to the product/market fit as it tunes its engine by evaluating each trip through the Build-Measure-Learn feedback loop using innovation accounting. What really matters is the direction and degree of progress
 

 

When engines run out

  • Every engine of growth eventually runs out of gas, and is tied to a given set of customers and related habits, preferences, advertising channels, and interconnections. At some point they will be exhausted.
  • Successfully following a strategy of building an MVP in such a way that does not contain additional features beyond what is required by early adopters, will unlock an engine of growth that can reach that target audience.
  • Some unfortunate companies wind up following this strategy inadvertently, because they’re using vanity metrics and traditional accounting, and think they are making progress when they see their numbers growing. They falsely believe they are making their product better when in fact they’re having no impact on customer behaviour.

 

 

11 – ADAPT

Startup failures:

  • Overarchitecture failure: attempting to prevent all the various kinds of problems that could occur would up delaying the company from putting out any product
  • Friendster effect: suffering a high-profile technical failure just when customer adoption is going wild

 

Split-the-difference systematic approach (engage in a little planning but not)

  • If the boss tends to split the difference, the best way to influence the boss and get what you want want is to take the most extreme position possible.
    • If one group is advocating for an extremely lengthy release cycle, say, an annual new product introduction, you might choose to argue for an equally extremely short release cycle (perhaps weekly or even daily), knowing that the two opinions will be averaged out. Then when the difference is split, you’re likely to get an outcome closer to what you actually wanted in the first place.
    • Unfortunately, this kind of arms race escalates. Rivals in another camp are likely to do the same thing.

 

An Adaptive Organisation: One that automatically adjusts its processes and performance to current conditions

 

Can You Go Too Fast?

  • To work, startups require built-in speed regulators that help teams find their optimal pace of work.
    • E.g. Toyota and their use of the Andon Cord: “Stop production so that production never has to stop”
  • You cannot trade quality for time. If you are causing (or missing) quality problems now, the resulting defects will slow you down later. Defects cause a lot of rework, low morale, and customer complaints, all of which slow progress and eat away at valuable resources.
  • Shortcuts taken in product quality, design or infrastructure today may wind up slowing a company down tomorrow.
  • In the instance of shipping a product to customers that was full of bugs, missing features, and bad design, resulting in customers not even trying the product, and most work needs to be thrown away: it’s a good thing we didn’t waste a lot of time fixing those bugs and cleaning up that early version.

 

The Wisdom of the Five Whys

  • To accelerate, Lean Startups need a process that provides a natural feedback loop
  • The Five Whys enable you to make incremental investments and evolve a startup’s processes gradually
  • The core idea of Five Why’s is to tie investments directory to the prevention of the most problematic symptoms. The system takes its name from the investigative method of asking the question “Why?” five times to understand what has happened (the root cause).
  • At the root of every seemingly technical problem is a human problem, and Five Why’s provides an opportunity to discover what that human problem might be.
  • Example by Taiichi Ohno:
    • When confronted with a problem, have you ever stopped and asked whyfive times?
    • If a machine stopped functioning:
      • Why did the machine stop? (There was an overload and the fuse blew)
      • Why was there an overload? (The bearing was not sufficiently lubricated)
      • Why was it not lubricated sufficiently? (The lubrication pump was not pumping sufficiently)
      • Why was it not pumping sufficiently? (The shaft of the pump was worn and rattling)
      • Why was the shaft worn out? (There was no strainer attached and metal scrap got in)
    • Repeating “why” five times, can help uncover the root problem and correct it. If this procedure were not carried through, one might attempt to fix the solution at the first level, in which the problem would recur within a few months. Five Why’s get to the real cause of the problem, which is often hidden behind more obvious symptoms.

 

The goal of Five Whys: To help us see the objective truth that chronic problems are caused by bad process, not bad people, and remedy them accordingly

 

How to use Five Whys analysis to build an adaptive organisation: consistently make a proportional investment at each of the five levels of the hierarchy. (the investment should be smaller when the symptom is minor and larger when the symptom is more painful)

 

Automatic Speed Regulator

  • The Five Whys approach acts as a natural speed regulator. The more problems you have, the more you invest in solutions to those problems. As the investments in infrastructure or process pay off, the severity and number of crises are reduced and the team speeds up again.
  • The Five Whys ties the rate of progress to learning, not just execution. Startup teams should go through the Five Whys whenever they encounter any kind of failure, including technical faults, failures to achieve business results, or unexpected changes in customer behaviour
 

 

The Curse of the Five Blames

  • When the Five Whys approach goes awry, it can be called the Five Blames. Instead of asking why repeatedly in an attempt to understand what went wrong, frustrated teammates start pointing fingers at each other, trying to decide who is at fault.
  • Tactics for escaping the Five Blames:
    • Make sure that everyone affected by the problem is in the room during the analysis of the root cause.
    • The meeting should include anyone who discovered or diagnosed the problem, including customer service representatives who fielded the calls, if possible.
    • It should include anyone who tried to fix the symptom as well as anyone who worked on the subsystems or features involved.
    • If the problem was escalated to senior management, the decision makers who were involved in the escalation should be present as well
  • In a Five Whys analysis, we want to have a systems-level view as much as possible

 

For the Five Whys to work properly, there are rules that must be followed:

  • Be tolerant of all mistakes the first time
  • Never allow the same mistake to be made twice

 

Five Whys is going to turn up unpleasant facts about your organisation, especially at the beginning. It will call for investments in prevention that come at the expense of time and money that could be invested in new products or features

 

Whenever something goes wrong, ask yourself: How could I prevent myself from being in this situation ever again?

 

Start Small, Be Specific

  • Start with a narrowly targeted class of symptoms. When the stakes are high, the Five Whys can devolve into the Five Blames quickly. It’s better to give the team a chance to learn how to do the process first and then expand into higher-stakes areas later
  • The more specific the symptoms are, the easier it will be for everyone to recognise when it’s time to schedule a Five Whys meeting.
  • Pick an easy rule to follow. Don’t pick a rule that is ambiguous.
  • Keep the meetings short and pick relatively simple changes at each of the five levels of the inquiry.
  • As the team gets more comfortable with the process, it can be expanded to include other kinds of problems

 

Appoint a Five Whys Master

  • The Five Whys master is the point person in terms of accountability; he or she is the primary change agent
  • This individual is tasked with being the moderator for each Five Whys meeting, making decisions about which prevention steps to take, and assigning the follow-up work from that meeting.
  • The master must be senior enough to have the authority to ensure that those assignments get done but should not be so senior that he or she will not be able to be present at the meetings because of conflicting responsibilities
  • People in this position can assess how well the meetings are going and whether the prevention investments that are being made are paying off

 

Don’t Send Your Baggage through the Five Whys process

  • To introduce Five Whys to an organisation, it is necessary to hold Five Whys sessions as new problems come up. Since baggage issues are endemic, they naturally come up as part of the Five Whys analysis and you can take that opportunity to fix them incrementally. If they don’t come up organically, maybe they’re not as big as they seem
  • Everyone who is connected to a problem needs to be at the Five Whys session. Many organisations face the temptation to save time by sparing busy people from the root cause analysis. This is a false economy.
  • At the beginning of each Five Whys session, take a few minutes to explain what the process is for and how it works for the benefit of those who are new to it. If possible, use an example of a successful Five Whys session from the past. If you’re brand new, you can use the example about a manager who doesn’t believe in training.
  • Tony Ford, director of engineering at IGN: “Having a Five Whys master is critical in my opinion. Five Whys is easy in theory but difficult in practice, so you need someone who knows it well to shape the sessions for those who don’t”

 

The standard “waterfall” development methodology is a linear, large-batch system that relies for success on proper forecasting and planning. It is completely maladapted for today’s rapidly changing business environment

 

 

12 – INNOVATE

As startups grow, entrepreneurs can build organisations that learn how to balance the needs of existing customers with the challenges of finding new customers to serve, managing existing lines of business, and exploring new business models – all at the same time.

 

If they are willing to change their management philosophy, even established companies can make the shift to what is called portfolio thinking.

 

How to Nurture Disruptive Innovation

  • Structure is merely a prerequisite – it does not guarantee success, but getting the structure wrong can lead to almost certain failure
  • Successful innovation teams must be structured correctly in order to succeed.
  • Venture-backed and bootstrapped startups naturally have some of these structural attributes as a consequence of being small, independent companies.
  • Internal startup teams require support from senior management to create these structures.
  • Internal/External startup teams require three structural attributes:
    • Scarce but secure resources
    • Independent authority to develop their business
    • A personal stake in the outcome

With Startups, too much budget is as harmful as too little, and startups are extremely sensitive to midcourse budgetary changes. Startups are both easier and more demanding to run than traditional divisions, as they require much less capital overall, but that capital must be absolutely secure from tampering

 

Independent Development Authority

  • Startup teams need complete autonomy to develop and market new products within their limited mandate. They have to be able to conceive and execute experiments without having to gain an excessive number of approvals
  • Startups teams should be completely cross-functional, that is, have full-time representation from every functional department in the company that will be involved in the creation or launch of their early products. They have to be able to build and ship actual functioning products and services, not just prototypes.
  • Handoffs and approvals slow down the Build-Measure-Learn feedback loop and inhibit both learning and accountability. Startups require they be kept to an absolute minimum. This level of development autonomy is liable to raise fears in a parent organisation

 

A Personal Stake in the Outcome

  • Entrepreneurs need a personal stake in the outcome of their creations.
    • In stand-alone new ventures, this usually is achieved through stock options or other forms of equity ownership.
    • Where a bonus system must be used instead, the best incentives are tied to the long-term performance of the new innovation
  • A personal stake does not have to be financial: especially in nonprofits/government organisations, where the innovation is not tied to financial objectives. The parent organisation has to make it clear who the innovator is and make sure the innovator receives credit for having brought the new product to life – if it is successful

 

It is important to focus on establishing the ground rules under which autonomous startup teams operate: how to protect the parent organisation, how to hold entrepreneurial managers accountable, and how to reintegrate an innovation back into the parent organisation if it is successful.

 

Protecting the Parent Organisation: Conventionally, advice about internal innovators focuses on protecting the startup from the parent organisation. It is necessary to turn this model on its head

 

The Dangers of Hiding Innovation inside the Black Box

  • Hiding from the parent organisation can have long-term negative consequences
  • From the POV of managers who have innovation spring on them, they are likely to feel betrayed and more than a little paranoid. After all, if something of this magnitude could be hidden, what else is waiting in the shadows?

 

Creating an Innovation Sandbox

  • The challenge here is to create a mechanism for empowering innovation teams out in the open. This is the path toward a sustainable culture of innovation over time as companies face repeated existential threats
  • A good suggestion is to create a sandbox for innovation that will contain the impact of the new innovation but not constrain the methods of the startup team. It works as follows:
    • Any team can create a true split-test experiment that affects on the sandboxed parts of the product or service (for a multipart product) or only certain customer segments or territories (for a new product). However:
    • One team must see the whole experiment through from end to end.
    • No experiment can run longer than a specified amount of time (usually a few weeks for simple feature experiments, longer for more disruptive innovations).
    • No experiment can affect more than a specified number of customers (usually expressed as a percentage of the company’s total mainstream customer base).
    • Every experiment has to be evaluated on the basis of a single standard report of five to ten (no more) actionable metrics.
    • Every team that works inside the sandbox and every product that is built must use the same metrics to evaluate success
    • Any team that creates an experiment must monitor the metrics and customer reactions (support calls, social media reaction, forum threads, etc.) while the experiment is in progress and abort it if something catastrophic happens.
  • At the beginning, the sandbox has to be quite small. Depending on the types of products the company makes, the size of the sandbox can be defined in different ways.
  • Unlike in a concept test or market test, customers in the sandbox are considered real and the innovation team is allowed to attempt to establish a long-term relationship with them. After all, they may be experimenting with those early adopters for a long time before their learning milestones are accomplished
  • Whenever possible, the innovation team should be cross functional and have a clear team leader, like the Toyota shusa. It should be empowered to build, market, and deploy products or features in the sandbox without prior approval. It should be required to report on the success or failure of those efforts by using standard actionable metrics and innovation accounting
    • This approach can work even for teams that have never before worked cross-functionally. Teams that work this way are more productive as long as productivity is measured by their ability to create customer value and not just stay busy.
  • True experiments are easy to classify as successes or failures because top-level metrics either move or they don’t.
    • Either way, the team learns immediately whether its assumptions about how customers will behave are correct.
    • By using the same metrics each time, the team builds literacy about those metrics across the company. Because the innovation team is reporting on its progress by using the system of innovation accounting described in pt.2, anyone who reads those reports is getting an implicit lesson in the power of actionable metrics.
    • This effect is extremely powerful. Even if someone wants to sabotage the innovation team, he or she will have to learn all about actionable metrics and learning milestones to do it.
  • The sandbox also promotes rapid iteration.
    • When people have a chance to see a project through from end to end and the work is done in small batches and delivers a clear verdict quickly, they benefit form the power of feedback. Each time they fail to move the numbers, they have a real opportunity to act on their findings immediately.
    • Thus, these teams tend to converge on optimal solutions rapidly even if they start out with really bad ideas.
  • By making the batch size small, the sandbox method allows teams to make cheap mistakes quickly and start learning

 

Holding Internal Teams Accountable

  • With an internal startup team, the sequence of accountability is the same: build an ideal model of the desired disruption that is based on customer archetypes, launch a MVP to establish a baseline, and then attempt to tune the engine to get it closer to the ideal.
  • Operating in this framework, internal teams essentially act as startups. As they demonstrate success, they need to become integrated into the company’s overall portfolio of products and services

 

Cultivating the Management Portfolio

  • There are four major kinds of work that companies must manage.
    • As an internal startup grows, the entrepreneurs who created the original concept must tackle the challenge of scale.
    • As new mainstream customers are acquired and new markets are conquered, the product becomes part of the public face of the company, with important implications for PR, marketing, sales, and business development. (in most cases, the product will attract competitors: copycats, fast followers, and imitators of all stripes)
    • Once the market for the new product is well established, procedures become more routine.
      • To combat the inevitable commoditisation of the product in its market, line extensions, incremental upgrades, and new forms of marketing are essential.
      • In this phase, operational excellence takes on a greater role, as an important way to increase margins is to lower costs. This may require a different type of manager: one who excels in optimisation, delegation, control, and execution. Company stock prices depend on this kind of predictable growth
    • The fourth phase is the domain of outsourcing, automation, and cost reduction.
      • Infrastructure is still mission-critical. Failure of facilities or important infrastructure or the abandonment of loyal customers could derail the whole company.
      • However, unlike the growth and optimisation phase, investments in this area will not help the company achieve top-line growth.
    • The problem is that employees often follow the products they develop as they move from phase to phase. A common practice is for the inventor of a new product or feature to manage the subsequent resources, team, or division that ultimately commercialises it.
      • As a result, strong creative managers wind up getting stuck working on the growth and optimisation of products rather than creating new ones
      • One of the scarcest resources is talent

 

Entrepreneur is a Job Title

  • The way out of this dilemma is to manage the four kinds of work differently, allowing strong cross-functional teams to develop around each area
    • When products move from phase to phase, they are handed off between teams
    • Employees can choose to move with the product as part of the handoff or stay behind and begin work on something new
    • Neither choice is necessarily right or wrong; it depends on the temperament and skills of the person in question
  • After an entrepreneur has incubated a product in the innovation sandbox, it has to be reintegrated into the parent organisation. A larger team eventually will be needed to grow it, commercialise it, and scale it.
    • At first this team will require the continued leadership of the innovators who worked in the sandbox
    • This gives the innovators a chance to train new team members in the new style of working that they mastered in the original sandbox
  • The sandbox will grow over time, and rather than move the team out of the sandbox and into the company’s standard routines, there may be opportunities to enlarge the scope of the sandbox
  • It’s important that senior management consider whether the teams working in the sandbox can fend for themselves politically in the parent organisation.
    • The sandbox was designed to protect them and the parent organisation, and any expansion needs to take this into account
  • Working in the innovation sandbox is like developing startup muscles
    • At first the team will be able to take on only modest experiments. The earliest experiments may fail to produce much learning and may not lead to scalable success
    • Over time, those teams are almost guaranteed to improve as long as they get the constant feedback of small-batch development and actionable metrics, and are held accountable to learning milestone
  • Any innovation system eventually will become the victim of its own success. As the sandbox expands and the company’s revenue grows as a result of the sandbox’s innovations, the cycle will have to begin again. The former innovators will become guardians of the status quo

 

Becoming the Status Quo

  • Every suggestion should be subjected to the same rigorous scientific inquiry that led to the creation of the Lean Startup in the first place
    • Can we use the theory to predict the results of the proposed change?
    • Can we incubate the change in a small team and see what happens?
    • Can we measure its impact?
  • Those who look to adopt the Lean Startup as a defined set of steps or tactics will not succeed
  • You have to be able to predict the outcome of the changes you make to tell if the problems that result are really problems
  • In a Lean Startup, we want to force teams to work cross-functionally to achieve validated learning
    • Many of the techniques for doing this – actionable metrics, continuous deployment, and the overall Build-Measure-Learn feedback loop – necessarily causes teams to suboptimise for their individual functions.
    • It does not matter how fast we can build, It does not not matter how fast we can measure. What matters is how fast we can get through the entire loop.
  • Ultimately, the Lean Startup is a framework, not a blueprint of steps to follow. It is designed to be adapted to the conditions of each specific company.
    • Rather than copy what others have done, techniques such as Five Whys allows you to build something that is perfectly suited to your company
  • The best way to achieve mastery of and explore these ideas is to embed oneself in a community of practice

 

 

13 – EPILOGUE: WASTE NOT

Lean Manufacturing rediscovered the wisdom and initiative hidden in every factory worker and redirected Frederick Winslow Taylor’s notion of efficiency away from the individual task and toward the corporate organism as a whole.

 

The Lean Startup believes that most forms of waste in innovation are preventable once their causes are understood. All that is required is that we change our collective mindset concerning how this work is done

 

It is insufficient to exhort workers to try harder. Our current problems are caused by trying too hard – at the wrong things

  • By focusing on functional efficiency, we lost sight of the real goal of innovation: to learn which is currently unknown
  • As Deming taught, what matters is not setting quantitative goals, but fixing the method by which those goals can be attained

 

The Lean Startup movement stands for the principle that the scientific method can be brought to bear to answer the most pressing innovation question: How can we build a sustainable organisation around a new set of products or services?

 

In Conclusion: What would an organisation look like if all of its employees were armed with Lean Startup organisational superpowers?

  • Everyone would insist that assumptions be stated explicitly and tested rigorously not as a stalling tactic or a form of make-work, but out of a genuine desire to discover the truth that underlies every project’s vision
  • We would not waste time on endless arguments between the defenders of quality and the cowboys of reckless advance; instead, we would recognise that speed and quality are allies in the pursuit of the customer’s long-term benefit
  • We would race to test our vision but not to abandon it
  • We would look to eliminate waste not to build quality castles in the sky, but in the service of agility and breakthrough business results
  • We would respond to failures and setbacks with honesty and learning, not with recriminations and blame
  • We would shun the impulse to slow down, increase batch size, and indulge in the curse of prevention. Instead we would achieve speed by bypassing the excess work that does not lead to learning.
  • We would dedicate ourselves to the creation of new institutions with a long-term mission to build sustainable value and change the world for the better.
  • Most of all, we would stop wasting people’s time